The Spanish government will force landlords to compensate tenants if they do not renew their contract

MadridThe Spanish government approved two different royal decrees this Tuesday. One with a very broad battery of measures to limit speculative buying and suspend evictions, and another with a single measure: the automatic renewal of rental contracts, the main demand of the Tenants' Union that is camping at the Puerta del Sol and all the left-wing parties. 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 six months' notice. However, if the property owner decides not to renew without a justified cause, they will be obligated, according to the text, to indemnify the tenant with a minimum of twelve monthly payments based on the price reference system.

"If, upon the expiration date of the habitual residence lease contract, or any of its extensions, including voluntary ones and those regulated by law, at least five years of its duration have elapsed, or seven years if the lessor is a legal entity, neither of the parties has notified the other, at least six months in advance of that date in the case of the lessor and at least two months in advance in the case of the lessee, of their will not to renew it, the contract will be compulsorily extended for successive periods of five years, or seven years if the lessor is a legal entity. In cases where the lessor validly communicates the will not to renew the contract in accordance with the previous paragraph, they shall be obligated to indemnify the lessee with an amount equivalent, at least, to the value of twelve monthly rent payments for a dwelling with characteristics analogous to the rented one".

This would be the general provision foreseen by the latest version of the decree law, but not in all cases. 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 assumptions:

• When the owner needs the dwelling to "allocate it for permanent housing or for their second-degree relatives or for the spouse in cases of a final separation judgment".
• When the tenant has not occupied the rented apartment for more than six months in the twelve months prior to the notification, provided that this absence is not due to health, work, studies, or family care reasons.
• When the tenant has another dwelling in the same municipality to meet their needs as a full-rights owner.
• When both parties, voluntarily, decide to enter into a new habitual residence contract, which must also be for at least five years.
• When in any other circumstance the vulnerability of the owner is proven in an accredited manner.

Mandatory extension if there is vulnerability or tight market

According to the decree, in cases of proven vulnerability, the tenant may request an automatic one-year extension of the contract, which shall be mandatory if the property owner is a large holder. The 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 for themselves or their close relatives.