MADRID, Spain – The indefinite contracts decree approved by the government on Tuesday provides that rental agreements will be automatically renewed once they reach their expiry date if neither the owner nor the tenant communicates otherwise. If the landlord wants to break that extension, they will have to compensate the tenant with at least 12 months’ rent for a home of similar characteristics, according to the text agreed on Tuesday in the Council of Ministers.
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Although it will not be published in the Official State Gazette until tomorrow, the government has already sent the decree to the various parliamentary groups for study ahead of Friday’s vote in Congress. It will enter into force that same day, though foreseeably only for a few hours, since Junts has already announced its rejection and its support is key for ratification. According to the decree, once the initial five-year duration of the rental contract has elapsed if the owner is an individual, or seven years if it is a company, the lease will be understood to be automatically extended for the same period if neither party notifies otherwise. Notice must be given at least six months in advance if it is the landlord, or two months if it is the tenant who does not want to continue with the contract. Payment of the compensation will be due when the owner makes the decision and communicates it to the tenant, and must be made at the time of handing over the property.
The compensation to the tenant will be calculated based on the Ministry of Housing’s rental price reference index, which establishes a price range for each home depending on its location and characteristics. The total amount must be at least twelve monthly rents for a similar home and cannot be less than one month’s rent for each year the tenant has lived in the flat. Exempt from paying compensation are cases where there is a justified cause to end the contract, such as the owner being an individual and needing the home for themselves or their second-degree relatives, though if the flat is not occupied within three months the landlord will still have to pay the compensation.
The owner is also exempt from compensating the tenant when the tenant does not effectively inhabit the rented home or when they have another property suitable for living in the same municipality. This new automatic renewal regime will apply only to contracts expiring after its entry into force, expected to be the day after its publication in the Official State Gazette, that is, this Friday. The new measure does not affect contracts where non-renewal has already been communicated, and in those where the contract expires in the following six months, the owner can continue giving notice four months in advance.
The aim of the rule is to give more stability to rental contracts, hence the provision for compensation to compensate the tenant for the termination of the contract and so that the owner’s decision not to extend responds to a real need and not simply to wanting to put the property back on the market at a higher price for greater profitability. To prevent this measure from clashing with extraordinary extensions such as those included in the other decree, it is specified that they are not cumulative, and extensions already envisaged for stressed areas apply preferentially.
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This measure was one of the demands of the Tenants’ Union and the parties to the left of the PSOE, with the text bearing the signature of Social Rights Minister Pablo Bustinduy of Sumar. However, it is an initiative that Junts rejects and whose support is key to ratifying the text in Congress and giving it effects beyond Friday, when the extraordinary vote will take place in the lower house on both this decree and the other approved by the Council of Ministers, which includes, among other measures, the suspension of evictions until 2030, the ban on hedge funds buying housing, an extraordinary extension of up to two years for rental contracts and a package of tax breaks for tenants and owners. While Junts still reserves its position on the other decree, it announced on Tuesday that it will vote against the indefinite contracts decree. The PP and Vox also reject it, so barring a surprise it will fall in Congress on the same day it enters into force, with the PNV so far not having pronounced on the direction of its vote.
