The Plenary Session of the Congress of Deputies in Spain has rejected the Royal Decree Law 21/2018, of 14th December, on urgent measures of housing and rent by 241 votes against, 103 votes in favour and 1 abstention.
On 19th December 2018 the reform of the rental market prepared by the Spanish Government of President Pedro Sanchez came into force. The most significant changes in the law affected the prolongation of the duration of lease contracts and deposits. However, the Congress of Deputies has now overthrown this royal decree law by a large majority. Any rental contract signed between these two dates will remain unchanged, i.e. in force, even though Congress has now rejected the measures.
The centre-left government of the PSOE party in Spain has not secured the necessary support in Congress to pass their rental reform law. Particularly notable was the refusal by the far-left Podemos party of the government’s flagship proposal: to limit the price of rent by law.
Faced with the rejection of the royal decree law on rent by the Congress of Deputies, landlords and tenants must know how to act and what the legal duration of lease contracts in Spain is. The rejection of this reform means that after a rental contract finishes, the automatic extension of that agreement, as long as both parties wish it to happen, is subject to certain conditions:
- The rental contract signed during the validity of the royal decree law, that is, since last December 19, will be fully valid since it must respect the will of the parties, as Carmen Giménez, lawyer-owner of the law firm G&G Abogados, reminds us. However, the periods of obligatory extension (if the tenant so wishes) will be 3 years for both individuals and companies and the tacit renewal will be annual.
- If the contract has a duration of 5 or 7 years, this remains unchanged because it is the will of the parties. But, the tacit renewal of three years having been rejected, the renewal period would stay at one year in accordance with the 2013 regulation of the PP Government.
- If the lease is for 1, 2 or 3 years, it is regulated by this same 2013 Law. The tacit renewal would remain in one year.
- However, Carmen Giménez insists that if there is a real will to rent a property, it does not affect the validation or not of the royal decree, because the parties freely establish the term of duration of the contract they agree, and the owner who wants to rent for 5 or 7 years, as provided for by the royal decree, will do so in the contract, after agreement with the tenant, regardless of which legislation is applied, whether the reform of 2013 or 2018.
- In any case, it will be illegal for the owner to want to terminate the contract when a period shorter than that established as a forced extension in the legislation in force has elapsed, if the tenant expresses a desire to continue living in the property because the forced extension is a right of the tenant and an obligation of the landlord. Any term that is longer than that foreseen as compulsory is perfectly valid.
- As the Royal Decree has not been validated in Congress, the Law on the Transfer and Documented Legal Acts Tax (Impuesto de Transmisiones Patrimoniales y Actos Jurídicos Documentados) is not modified either, so the tenant must pay this tax when signing a new rental contract.
Fernando Encinar, Head of Research at idealista, believes that "the result of the vote shows that the decree did not have the consensus of parties, tenants or owners. At the moment, a period of reflection is opening up which should lead us to take measures to increase housing supply, improve the quality of the existing supply and ensure that prices are at reasonable levels."
A critical debate against rental reform
The Minister of Development, José Luis Ábalos, defended before the deputies the necessity of the modification of the rental law before the housing crisis. "It is a first response to the lack of housing policy in recent years. It tries to reverse the 2013 rent reform," he argued without convincing the rest of the House.
Ana María Zurita of the right-wing People’s Party (PP) said, "We consider it to be useless, that it does not solve the problems of social and protected housing, when all the measures affect the free market. They do not respond to the real problem of housing in Spain, which is the shortage of supply and the lack of legal security. The only thing this decree has done in the last month is mean there are fewer and more expensive leases. It has created an absolutely unnecessary mess.”
"Social public housing policy has been a disaster. Only 2.5% of the housing stock in Spain is social housing, but this law does not provide clear solutions to this. We want a public-private partnership, giving legal security to the sector. We have to provide housing solutions at an affordable, well-defined price," said Miguel Angel Garaulet of the Cuidadanos party. "The problem of the lack of social housing only affects 4% of the rental stock in this country, and their solution would affect the whole rental stock in Spain, 4 million individuals who are savers and rent their flats.”
Lucía Martín, from Podemos, showed her disagreement with the text of the regulation and criticized the fact that it was published in full negotiation between the two parties. "They took out this decree that we read for the first time when it was published in the BOE (parliamentary newsletter). It has been an obvious attempt to dilute our agreement and drop many measures that, reluctantly, we managed to get them to accept when we negotiated the Budget. They have refused to modify it so that prices within a single contract could only raise the CPI, or that city councils could limit abusive rent increases."