A few days before the year-end closing of 2018, the Government has modified the regulations for rental contracts, which is included in the Executive Order 21/2018, published last Tuesday in the Boletín Oficial del Estado (Official State Newsletter). Initially, this regulation had to include the purpose of legally limiting rental prices although, after months of negotiations, no measure has been taken regarding rent prices.
Among the main novelties proposed by this Executive Order are the duration of the contract and the limitation of the amount of the deposit; changes in the rules that every landlord and tenant must know before signing a rental agreement.
We highlight the 5 main changes in the rental law:
1. Duration of the Contract
Up until today, the legal minimum term of the rental contract was 3 years and the maximum duration could be freely agreed between the two parties. The contract had to be extended for 3 years as a mandatory basis and contemplate a tacit consent extension of one year, that is, that the contract be renewed for one year automatically if nothing was communicated.
The new regulation modifies the minimum term by extending it from 3 to 5 years -mandatory renewal- and includes up to 3 years of tacit extension. In the case of legal entities acting as tenants, the Law establishes a minimum term of 7 years.
According to Lluís Català, partner of Forcadell and director of the Real Estate Legal Management Area, "lengthening the duration of contracts is a positive initiative since it will give more stability to both tenants and owners. However, the difference that the Executive Order contemplates when dealing with a legal entity is meaningless, when small companies, large Core Investment companies or Investment funds cannot be regarded as equal."
One of the dangers of extending the minimum duration to 7 years, according to Lluís Català, "is that the rental reviews are made above the CIP, having to predict the evolution of this indicator 7 years ahead. It is too risky to forecast into such a long term."
2. Deposit
Until today, in addition to the legal deposit, both parties could agree additional collateral to secure backing for the rent.
With the new regulations, these additional guarantees are limited to a maximum of two months. According to Àlex Vázquez, director of the Residential Rental department of Forcadell, "the danger of this measure is it can harm those tenants who cannot show a regular income or job stability because, in many cases, when this has happened, the owner agreed to rent the property in exchange for extending the guarantees.To avoid potential problems, the owner may dismiss that candidate more easily. "
3. Fees
Up until now, the payment of fees was not regulated by the Rental Law. Each agent and real estate broker agency could freely agree on the amount and responsibility of the payment of the fees.
With the new regulation, when the owner is a company, the fees must be at their expense. According to Lluís Català, "this measure is a double discrimination since it penalizes companies and also those tenants who rent a flat from a private owner."
4. Payment of a property transfer tax
Until today, rental contracts were subject to the payment of ITPAJD, Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados (Tax on Patrimonial Transfers and Documented Legal Acts). The payment of this tax (0.5% of the rental amount) was charged to the tenant.
With the new regulation, tenants are exempt from paying the ITPAJD. According to Àlex Vázquez, "this measure could have come with some compensation for the landlord, such as excluding him from paying the tax if he requests a guarantor.”
5. Evictions
Until today, the judicial processes of evictions did not contemplate vulnerable situations.
The new regulation take some pressure off evictions.The executive order offers the possibility of suspending for one month an eviction when the Administration considers that the tenants are in a situation of vulnerability. When the Administration considers that this is the situation, the Courts will suspend the eviction until Social Services take action and the appropriate measures are undertaken.
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