Penalty for early termination in the Spanish tenancy agreements

Law 4/2013, on measures for the flexibility and promotion of the housing rental market, introduced, for housing leases entered into after 6 June 2013, a power of early termination by the tenant once the first six months of the contract have elapsed, as set out in Article 11 LAU.

Despite the subsequent reforms (2018 and 2019) that partially recovered the previous regime via Decree-Law, this power of withdrawal has been maintained, so we can affirm that no tenant is obliged to comply with a term of more than 6 months.

The clauses that oblige the lessee to a minimum duration of one year are null and void: the lessee may always withdraw after 6 months.

This means that, regardless of the period established in the contract, or whether the contract expressly reflects it or not, the tenant of a property can leave the property without the need for any cause, only by giving the landlord 30 days' notice of the date on which he/she leaves the property, provided that the property is left after the first 6 months have elapsed.

We have already dealt with the subject of termination of the lease in several previous posts, but in this post we would like to focus on the compensation for termination that the lessor can demand in accordance with the Law.

Termination in the first six months

As we have already pointed out, article 11 LAU allows the tenant to withdraw from the contract once the first six months have elapsed, but... what happens if the tenant wants to leave before the six months have elapsed?

If the tenant leaves before six months have elapsed, the landlord can demand that the tenant pay, as compensation for termination, the rents until the six months have elapsed.

Given that the Law only recognises this possibility of termination once the first 6 months have elapsed, it is understood that this is a minimum period that must be complied with by the lessee, so that if the lessor wishes to terminate earlier, he can demand that the lessee pay him the rents for the whole of the remaining period up to 6 months, in a single payment.

Termination after the first six months have elapsed

After the first six months have elapsed, the tenant is in any case entitled to terminate the tenancy at any time, subject to at least 30 days' notice.

The landlord may not limit in the contract the tenant's right to terminate the tenancy after the first six months have elapsed.

It is important to point out that this regulation is imperative and will apply in a compulsory manner even if the contract establishes otherwise, therefore, clauses that modify the mandatory provisions of the LAU to the detriment of the tenant are null and void.

However, agreements that reduce the mandatory term, allowing the unilateral withdrawal of the tenant prior to the expiry of the six months, or that eliminate it completely, allowing withdrawal at any time, are perfectly valid.

Compensation for early cancellation

In addition to the above, the same Article 11 LAU allows the lessor to demand compensation from the lessee in the event of early termination of the contract, but for this to be enforceable it must be expressly provided for in the lease contract.

Once again, the Law acts as an upper limit, so that in residential leases, higher compensation than that legally established cannot be established, although lower compensation can be established.

In order for the lessor to be able to demand compensation for termination, it must be expressly stated in the contract, and its maximum amount is one monthly payment per year remaining, accruing proportionally for periods of less than one year.

Compensation in extensions

When the contract is extended, the minimum period of six months no longer applies, since the lessee has already covered this obligation, and may therefore make use of the right of withdrawal at any time.

With regard to the indemnity in the extension of the contract, some authors understand that it is not applicable during the extensions, since the initial term of the contract has already elapsed and the extension is something different that is not considered as a term of the contract.

However, our opinion is that, if the contract provided for compensation, the lessor may demand compensation for the term of the second annuity that remains to be fulfilled.

The commencement of the extension determines that the duration of the contract has been extended by a full year, so that the termination indemnity will be applicable in this new year.

As we understand it, article 11 LAU establishes the compensation "for each year of the contract that remains to be fulfilled", without distinguishing between initial duration or legal extension. Since the extension of the contract is for one year, it must be understood that the lessor has generated an expectation of fulfilment for a full year, so that, in the event of early termination by the lessee, the termination indemnity will apply if it was foreseen in the initial contract.

In this graph you can see the different amount of the termination indemnity in a one-year renewable contract (in blue) or in a three-year contract (in orange). The vertical axis is the amount of compensation in "monthly rent" that the tenant must pay in order to withdraw from the lease, while the horizontal axis marks the time of termination.

Therefore, if you want to avoid excessive turnover in the property, it is sufficient to offer your tenants contracts with longer durations, and expressly provide for the application of the penalty indicated in art. 11 LAU.