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Property rental agreements are ruled by the Law 29/1994, of November 24, on Urban Leases (“Ley de Arrendamientos Urbanos” (LAU)). Vacation rental contracts have specific regulations and those for use other than housing (commercial premises, garages …) are referred to the civil code regulations.

The recent reform of the LAU which was approved by Royal Decree-Law 21/2018, of December 14, 2018 was repealed by the Congress of Deputies by Resolution of January 22, 2019. On March 1, 2019, a modification of the LAU was approved by Decree Law 7/2019 (BOE-A-2019-3108) and entered into force on March 6, 2019.

The most significant changes are the following:

  • The duration of a contract is extended from a minimum of 3 years to 5 years if the landlord is an individual and to 7 years if the landlord is a company.
  • The renewal of a new contract, unlike previous ones which were mostly tacit, must be notified by the landlord 4 months in advance or in the case of the tenant 2 months before.
  • the rent increase cannot exceed the annual ICP (Consumer Price Index), so that until the termination of the contract, the lessor cannot increase it freely.
  • Both parties can agree, that, when the landlord makes improvement works to the property, the rent can be increased without signing a new contract.
  • The real estate commission will be paid by the landlord when it is a legal entity.
  • The mandatory deposit continues to be 1 months’ rent; however, the additional guarantees are limited to 2 months’ rent.
  • If the landlord wants to request the property for his own or family needs, he must inform the tenant at least two months before the date on which the property will be needed, stating the reason/s. The tenant will be obliged to hand over the leased property within that period, if the parties do not reach a different agreement.
  • In case of sale of the property, the tenant will have the option to buy it, matching the buyer’s offer. If it is sold to a third party, the new owner will have to assume the conditions of the existing contract.
  • The reform establishes a right of pre-emption and retraction for the Public Administration in case of sale of entire residential blocks to investment funds.
  • Tourist/Holiday rentals are excluded from the Urban Leasing Law and are regulated by sectorial tourist regulations. Communities of owners can limit or condition from now on tourist rentals with a favourable vote of 3/5. With the same majority the community can approve that tourist rental properties pay a surcharge or special quotas, provided that these modifications do not imply an increase of more than 20%. These new measures cannot be applied retroactively.