The purpose of this article is to provide information about the main provisions introduced by the recent reform of the Urban Leases Act (LAU).
On March 1st, 2019, the Government approved the Royal Decree-law 7/2019 on urgent measures in housing and rent, which came into force on March 6th.
As expressed in the explanatory memorandum of the aforementioned Royal Decree-law, the spirit of this new legal text is to achieve greater legal certainty in leasing legislation and to balance between the lessor and the lessee.
All urban property leases that are signed on or after 6th March 2019 (inclusive) are subject to the new LAU regime, whose main developments are the following:
1) Duration: This is a key change of this Royal Decree-law; the minimum duration of housing leases is 5 years (previously 3 years), unless the lessor is a legal entity, in which case the minimum duration shall be 7 years.
2) Rent: The parties can freely agree on the rent. However, it is expected that the aforementioned Royal Decree-law will establish reference indices of the price of housing rental that will have to be ready by November 2019. In this respect, it is important to analyse in detail the regulations that could be developed in each autonomous community, because some, as the Catalan, plan to limit the price of rental. For instance, in Catalonia plan give the option to the Barcelona City Hall to do the same in general or in the neighbourhoods considered a “tense market area”.
3) Updating: It is only possible if it has been expressly agreed in the contract and will be subject to limitations, due to the fact that it will not be possible to increase the rent more than annual variation of Consumer Price Index (IPC).
4) Additional guarantee (apart from the legal guarantee so-called “fianza”): For contracts of up to 5 years’ duration, or up to 7 years if the lessor is a legal entity, the value of the additional guarantee may not exceed 2 monthly income payments. This is also a key change of this Royal Decree-law as it is the first time there is a limit for such additional guarantee.
5) Expenses: Real estate management costs and contract formalisation costs will be assumed by the lessor when the lessor is a legal entity.
6) Tax exemption: Leases of housing for stable and permanent use of the tenant are exempted from the payment of the Transfer Tax and Stamp Duty (“Impuesto sobre Transmisiones y Actos Jurídicos Documentados”).
In this article we have highlighted the main provisions introduced by the recent LAU reform. If you have any questions, you can use the contact area on our website to ask our team of specialist lawyers. We will be delighted to assist you.