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1st Section: Rent and Lease

1.1 Rental and lease contracts

1.1.1 General statutory regulations

The basic regulation on letting property set out in the Spanish Civil Code (Codigo Civil) has been replaced by the “Law on municipal tenancy” (Ley 29/1994 de Arrendamientos Urbanos) hereafter LAU, which came into effect in 1995. The LAU differentiates between rental contracts for residential purposes and those for other purposes (e.g. commercial tenancy, seasonal rentals). The legislation is, on many points, difficult to summarise, such as the rules on the duration of a rental contract. The following is a general outline on rental and lease agreements. For information regarding a specific matter, you are urged to seek legal advice.

There is no legislation in Spanish law specific to lease contracts. However these contracts do exist as a hybrid form of “arrendamiento de industria”. Even though lease contracts are not specifically covered by the LAU, the following description covers both rental and lease, although the emphasis here is on residential rental contracts.

1.1.2 Rental contract, term, rent

Although an informal rental contract is enforceable, even one concluded orally, each contractual party can request the other to formulate the rental contract in writing. Indeed this is highly recommended as the execution by a public notary of the contract has the advantage that the contract can then be entered in the Property Registry. This grants the tenant greater protection.

The term of the rental contract is freely negotiable; however there are special rules in the case of rental contracts for residential purposes (although not in the case of seasonal rentals). The issue of the duration of the tenancy in the case of residential property contracts is an essential part of Spanish legislation. In the case of rental contracts of less than five years duration, the law automatically allows the tenancy to be extended (with no action on the part of either party) for a year at a time, up to a total of five years. Only the tenant can avoid the renewal of the contract by giving notice 30 days before it comes into effect and formally refusing this default extension.

The result, in practice, is that the standard contract most commonly used (Contrato de arrendamiento de fincas urbanas) allows, on the one hand, the freedom to agree a duration for the contract but, on the other hand, makes it clear that any agreement reached cannot be to the detriment of the tenant. Even if the parties agree something different in the contract, the aforementioned mechanism of automatic renewal will be applied. Exceptions will only be upheld in the case of repossession for personal use where such an exception already existed.

After five years, there is the possibility of an extension of 3 years.

If the parties never agree a specific term, a minimum duration of one year is presumed, which is extended automatically for a further year in the manner detailed above.

The rent is also freely negotiable. During the first five years, it may be increased in line with the Spanish retail price index (IPC) and from the sixth year of tenancy, the parties can agree on other methods of adjustment. An increase in rent is also possible where improvements have been carried out but only after the initial five years have passed and then the increase may not exceed 20% of the total rent. In cases where the improvements affect several properties in a building subject to the Law on the horizontal division of property (Ley de propiedad horizontal) hereafter LPH, costs will be distributed proportionally.

There is a duty to pay the rent within the first 7 days of the month. The landlord cannot in any circumstances ask for more than one month’s rent in advance.

The payment of a deposit (fianza) is mandatory. It may not exceed one month’s rent for the letting of residential property and two in the case of rental contracts for other purposes. The landlord can be obliged under local legislation to lodge the deposit with a specific public body. The deposit does not increase during the five-year rental contract and is repaid without interest (unless the landlord delays in repaying it). Further guarantees may be agreed upon but are not obligatory.