The “merry-go-round” of Spain’s real estate laws

In the last 4 months the Residential Tenancies Act has been on a merry-go-round of change, due to the political battle in which we find ourselves in Spain.

So what has happened to the Residential Tenancies Act in recent months?

On 19 December 2018, the rental market reform was put into effect by Pedro Sanchez’s government. The most significant changes with respect to the existing law (established by the PP in 2013), affected the duration of rental contracts, and security deposits.

However, on 22 January 2019 the reform was repealed by a large majority in Congress, showing Podemos’ opposition, after failing to achieve the limitation by law of rental prices. The opposition repealed the reform because they claim it wouldn't solve Spain’s real problem; the shortage of supply and the lack of legal security.

But… “Has it managed to stop the cart?” What has the government done following the repeal of its reform?

On 1 March 2019, facing the block of its reform, the government reacted rapidly and achieved approval of a new legislation by the Council of Ministers. While this doesn't incorporate the regulation of prices as demanded by Podemos, it does move towards providing more security for the tenant.

Key points regarding the new Residential Tenancies Act

1. Change of the minimum contract duration: extended from 3 to 5 years between physical people, and 7 years if the landlord is a legal entity.

2. The rental price will be updated according to a price index which each autonomous region^[1] shall use as a basis for development, or alternatively use that of the state.

3. It extends tacit renewal, meaning the automatic renewal period if neither party notifies the other before the end of the contract.  This goes from one to three years. 

4. The landlord must formally notify the tenant 4 months in advance (instead of 1 month), if the existing contract is not going to be renewed.

5. The tenant must provide the landlord with 2 months’ notice (instead of one), when wanting to terminate the contract.

6. The security deposit may not exceed 3 months’ rent. One month’s rent can be charged as a security deposit and a further 2 months’ rent as an additional guarantee.

7. “Open” evictions (without a fixed date and time) are no longer allowed; from now on judges must set, and communicate to social services, the exact time and date of the eviction.

8. The costs of real estate management and administration are now to be borne by the landlord when this is a legal entity.

And… What else is Pedro Sanchez’s government proposing?

1. The possibility that local governments may award tax credits of up to 95% of the property tax (IBI) to owners of state subsidised apartments who decide to rent their homes.

2. The penalisation of vacant housing: empowering local governments to tax vacant properties, with the aim of increasing the pool of available housing.^[2]  

3. The protection of families renting an apartment that is being sold: the buyer of a property is obliged to respect the rental contract.

4. Greater control over tourist apartments: with the negative vote of 3/5 of the proprietors, the construction of new tourist apartments can now be blocked. 

Which regulations govern contracts signed between 19/12/2008 and 22/01/2019?

Any contract signed between these dates will remain in force, even though Congress has rejected the measures. The website Idealista has summarised the effects of this transience here.

In view of how the instability of the ice cream cart is brought about by uncertainty, we worry that the homeowner doesn't feel secure and protected by the new Residential Tenancies Act, as it hasn’t brought any changes which offer more protection to the landlord.

So what could be the impact of this Act? Will there be less supply and higher prices?

If landlords were confident and protected by a stable law (without so much see-sawing), unafraid that it might disappear round the corner like the ice cream cart, then surely there would be a greater supply of housing, prices would stabilise and be more competitive for the tenant.

Better than an ice cream cart, what both the landlord and the tenant really need is a bona fide ICECREAM PALOUR, where the day of the month doesn’t affect the flavour and there is no doubt that it will be there, should they need it.

We need clients who feel safe; “good decisions are never made in fear”.