The owners will have to compensate the tenants if they do not renew their contract

MadridThe Spanish government approved two different royal decrees on Tuesday. One with a very broad battery of measures ranging from limiting the speculative purchase of properties to temporarily suspending some evictions, and another with a single measure: the automatic extension of rental contracts, the main demand of the Tenants' Union, which has been camping at the Puerta del Sol since the weekend —an image that has evoked the 15-M movement—, and of all the left-wing parties. At the same time, it is the decree that hangs most by a thread (it will hardly prosper) due to the mistrust of Junts and the PNV with the approach. However, what is the fine print?

According to the latest version of the decree-law, which will be published this Thursday in the BOE and to which ARA has had access, it is expected that rental contracts will be automatically renewed every five years —seven, in the event that the property owner is a legal entity— unless one of the parties notifies the contrary with a six-month notice (until now it was four months), two in the case of tenants. But if the property owner decides not to renew without a justified cause, they will have the obligation, according to the text, to compensate the tenant with a minimum of twelve monthly payments based on the price reference system.

"The continuity of the contract becomes the rule and its termination an express decision of the landlord that must be adopted at specific moments and well in advance", is stated in the decree.

Exceptions to the compensations

This would be the general forecast provided by the latest version of the decree law, but compensation will not always come into play. There are also exceptions that would allow the owner not to have to make any financial compensation even if the contract is terminated. These would be the following cases:

• When the owner needs the dwelling for themselves or for a second-degree relative or for their spouse in cases of separation, divorce, or annulment.
• When the tenant has not lived in the rented apartment for more than six months in the twelve months prior to the notification, provided that this absence is not for reasons of health, work, studies, or care of family members.
• When the tenant has another dwelling in the same municipality to meet their needs.
• When both parties voluntarily decide to enter into a new habitual residence contract, which must also be for at least five years (or seven if the property is owned by a company or investment fund).
• When the owner can prove vulnerability.

Mandatory extension if there is vulnerability

According to the decree, in cases of proven vulnerability, the tenant may request an automatic one-year extension of the contract without changing the conditions, and it will be mandatory only if the property owner is a large-scale holder.

What happens if notice has already been given?

The new extension does not eliminate those notices of non-renewal of a lease agreement that a landlord has already made before the decree came into force (nor will they have to indemnify). Furthermore, if there are less than six months left before a contract ends, the landlord can communicate the termination with only four months' notice and will not have to compensate. Therefore, it does not have to adapt to the new rule immediately, but rather the situation is respected.

Extensions cannot be accumulated either: if the extraordinary two-year extension from the first decree or the extensions included in the state housing law for stressed areas are established, the automatic extension could not be used until these expire. In fact, the decree reminds that renewal will also be mandatory and cannot be replaced by compensation in the case of properties located in stressed residential market areas. In this case, the tenant may request an extraordinary annual extension for a maximum period of three years, provided that the owner does not need to use the apartment as a permanent residence or for close relatives.

However, decisions not to extend a contract that are adopted from the entry into force of the decree (the day after its publication in the BOE) are automatically subject to the new regime, so that the aim is to "prevent the reform from resulting in early communications to avoid it".

Balance between private property and social function

The Spanish government is aware that private property (in this case, housing) is being placed in the spotlight, but it justifies this by appealing to the fact that the right to property is not eliminated, but rather limited. For this reason, it clings to the Constitution to argue that obligations or limits related to the social function of property can be established. The government recalls in the decree that it is not telling the owner that they cannot terminate the rental contract, but rather that depending on how they do so (for example, by not giving advance notice), they may have to financially compensate the tenant.