Selling a leased house in Spain

Written by: Pelayo de Salvador Morell.

31/03/2019 | Management of real estate assets

In this post we analyse the regime of enforceability of the lease against the new owner according to the different drafts of the lease regulations.

Reading time: 4 minutes

It is quite common for an owner who, having failed to sell a property, decides to also offer it for rent, in the hope of obtaining a return. The problem arises when, once the property has been rented, a buyer appears who is willing to acquire the property occupied by a tenant.

It should be remembered that there is a regulatory framework in the field of residential leases that makes the date of signature of the contract decisive.

If the contract was signed before 1994.

In rentals subject to the LAU of 1964, the new owner has to respect the forced extensions. In addition, the tenant always has a preferential right of acquisition over the property, to acquire it at the same price offered by the buyer, but if the purchase price exceeds the capitalisation of the annual rent, calculated at 3 per cent, when the property was first occupied before 1 January 1942, and at 4.5 per cent if it was occupied thereafter, the tenant may challenge the sale, depriving the new owner of the right to claim the property for his own use.

The purchaser of old rented housing must respect the forced extensions, if any.

Contracts signed between 1 January 1994 and 6 June 2013.

For leases signed between 1 January 1995 and 6 June 2013, the buyer is always obliged to respect the minimum duration of the lease, set at 5 years, provided that these have not already elapsed. If the agreed duration is longer, he will only have to respect it if the requirements of article 34 LH are met, that is, if he is a third party purchaser in good faith, as will be developed below.

However, the lessee also necessarily has a preferential right of acquisition, which must be respected in all cases, by making the appropriate notifications.

If the lease is prior to June 2013, the lessee has the right of first refusal, and the buyer must respect a minimum lease term of five years.

Contracts signed between 6 June 2013 and 6 March 2019.

Law 4/2013, on measures to make the housing rental market more flexible and promote it, was in force from 6 June 2013 until 6 March 2019 (with a short break between 19 December 2018 and 23 January 2019, as a result of a Royal Decree Law that was not validated), introduced a series of amendments, one of the most notable being the relevance given to the registration of the rental contract, as well as its effects with regard to third parties in the event of transfer.

This reform was intended to "standardise" the legal regime of lease contracts, bringing it into line with the general principles of law, after a period in which, for social reasons, leases were particularly protected. As we have seen, under the previous regimes, the purchaser of a dwelling had to respect the minimum duration regardless of whether or not he knew of its existence.

The 2013 reform was intended to ensure that the unregistered tenancy did not affect third parties, as it was a personal relationship between landlord and tenant.

The regime introduced by this regulation was confusing, and did not clearly regulate the main case: cases in which a property registered in the Land Registry is leased, but the corresponding lease is not registered.

This generated a problem in the application of 34 LH, depending on whether its effects are limited to the registered reality (in which case the lease would be extinguished) or whether the effects also include extra-registrar knowledge (in which case the lease would be maintained).

Leases after 6 March 2019.

With the 2019 reform, a more protectionist regime was returned to for the tenant, who will have the right to remain in the property for at least the first 5 years of the contract. In these cases, we understand that it is not possible for the new owner to invoke the necessity clause, since he already bought with the tenant, and was subrogated in the contract, so invoking the necessity clause would operate as a clear window to circumvent the validity of the contracts.

The purchaser of the rented property is obliged to subrogate himself to the signed lease, and to respect the corresponding initial duration (5 or 7 years), as the case may be.

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