Rental law for a property purchase in Spain.

The Spanish rental law LAU

Not until the Spanish rental law amended in November 1994 (“Ley de Arrendamiento Urbano – LAU”) was a development on the Spanish rental market possible. A rental prior to that date frequently equated to a dispossession of the owner. Many Spaniards are thus still skeptical of a rental of their property, which is why many properties are empty, particularly on the Spanish mainland.

Contractual terms

A standard Spanish contract is concluded for the period of one year. Unless the lessee terminates such contract with a 30-day notice period to its annual fulfillment, this may be annually renewed for up to a maximum of four years. After the term of lease totaling five-years has expired, should the lesser not terminate the contract either, the latter may be renewed for up to a maximum of three more years. A new contract needs to then be concluded between the parties.

The obligatory renewal of the lease contract for up to a total of five years should however not be applied to all properties. So-called luxury properties may be excluded from this and the parties may freely determine the term of lease. Under certain circumstances, which have to be reviewed very precisely, special clauses or the selection of a seasonal lease contract may also prevent an automatic renewal of the contract.

Here it is — contrary to what is commonly incorrectly assumed — irrelevant whether the contract has a maximum contractual period of 11 months. Often these so-called 11 months contracts even mean that the contract can be extended against the desire of the owner for up to five years.

Rent deposit and guarantees

When leasing residential properties the Spanish rental law provides for only one month’s rent. However, in practice, two months’ rent is usually requested as a security against damages to the rental object. However, this amount may also be considerably higher for luxury properties. Payment of interest on the amount is rather unusual. The Spanish law does not permit a “living off” of the rent deposit in the last months of the term of lease. In so doing the lessee even makes himself liable to prosecution, with serious consequences being the possible result. However, the lessee is not powerless, should he fear that the lesser is unjustifiably withholding the rent deposit. A lawyer can provide the correct assistance in this instance, with the outstanding rental payments frequently then being deposited with a notary public, after prior notification of the lesser, until the parties have agreed on a solution.

In many cases the owner also requests a Spanish bank guarantee (“aval”) from the lessee to hedge the monthly rental payment. For a non-resident, who cannot demonstrate any bank history whatsoever with the local institutions, this means that the relevant amount is frozen on the account. The only advantage of this procedure is that interest is paid on the relevant amount. As a fee is incurred when creating guaranties and the latter also causes monthly costs, many rental parties agree to an advance payment of the rent, in order to avoid costs and bureaucracy.

Frequently an arbitration contract, concluded in addition to the rental contract, suffices in order to guarantee the contractual agreements on both sides. In this arbitration contract both parties agree to acknowledge the judgment of an arbitration court. This has an immense advantage with regard to cost and time saving, as the courts are sometimes very overtaxed and valuable time is lost before a hearing date is set. The important thing for the lessee is that he has exactly the same right to avail himself of the services of the arbitration court as the lesser has.

Rent increase

Unlike in many European countries, in standard contracts Spanish rental law provides solely for the rent to increase annually by the inflation rate (IPC). This is published every year by the national statistical institute and is easy to research on the Internet. The rent increase requires a written notification on the part of the lesser.

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