Residential Tenancy Contract: Complete LAU 2024 Guide

# Residential Lease Agreement: Complete Guide to the LAU 2024

Residential leasing in Spain is governed by Law 29/1994, of 24 November, on Urban Leases (Ley de Arrendamientos Urbanos, LAU), significantly amended by Law 12/2023, of 24 May, on the Right to Housing. This reform introduced substantial changes to mandatory lease extensions, rent review mechanisms, and stressed residential market areas.

Scope of Application of the LAU

The LAU distinguishes three types of agreements:

1. Residential lease (Art. 2 LAU): where the tenant uses the property to meet their permanent housing needs. This regime offers the strongest tenant protections.
2. Lease for non-residential use (Art. 3 LAU): business premises, seasonal lettings, etc. The parties enjoy greater contractual freedom.
3. Excluded leases (Art. 5 LAU): luxury dwellings, rooms within the landlord's own home (governed solely by the Código Civil, Spain's Civil Code), etc.

Lease Duration and Mandatory Extensions

The minimum effective duration is 5 years where the landlord is an individual, or 7 years where the landlord is a legal entity (Art. 9.1 LAU). This duration is guaranteed through mandatory annual extensions: if the initial lease term is shorter than 5 (or 7) years, it automatically renews at the end of each annual period until that minimum is reached, unless the tenant gives notice of their intention not to renew at least 30 days in advance.

Tacit Renewal (Art. 10 LAU)

Once the minimum duration has been reached:

• If neither party communicates their intention not to renew, the lease automatically extends in annual increments for up to a máximum of 3 additional years.
• The landlord must give at least 4 months' notice before the expiry date; the tenant must give at least 2 months' notice.

Recovery of the Property Due to the Landlord's Own Need

An individual landlord may recover the property before the minimum term expires if they need it for themselves or a first-degree relative (Art. 9.3 LAU), provided this right was expressly agreed in the contract and at least 2 months' prior notice is given.

Rent: Setting and Review

The parties may freely set the initial rent, except in stressed residential market areas (Art. 17 LAU, as amended by Law 12/2023), where rent is capped at the reference rental price index or at the previous rent increased by the CPI (Consumer Price Index).

Annual Rent Review

• 2024: máximum increase of 3% (a transitional cap), regardless of any CPI-linked clause agreed in the contract.
• 2025 onwards: the new Rental Update Reference Index (Índice de Referencia de Actualización de Arrendamientos, IRAV) will apply, published annually by the INE (Spain's National Statistics Institute) and set below the general CPI.

A rent review clause must be expressly agreed. If the contract makes no mention of it, the rent is not updated.

Security Deposit and Additional Guarantees

Mandatory Security Deposit (Art. 36 LAU)

• 1 month's rent for residential leases.
• Must be lodged with the relevant regional authority (IVIMA in Madrid, INCASÒL in Catalonia, etc.).
• The landlord is required to return it within 1 month of the handover of keys, except where justified deductions for damages apply.

Additional Guarantees (Art. 36.5 LAU)

The landlord may require additional guarantees (bank guarantee, rent default insurance), but the total amount may not exceed the equivalent of 2 additional months' rent (i.e., 3 months in total including the deposit, except in leases with an agreed term of more than 5 years).

Expenses, Utilities, and Works

Allocation of Costs

• Execution costs (notary, registration): absent any agreement, borne by the landlord.
• Property tax (IBI) and municipal charges: borne by the landlord unless an express clause transfers them to the tenant.
• Utilities (electricity, water, gas): typically paid by the tenant; must be specified in the contract.
• Community fees: the landlord may pass these on to the tenant if expressly agreed and the annual amount is stated.

Maintenance and Improvement Works

• Maintenance (Art. 21 LAU): the landlord must carry out works necessary to keep the property habitable. The tenant may not demand a rent reduction for urgent works, but may terminate the lease if they last more than 20 days.
• Improvements (Art. 22 LAU): the tenant must tolerate them if they are necessary and do not prevent use of the property. If the works last more than 20 days, the tenant is entitled to a proportional rent reduction.
• Minor repairs (Art. 21.4 LAU): at the tenant's expense, arising from ordinary wear and tear (hinges, taps, light bulbs, etc.).

Termination of the Lease

Grounds for Termination at the Landlord's Request (Art. 27 LAU)

1. Non-payment of rent or equivalent charges.
2. Non-payment of the security deposit or any required updates thereto.
3. Carrying out unauthorised works.
4. Use of the property for activities that are a nuisance, dangerous, or unlawful.
5. Unauthorised subletting or assignment.
6. Wilful damage to the property or abandonment.

Grounds for Termination at the Tenant's Request (Art. 26 LAU)

1. Breach of the landlord's maintenance obligation.
2. The property is declared ruinous or becomes uninhabitable.
3. Actual or legal interference by the landlord with the tenant's use and enjoyment.

Eviction for Non-Payment of Rent

The applicable procedure is the juicio verbal (summary oral proceedings) (Art. 250.1.1º LEC, Code of Civil Procedure), with the possibility of joining a claim for outstanding rent. Following the 2023 procedural reforms, social services must be notified in cases involving vulnerable persons, and proceedings may be suspended until a housing solution is found.

Common Unfair Clauses

The following clauses are void ab initio (Art. 6 LAU):

• Those requiring rent above the statutory index in stressed market areas.
• Those transferring to the tenant costs that are the landlord's responsibility (execution costs, property tax, municipal charges) without express and specific provisión.
• Those waiving the minimum 5/7-year extension rights.
• Those requiring a deposit or guarantees in excess of the legal máximum.
• Those imposing a waiver of the right of pre-emption (right of first refusal and right of redemption, Art. 25 LAU).

Right of Pre-emption

The tenant has the right of first refusal (tanteo ( 30 calendar days from authenticated notification of the decisión to sell) and right of redemption (retracto ) 30 calendar days from learning of the sale) over the leased property (Art. 25 LAU), unless the contract expressly excludes this right.

Conclusion

Residential leasing is one of the areas of Spanish Civil Law with the greatest regulatory intervention and an increasing volume of disputes. Understanding the rights and obligations of both parties, drafting the contract correctly, and properly documenting the condition of the property at the start and end of the tenancy are the most effective tools for avoiding disputes. If in doubt, seek advice from a specialist lawyer.