New rules and guidelines for Property Rentals

The Government extends the rental contracts and limits the bonds but does not limit the prices.

Article Written & Published By:  Translated from Spanish to English so some detail may be lost in Translation.

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The Government green light this Friday (14th December 2018) in the Council of Ministers a decree to amend the Urban Leases Law (LAU) that will increase the terms of the rentals and include other measures contemplated in the budget agreement signed with Podemos that will force to reform five rules in total. Among what it does include, it stands out to go from three to five years of the rental contracts (and up to seven years if the landlord is a company) and reinforce the obligation that a guarantee of more than two months of guarantee can not be demanded. However, the text that has been agreed by the Government leaves out some aspects that are considered "fundamental" to control prices, especially some kind of mechanism to avoid exorbitant rents. Pablo Iglesias has threatened the government with voting against the royal decree if the Executive does not correct and limits the price of rents.

The Executive expects that the decree will be published next Tuesday (18th December 2018) in the BOE and that, therefore, will enter into force on Wednesday 19th December, the royal decree law of urgent measures in the matter of housing and rent will come into force. A document that assumes several changes at contractual and fiscal level that both landlord and tenant should take into account if they sign a rental contract the day after its publication in the Official State Gazette (BOE), next Tuesday, since the document It will not be retroactive. That is, all those who signed before will not be affected.

After the meeting of the Cabinet, in the subsequent press conference, the Minister of Public Works, José Luis Ábalos, has assured that they do not contemplate "intervention measures in the market prices". That is to say: that they will not fix at the moment maximum prices for zones as it was demanded by Unidos Podemos . Do they leave out definitely the promises they made to the formation? "This decree does not intend to integrate all the proposals of the PSOE or all the commitments that could have come with other political forces, it includes the most urgent measures, they will have the opportunity to be fulfilled in the budgetary process", has settled.

Ábalos has indicated that the approved decree "includes the ambition to start talking about housing policy as a right and with its social function". And has justified the urgency of the rule: "We want to end a drama that affects the life projects of people, especially young people", who are forced to share housing. They also want to put a stop to rent evictions, which grow at an annual rate of 5%.

But the measures do not satisfy anything to Podemos, preferential partner of the Government to carry out the reform. "The decree of the Government does not contain the most important measure of the agreement: to prohibit the abusive increases of the rent", has assured the general secretary of the party, Pablo Iglesias. "If they do not rectify, we will vote against", he added in a tweet that has ended with the Latin locution pacta sunt servanda (pacts require).

The main difference between Podemos and the Government refers to point 3.2 of the budget agreement, which included the possibility of empowering the municipalities "for the development of a benchmark rental price index" to "regulate and limit abusive increases in price". The party of Iglesias understands that the modification of the LAU is the appropriate instrument to undertake it and that is why they ask that it be included in the decree. Sources of the Ministry of Public Works, on which Housing depends, point out that in the pact with Podemos it appeared as a differentiated point from the one that referred to the modification of the rent regulations and that the agreed term was "throughout 2019". They understand, therefore, that there is room,

Regardless of what may be included in subsequent agreements, these are some of the measures included in the decree prepared by the Government:

The main points of the royal decree law are:

Longer contracts  Contracts of three to five years

The new legal norm includes several measures that apparently benefit the tenant. For example, the mandatory extension of rental contracts is extended from three to five years, as was the case before the reform of the Popular Party in 2013. In addition, the tacit extension is extended from one to three years, while in case the leasing party is a legal person, the mandatory extension of the contracts will be seven years, with a tacit extension of three.

"Returning to contracts with a minimum duration of 5 years, is very positive as it not only gives greater stability to the tenant, but also to the landlord who seeks security and tranquility, especially in the case of having a good tenant," says Toribio .

Guarantees limited to two months of rent - Limit the bonds to two monthly installments

The deposit that can be required from tenants is limited to two months, except in the case of long-term contracts and the additional guarantees that a landlord can require to rent a house are prohibited. On many occasions, the bonds are so high that they prevent access to a house for rent to a large part of the population. So, for example, if the monthly rent is 750 euros, the deposit can not be more than 1,500 euros.

At the time of signing the contract, the landlord can not require the new tenant an endorsement, regardless of the deposit, that exceeds the monthly rental rent in two months "unless it is long-term contracts." In these yes, additional guarantees may be agreed. This limits the requirements, often abusive, that many owners request in addition to the month of bail.

To limit disbursements at the beginning of contracts, the decree also states that real estate expenses will be borne by the lessor when it is a legal person. From this point, "those expenses incurred by the direct initiative of the lessee" are excluded.

Whenever there is an agreement between the owner and the tenant, improvements can be made to the house without the need to sign a new contract.

Tax aid, although very limited

When an official rental contract is signed and properly recorded in the Administration, the owner and the tenant may be exempt from paying the tax on property transfers and the legal acts documented in that bureaucratic process. It is a measure with little repercussion, since it is very rare to pay these taxes in rental contracts between individuals.

The decree also modifies the Law Regulating the Local Taxes to modify the Tax on Real Property (IBI) although in two very limited cases: when the landlord is a public entity may be exempt from the payment of this tax and the City may rebate up to 95% of the IBI "in the houses subject to rent of limited price". In both cases, it will always depend on each Consistory, which are the competent bodies in that tribute, whether they accept these measures or not. It will also be up to each local administration to decide if the IBI surcharge on vacant dwellings increases permanently (a measure already contemplated at the moment because it was introduced by the PP in 2002 but which "was badly regulated until now",

Protection against tourist apartments

It includes another measure that the Executive had already advanced months ago : the neighborhood communities will be enabled so that, if decided by three fifths of the owners, they can agree to limit or veto the tourist leases in the building. For that, the horizontal property law is modified. A measure that, according to sources of Development, will only be applied to new tourist flats and not to existing ones because "it does not have retroactive character".

Neighbors can prohibit tourist rental
If you are an owner and you want to use the property for tourist rental, you should know that the rest of the owners can prohibit you from doing so. The rule excludes the tourist rentals of the LAU when dealing with an economic activity, and with regard to the Law of Horizontal Property (LPH), if the neighbors achieve a qualified majority of 3/5 of the community they will be able to prohibit that use tourist. Until now unanimity was needed. On the other hand, said housing must contribute to the expenses of the community up to a certain limit.

Changes in the evictions of vulnerable households

The law of civil procedure is also modified to "reform the eviction procedure" and vulnerable households have more protection.

The Government assures that there will be "better coordination" between justice and social services to prevent families from staying on the street without an alternative when they lose their homes. Specifically, the judges will notify the beginning of the eviction processes to social services. They will issue a report and, if they warn that the people who are going to be expelled from their home are in a vulnerable situation, a one-month extension will be opened (or two when it is a legal entity that requests the release). look for a solution.

The Minister of Development has recalled the latest data from the General Council of the Judiciary (CGPJ) that show how 65% of evictions occurred as a result of non-payment of rent and how they are growing at a rate of 5% per year.

“Many families are subjected to enormous economic stress because they allocate more than 40% of their income to the payment of rent and associated expenses, almost twenty points above the European average,” said the minister


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