Urban Lease Law: What is it and what is its purpose?

If you are a landlord or a tenant, it’s crucial that you become acquainted with the Urban Leasing Act (ULA). This law governs the relationships between tenants and owners of residential properties, commercial premises, and other urban estates. Throughout this text, we will explain the main aspects you should know about this law so that you can handle your contractual relationships with greater certainty.

What is the Urban Leasing Act?

The ULA is a Spanish law that regulates the lease contracts of residential properties and commercial premises. It was established in 1994 and has undergone several amendments since then to adapt to the needs of the real estate market.

The primary goal of the ULA is to protect the rights of property owners and tenants, as well as to establish a legal framework for the regulation of residential and commercial rentals in urban areas. Among the most important provisions of the ULA are those related to the duration of lease contracts, rent, and expenses that both the landlord and tenant must pay, the guarantee, repairs, and termination of the contract.

The ULA dictates that the lease contract must be formalised in writing and specify in detail the rental conditions, such as rent, the duration of the contract, the form of payment, the expenses each party must bear, and the guarantees and obligations of both.

Amendments to the Urban Leasing Act

The tenant can negotiate a rent increase with the landlord. If the landlord is a major holder (owns more than ten residential properties), the rent increase cannot exceed 2% unless both parties agree otherwise.

If the landlord is not a major holder, the increase can exceed 2% if there is mutual consent. If no agreement is reached, the increase cannot exceed the annual variation of the Competitiveness Guarantee Index (CGI), with a maximum of 2% in 2023. (3% in 2024, and in 2025, a new index based on the CPI would be applied).

The leases of usual homes that end between 28th December 2022 and 30th June 2023 will be automatically extended by six months if the tenant requests it, maintaining all conditions. The extension does not apply if the landlord needs the home for their own use or that of their close relatives.

Objectives of the Urban Leasing Act

The ULA aims to regulate the contractual relationships between tenants and property owners in urban areas, establishing the obligations and rights of each party.

Main Components of the Urban Leasing Act

The latest update of the Urban Leasing Act (ULA) establishes these main precepts:

A mandatory minimum duration of the lease contract of five years, with a tacit extension of three years for physical persons and seven years for legal entities.

The contract can have a freely agreed duration but is automatically extended unless otherwise stated. After six months, the tenant can cancel the contract with thirty days’ notice and possible proportional compensation.
Furthermore, the owner can terminate the contract for non-payment, illegal activities, violation of rules, works without permission, unauthorised subletting, or improper use.
The deposit equates to one or two monthly payments depending on the type of lease, without specific limits in long-term contracts.

How does the Law affect Tenants?

The ULA protects tenants’ rights and grants them certain guarantees, such as the minimum duration of the contract and the limitation of the automatic update of rent. Additionally, it stipulates that community expenses, taxes, and fees should be paid by the landlord and not the tenant.

What is the duration of a lease contract according to the Law?

The parties have the freedom to agree on the duration of the lease contract. However, if the agreed term is less than five years, when the time comes for its termination, the contract will be automatically extended for periods of one year until reaching a minimum of five years if the tenant so desires.

What expenses are charged to the owner according to the ULA?

If you are the owner of a rented property, it is important to know which expenses you must assume according to the Urban Leasing Act (ULA). This law states that the expenses for the preservation and maintenance of the property are the owner’s responsibility (repair of breakdowns, painting, repair of the electrical installation, etc.).

Periodic expenses necessary to maintain the property in suitable conditions of habitability, such as the community fee, the Property Tax (IBI), and the home insurance, are the tenant’s responsibility.

Who pays for repairs according to the Law?

While the owner is responsible for the repair of breakdowns necessary to keep the property in suitable conditions, not all breakdowns are the owner’s responsibility.

The Law establishes that the tenant is responsible for necessary repairs resulting from the habitual use of the property, such as appliance repair, bulb replacement, cleaning of ventilation ducts, or property cleaning at the end of the contract.

Conversely, the owner is responsible for the necessary repairs to ensure the habitability and safety of the property, such as boiler repair, replacement of electrical or plumbing installations, leak repair, or replacement of structural elements.

Holiday Rentals and the Urban Leasing Act

Holiday rentals have been on the rise in recent times, but it should be noted that this type of rental is also regulated by the Urban Leasing Act.

The Act states that holiday rentals have a special regime, with a maximum term of three months. Moreover, the owner must ensure that the property meets the necessary requirements to be used for tourist purposes and that it is in perfect conditions of habitability.

The Urban Leasing Act clearly establishes the responsibilities of property owners and tenants concerning the expenses and necessary repairs to keep the property in good condition. It is important to know the law well to avoid misunderstandings and conflicts. Moreover, in the case of holiday rentals, it is essential to comply with the legal requirements to ensure safety.

Amendments to the Urban Leasing Act

The new Rental Law came into effect on 6th March 2019. Lease contracts signed from that moment on (and of course the contracts for 2021 as long as there are no new amendments to the Law) will be affected by both the Leasing Law (Law 29/1994, of 24th November) and its subsequent amendments: Law 4/2013, of 4th June, and the Royal Decree Law 7/2019 of 1st March.

The amendments to the Law aim to make the rental market more flexible by seeking a balance “between the tenant’s needs and those of the landlords.”

What is the duration of a lease contract according to the Law?

The last amendment of the Law extended the duration of a rental contract to 5 years. However, the lease contract is agreed upon between the two parties and they can reach a different agreement.

What expenses are charged to the owner according to the ULA?

The landlord must take care of the utility connections such as water, electricity, and gas. On the other hand, the tenant will pay the monthly expense of each utility.

Who pays for repairs according to the Law?

The owner is responsible for covering repairs of appliances caused by time or those necessary to keep the property in good condition. However, it will be the tenant who will have to pay the bills for the breakdowns caused by misuse or general maintenance of the property.

It’s true that this point of who pays the bills can generate controversy, but at Mediterráneo, we always appeal to common sense and do our part to generate perfect communication between owners and tenants.

Holiday Rentals and the Urban Leasing Act

The rental of tourist flats is not regulated by the LAU as it is considered an economic activity. Therefore, in Spain, each Autonomous Community assumes competencies in tourism and will regulate the tourist activity and the rules about the holiday rental business.

Given that the regulations on rentals are very broad, we encourage you once more to consult any doubts you may have with our colleagues at Mediterráneo Homes via this link.

And finally, if you want to read the latest updates on measures to prevent illegal occupation, you can click on this link for another news article on our Mediterráneo blog.