Corporate/Litigation Updates 2-2013

June 5, 2013 saw the publication in the Official State Gazette (BOE) of Law 4/2013, of June 4, 2013, on measures to increase the flexibility of and promote the housing rental market (the “Law”), the overriding aim of which is to make the rental market more flexible and thus meet the need to make it more dynamic, by seeking to strike the necessary balance between the need for rented accommodation and the safeguards to be offered to lessors in order to make such accommodation available on the rental market.

In order to meet the above mentioned aim, the following key aspects of Urban Leasehold Law 29/1994, of November 24, 1994 (the “LAU”) have been amended: (i) the applicable legal regime, strengthening freedom of contract and giving priority to the autonomy of the parties; (ii) the term of the lease, reducing the mandatory extension from five to three years and the implied extension from three years to one year; (iii) the circumstances in which the property can be recovered by the lessor for use as permanent residence; and (iv) the establishment of a break clause in favor of the lessee after the initial six months of the term of the agreement have elapsed and at least thirty days’ advance notice is given to the lessor.

Moreover, the Law sets in place a different legal regime for leases depending on whether or not they have been registered at the Property Registry, meaning that: (i) unregistered leases of urban properties cannot be effective against third-party purchasers registering their rights; and (ii) any third party buying a residential property that meets the requirements laid down in article 34 of the Mortgage Law cannot be adversely affected by the existence of an unregistered lease.

Furthermore, in order to protect the quality of tourist destinations, in view of the significant increase in the use of private accommodation for tourism, which may be concealing unauthorized lettings or unfair competition, the reform specifically excludes this type of leasehold arrangement, which is governed by industry-specific legislation or, failing that, the regime governing seasonal leases.

Moreover, so as to tackle more ad hoc issues giving rise to problems in eviction proceedings, an amendment has been made to Civil Procedure Law 1/2000, of January 7, 2000, (the “LEC”), making eviction conditional on the absence of opposition by the defendant. Meaning that, should the defendant fail to attend the payment demand or appear to contest or settle, the court clerk will make an order deeming the case to have ended and the eviction will take place.

We now look in more detail at these amendments.

1. AMENDMENTS TO URBAN LEASEHOLD LAW 29/1994, OF NOVEMBER 24, 1994

2. REGULATION OF THE EFFECTS OF REGISTRATION OF LEASE AGREEMENTS AT THE PROPERTY REGISTRY

3. AMENDMENTS TO CIVIL PROCEDURAL LAW 1/2000, OF JANUARY 7, 2000

4. OTHER AMENDMENTS

5. ENTRY INTO FORCE