New law affecting rental properties [RD-L 7/2019]

Last March [03/2019] the Royal Decree-Law 7/2019, ruled urgent measures affecting properties rental.

This law affects:

• Duration of contracts
• Deadlines for extensions
• Notice periods
• Who will cover the expenses?
• Terms and amounts of the deposits and other guarantees
• Updates of rental fees and their limits

1. Duration of contracts and extensions

To encourage tenant permanence and offer more stability, one of the most important changes is the temporary increase in the minimum duration of rental agreements.

• Minimum contract duration for owners = natural persons → 5 years.
• Minimum contract duration for owners = legal persons → 7 years.

Previously this period was 3 years in both cases.

Once the minimum duration agreed in the contract has been exceeded - there may be extensions up to 3 years.

Previously this period was 1 year in both cases.

2. Notice periods

Contracts will be extended for annual terms [for 5 years, for owners = natural persons and 7, in the case of owners = legal persons].

• If the tenant wishes to terminate the contract, he must notify the landlord → 30 days before the end of the contract.

On the other hand, once the 5-year contract has elapsed, for owners = natural persons and 7, in the case of owners = legal persons and the extension of up to 3 years is not desired, the terms of the notices are as follows:

• If the tenant wishes not to opt for the extension, he must inform the landlord → 2 months before the termination of the contract.
• If the landlord wishes not to opt for the extension, he must inform the tenant → 4 months before the termination of the contract.

3. Expenses

Depending on whether the owner is a natural or legal person, both: costs of the contract and the real estate management must be borne by:

• Owner = legal person → expenses will be covered by the owner.
• Owner = natural person → the law does not indicate how to act.

4. Deposits and other guarantees

Deposit

Payment → when signing the contract.

Amount → 1 month rent.

• During the first 5 years [for natural persons] and 7 [for legal persons] - the deposit must not be updated.
• Entered in the extension period, the owner may request that the deposit be updated until it becomes equivalent to 1 monthly payment of the rental price in force, at that time.

Other guarantees

Any other type of guarantees can be agreed in the contract provided that: they do not exceed the amount equivalent to 2 monthly payments.

This fact cancels the possibility of being able to agree on a deposit [usually +2 months rent] or bank guarantee as indicated in the Statement of Reasons (Section II).

5. Limits on rental prices

The Royal Decree-Law does not specify limits on the price of rental properties.

6. Limits on changes in rental cost

The rental price can only be updated on a yearly base, and, in addition, this variation may not exceed the result of applying the percentage variation expressed by the CPI at the date of each update.