New reform of the matter on housing and rent following Royal Decree-Law 7/2019 of 1 March – Will it be a definitive reform?

New reform of the matter on housing and rent following Royal Decree-Law 7/2019 of 1 March – Will it be a definitive reform?

The Spanish Government has approved a new Royal Decree-Law that incorporates essential novelties in the field of housing and rent, such as the duration of lease contracts, the method of updating the lease and the limitation of additional guarantees to the deposit. However, it will be necessary to determine whether or not it is ratified by the Congress of Deputies (currently the Permanent Commission), given that if it is not validated it will be repealed and the regulations in force, prior to the entry into force of the Royal Decree-Law would be applied again.

After two and a half months from the publication of Royal Decree-Law 21/2018 of 14 December, which was finally repealed by the Congress of Deputies, the Spanish Government attempts once again to regulate the matter of housing and lease through the new Royal Decree-Law 7/2019 of 1 March.

This last rule entered into force on March 6, 2019 and will be finally validated or repealed in the next 30 days by the Congress of Deputies (in this case the Permanent Commission).

Lease contracts entered into prior to the entry into force of this rule shall continue to be governed by the regulations in force on the date of their conclusion. However, the Royal Decree-Law allows the parties to agree that pre-existing contracts are also governed by it, that is to say, it is as if it were a contract entered into after the entry into force of the Royal Decree-Law.

In summary, the most significant novelties included in this rule revolve around the following points:

1.- Law on Urban Leases (LAU)

As already established in the last Royal Decree-Law, leases considered sumptuous are excluded from the scope of the LAU. Sumptuous leases are those leases on a dwelling whose surface area exceeds 300 m2 or in which the initial annual computed rent exceeds 5.5 times the minimum annual computed interprofessional wage. This type of lease are regulated by the will of the parties and supplemented by the Civil Code.

Likewise, also as happened in the last Royal Decree-Law, leases called “for tourist use” are excluded from the regulation of the LAU. These will be regulated by their specific regulations, which vary in each Autonomous Community.

On the one hand, another similarity to the last Royal Decree-Law is the regulation on the duration of lease contracts. Thus, the term of the obligatory extension is again extended to 5 years (7 years if the lessor is a legal entity). In other words, if a period of less than the mandatory extension has been agreed upon, once this period of agreed duration has expired and the lessee does not express his will to terminate the contract, the lessor is obliged to bear the annual extensions until the 5 or 7 years have elapsed. It should be borne in mind that the term will begin to run from the date of the contract or from the time the property is available for the lessee, if this is later.

On the other hand, the period of the tacit extension is also extended again. The lay establishes that once the mandatory extension period (5 or 7 years) has been completed and neither of the two parties has expressed their will not to renew the lease, it will automatically be extended for annual terms up to a maximum of three more years.

Another important aspect of this Royal Decree-Law is the lease discounting method. The lease will be updated in the terms agreed by the parties. However, in any case, such increase may not exceed the result of applying the percentage variation of the Consumer Price Index at the date of each update.

As for the deposit, a cash amount equivalent to one month’s rent is established. Likewise, the parties may agree on any type of additional guarantee to the deposit, however, it may not exceed two monthly rent payments.

2.- Horizontal Property Law

A qualified majority is re-established so that the community of owners can limit or condition the exercise of the tourist rental activity. This requires the favourable vote of three fifths of the total number of owners who, in turn, represent three fifths of the total share quotas.

3.- Law of Civil Procedure

In the event of eviction, the defendant shall be informed of the possibility of resorting to social services. At the same time, the existence of the procedure will be communicated ex officio by the Court to the social services. If the social services confirm that the household is in a situation of social and/or economic vulnerability, the judicial body will be informed and the process will be suspended until the measures deemed appropriate by the social services are adopted. The maximum period of suspension will be of one month or three months if the plaintiff is a legal entity. Once the measures have been adopted or the maximum period has elapsed, the suspension will be lifted and the procedure will continue.

4.- Law on Transfer Tax and Documented Legal Acts

As in the last Royal Decree-Law, there is an exemption when signing contract leases of housing for stable and permanent use.

5.- State system of reference indexes of the price of rented housing

 In order to ensure transparency and knowledge of the housing rental market, as well as to implement public policies that increase the supply of affordable housing and to facilitate the implementation of fiscal policy measures, a State system of housing rental price benchmarks is created as reference.

This system will be elaborated within eight months by the general administration of the State and will use, among others, data from the State Agency of the Tax Administration, the Cadaster, the Land Registry and the administrative registers of bond deposits (in Catalonia INCASOL).

 Final considerations

 The duration of the validity of this Royal Decree-Law will depend on the decision taken by the Permanent Commission of the Congress of Deputies in the following 30 days. It may be validated and continue in force or, on the contrary, be repealed, as was the case with the last Royal Decree-Law.

Regardless of whether or not it is validated, lease contracts entered into during its term are fully valid.

In Catalonia, rental prices have gradually risen over the last five years, especially in Barcelona, where they have risen by almost 40%. One of the reasons why the Royal Decree-Law was approved is to try to contain this continuous increase of prices with the intention of giving more stability to the Spanish leasing market.

Given that we are facing a substantial legal reform of various regulatory bodies, which have a significant impact on leasing contracts signed from 6 March (and, where appropriate, pre-existing contracts, if there is agreement between the parties), we recommend that both lessors and lessees are adequately informed about this new regulation before entering into a new lease contract.

Marinel-lo @ Partners