And no, it does not affect the duration of contracts or the limitation of guarantees
It has only annulled, on the grounds of its unconstitutional nature, an additional provision of the Royal Decree Law, which regulated housing rental contracts. A ruling partially upholds the appeal lodged by the Partido Popular, which questioned the “extraordinary and urgent need” for the measures adopted by the Executive, and specifically has annulled the first additional provision of that decree law, which has so far provided for the mobilization of public land to promote social rental housing. The ruling has been unanimously approved by the judges.
This point was precisely one of the star promises of this government, which went so far as to promise the transfer of this land to private companies so that they could build and operate for 50 years some 20,000 homes for rent at affordable prices.
The High Court entrusted the Ministry with “a set of actions to be carried out, including negotiation with the sectorially competent administrations, using for this purpose all the instruments at its disposal”, as stated in the Official State Bulletin (BOE). It is true that the Constitutional Court has not assessed the merits of the measure that has been annulled, but has simply rejected its approval by decree law as it is neither extraordinary nor urgent.
Therefore, the rest of the measures approved in the decree law on housing rent have been declared constitutional by the Court of Guarantees.
It should be recalled that this decree was adopted in March 2019 and, among other things, the idea of creating a rental price reference index to control rent increases is still under way. The following points are also still in force:
For the part of the reform of the Urban Leasing Law (LAU) that affects contracts:
The period of obligatory extension of rental contracts is extended from three (3) to five (5) years, and the tacit extension will be extended from one (1) to three (3) years for individuals, in the event that the lessor or the lessee does not express their will not to renew it.
In the case that the lessor is a legal entity, it will be seven (7) years of mandatory contract and three (3) of tacit.
The increase of the annual rent will be linked to the CPI during the duration of the contract (5 years).
Additional guarantees to the deposit (one month) are limited to two (2) months of rent, except in the case of long term contracts.
In order to terminate the contract, once the expiration date of the contract or any of its extensions has arrived, and after at least 5 years if the lessor is a natural person, or 7 years if it is a legal person, the lessor must communicate to the tenant, his willingness not to renew it, with at least four (4) months notice. If it is the tenant who wants to leave, he must give two (2) months’ notice.
Otherwise, the contract will be obligatorily extended for annual periods up to a maximum of three more years, unless the tenant expresses to the landlord, one month before the date of termination of any of the annuities, his will not to renew the contract.
The power of recovery of the property by the owner to terminate the contract early must be expressly stated in the contract – as if he needs it for his usual residence, his children or spouse if the family circumstances change.
The buyer of a rental property must respect the contract in force, whether or not it is registered in the Property Registry.
If there is an agreement between the owner and the tenant, improvement work can be carried out on the property without the need to sign a new contract.
The expenses of real estate management and of formalization of the contract will be in charge of the landlord, whenever he is a legal person.
For the part of tax benefits:
Town and City Councils are entitled to establish a discount of up to 95% on the IBI rate for homes subject to renting at a limited price. That is to say, it is a bonus for the individual who has a subsidized housing and decides to rent it out, but at a price limited by the corresponding City Hall or Autonomous Region.
Exemption from Transfer Tax and Stamp Duty is established for the signing of rental contracts for housing for stable and permanent use. In other words, the payment of Transfer Tax by the tenant in any Autonomous Region is eliminated.