Law 12/2023 of 24th May 2023 (a modification of Rental Law)

Posted in: Civil Law

Not content with numerous changes in rental and housing law in recent years the Spanish government has introduced 12/2023 of 24th May (in force since 26th May 2023), which is another modification of rental law.

Main Aspects of the New Law

Most of the new law does not affect our clients as it predominantly covers two themes. These are “Stressed housing areas” (areas where there are a number of economically vulnerable people). And also “Large Holders” (a previously introduced term for landlords with more than 10 properties for residential use, or 5 in stressed housing areas). Stressed areas are decided by local Town halls.

However, it does possibly affect some of our clients (particularly if considering a new letting) as there are new regulations related to rentals. These affect the time periods of the contracts, rent increases and other issues. The law also amends Law 1/2000, of 7 January, (Civil Proceedings) covering repossessions in Spain. The changes affect repossessions, foreclosure procedures and auctions. They are not covered in this article but if you are in a situation whereby you need advice we are experienced in property litigation.

Modification of Rental Law – Time Period

As a recap, one of the important recent Urban lease laws (Law 29/1994, of 24 November) introduced some important changes. Firstly, that when a property is rented out, as long as the tenant is paying utilities and rent in line with the contract, the contract is automatically (or mandatorily) extended each year for up to a minimum of 5 years. Unless both parties agree to end it. At the end of this period, if neither party gives notice to end the contract, it is renewed yearly up to a maximum of 3 years.

Now, with this new Urban lease law, at the end of both of the 5 year period and the possible 3 year extension period, a further 1 by 3 years (depends on the stressed area) can be given to tenants who are seen as vulnerable. The tenant can request this.

If you are in a position whereby your tenant has requested or insisted on any extension by law please refer to our team for advice. Rental law is now a minefield and landlords should engage lawyers to prepare and check contracts.

Remember, if a new contract has been signed each year or an amended contract, then the landlord needs to be careful. Modifications should really be prepared by a lawyer as could be seen as beginning the imposed 5 year rental period again. Thus the beginning of the possible further extensions also. But problems only arise when the tenants do not want to move.

Landlord Moving Back In

Landlords need to bear in mind at the outset that a contract must contain a clause to allow them to give notice to move back into their property. This would be at the end of the mandatory 5 years. (Unless both parties agree to ending the contract prior to this). If they or their relatives wish to move back in, they can use that clause if legal conditions are adhered to. Refer to us for advice, and for this, again it is important to have all rental contracts prepared or reviewed by a lawyer.

Modification of new Rental Law – Rent Increases

Firstly, and very importantly, please note that with this new law, rent can no longer be paid by cash but must be paid electronically. Secondly, costs of property management and preparation of a contract must be paid by the landlord. Lastly, there are changes to possible rent increases in a contract.

Rent increases until now have been set at a maximum of the retail price index in Spain. From now, this is now abolished. However, there will be a new index limit set by the government to control rent increases. In the meantime, in 2023 a maximum rent increase of up to 2% is permitted. In 2024 a maximum of up to 3% is permitted.

As a reminder, an initial contract should always include a clause regarding rent increases and future changes. There can be a change to the rent increase clause if both parties agree (and it is in line with the law). It is important that when modified the amendment of the contract states that just that clause is being modified. That it has no bearing on the rest of the contract, so as to not initiate a new time period.

Aside from this, in the new law there are some exceptions for rent increases. These are for new contracts with a minimum time period of up to 10 years for the tenant. Rent increases of up to 10% can be allowed in this case. Particularly if there have been certain renovations to the property (such as relating to energy savings). For advice on both this aspect and also on some new personal tax reductions introduced for rentals, clients should talk to their accountant.

Summary of Modifications to Rental law

As clients can see, we have come a long way from the old days of “11 month contracts”. Several new housing/rental laws in the past years have changed the rental landscape in Spain. This further one makes some important modifications to rental law. Clients and agents should ensure their rental contracts are up to date and that legal implications are fully understood. Please refer to us for any advice on both preparation and modifying rental contracts and also tenant evictions.