On the 5th of July 2013, Act 4/2013, which governs Measures for the Promotion of the Lease Market, was published in the Official State Bulletin. With this substantial modification of the Urban Leasing Act, the Government intends to reduce the Spanish real estate market´s high rate of property and strengthen the weak rental market compared with the European average, making it more competitive and flexible. It seeks, therefore, to find a balance between the public´s housing needs and the guarantees made available those lessors that offer their property for lease.

Here, we will review the most important and significant aspects of this new Act. First of all, Act 4/2013 reinforces the freedom of agreements, giving priority to the will of the parties, so that leasing of the property is governed by the covenants, terms and conditions determined by the will of the parties, but always under the provisions of Title II of the Urban Lease Act and, additionally, by the provisions of the Civil Code. Among other key aspects of the new Act 4/2013, we could highlight the reduction in the length of lease extensions (both obligatory and tacit); facilitating the recovery of the property in order for it to then be used as permanent dwelling, the termination of the contract by the lessee and, among others, mortgage principles are respected, so that unregistered urban leases cannot produce effects against third party purchasers who register their right.

However, one of the most controversial aspects of the reform of the Urban Lease Act is the regulation of the conditions and effects of leasing with third parties. Article 7.2 of Act 4/2013 provides that “in any case, in order for the concerted leases on urban properties to produce effects against third parties who have registered their rights, such leases must be registered in the Land Registry.” The literal wording of this article leads one to believe that the lease of urban property not registered in the relevant Registry does not produce any effect against third parties. However, after a thorough analysis of the article in question, the following question could be raised; may a buyer demand the eviction of a tenant from their home if the lease is not registered? The affirmative answer that Article 7.2 appears to give to this question does not even establish the condition of good faith or lack of knowledge of the existence of the lease.

In this regard, Article 10.2 of Act 4/2013 conditions the extension of the lease, regulated in the first paragraph of this article and in article 9, regarding third-party purchasers who fulfill the conditions of Article 34 of the Mortgage Act (MA), ie they are of good faith and the acquisition has a pecuniary character, to the inscription of this lease in the Land Registry. This is a condition also contained in Article 14 of the aforementioned Act, which expressly provides that the purchaser of a property registered in the Land Registry, who meets the requirement of Art. 34 of the MA, will be subrogated in the rights and obligations of the lessor if the lease has been registered prior to the transmission of the property. If the property is not registered, the provisions of the first paragraph of Article 1.571 of the Civil Code shall apply, that is, the buyer of a leased property has the right to end the lease once the sale is confirmed. In this case, the lessee may request to be allowed to continue the lease for three months, from the moment that the buyer notifies his intentions to him, and can also demand that the seller compensate him for any damages caused.

As a final note, it must be emphasized that, at present, the registration of leases of urban properties in the Land Registry is almost nonexistent, due to the many questions that exist regarding this matter.  Whether or not a massive registration of urban leases takes place depends entirely on the clearing up of these doubts.