Urban Lease Law in Spain: everything you need to know

The spanish Urban Lease Law (LAU) governs and protects the leasing industry. Nevertheless, amendments have been made that affect all new lease agreements that have been drawn up since then. Below is a rundown of the new 2023 Urban Lease Law and what requirements you need to comply with.

What is the Urban Lease Law?

In accordance with the 2023 Urban Lease Law, an urban lease is a contract whose purpose is to set forth the assignment of the use of a property in exchange for a rent. This means that the lessor charges the lessee a fee and, in return, allows the lessee to use the property. Bear in mind that it doesn’t have to be a house; it could be a shop, a storage room, a garage, etc.

Therefore, the law, known as 2023 Urban Lease Law, governs the use and application of lease agreements, as well as setting forth the responsibilities, obligations and rights of the parties for the duration of the contract. However, this regulation was already in force before 2023.

Developments in the 2023 Urban Lease Law

This spanish Urban Lease Law (publicised in the Official State Gazette) was first published in 1964 and, since then, has undergone a number of amendments. Below is a rundown of the latest amendments made to this new lease law in 2023.

Extension of the minimum lease period

The latest amendment made to article 9 of the Urban Lease Law has increased the minimum obligatory lease period of the agreement to five years. On the other hand, a tactical extension of three years is triggered for natural persons only if both parties want to renew it. Should the owner be a legal entity, the minimum duration of the agreement shall be seven years.

Duration of the rental agreement.

The new 2023 Urban Lease Law allows you to freely set the duration of the contract. This means that, if you wish to enter into a one-year agreement, you can do so. Nevertheless, bear in mind that, after this year, the contractual relationship is upheld. Therefore, an extension is automatically triggered, unless one of the parties indicates that it wishes to terminate the contract, but this must be done in advance of the stipulated renewal date.

It’s important to bear in mind that four months’ advance notice must be given to the lessor and two months advance notice must be given to the lessee with regard to terminating the agreement. If neither party expresses a desire to terminate the agreement, the agreement shall be automatically renewed for five to seven years from the date on which this agreement is entered into.

Early termination of the contract

After six months, if the lessee wishes to terminate the lease agreement, he/she must give the lessor at least 30 days’ notice. However, bear in mind that lease agreements usually include compensation to the lessor in the event that the lessee doesn’t comply with the term set forth therein. This amount is mutually agreed between the parties.

On the other hand, the lessor may wish to reclaim his/her property during the first year of the agreement and can do so. Nevertheless, if the property isn’t occupied within three months, the lessee has the right to move back into the property or claim compensation.

If the lessor wishes to terminate the lease, the new Urban Lease Law states that he/she can do so if any of the following cases arise:

• The lessee doesn’t pay the corresponding rent.
• Unlawful or irritating activities are carried out on the property.
• Construction work has been carried out without obtaining prior permission.
• The lessee has subleased a room.
• The property is used in a way that is different to that set forth in the contract.
• Needs to use the home for himself/herself or for his/her descendants, as long as there is a judgment in place. For example, in the event of divorce.

Sharing of costs

All costs of formalising and processing the agreement shall be borne by the lessor. The 2023 Urban Lease Law sets forth that the lessor shall bear the costs of the utilities, but also the cost of maintenance or repairs due to the wear and tear of the property over time.

On the other hand, the lessee shall bear the cost of damage to the property due to misuse and all matters relating to normal maintenance thereof.

Rental price limits

The 2023 Urban Lease Law sets forth that, even if both parties agree on the rental amount, if the lessor wants to change the price at a later date, this can only be done so once one year has elapsed from the date on which the agreement is entered into. As well as this, it may not exceed the result of applying the percentage variation of the Consumer Price Index (CPI).