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The main effects of terminating old rent lease contracts

The 1st of January 2015 marked the 20th anniversary of the entry into force of the current Urban Lease Act, leading to the termination of old rent lease contracts in Spain, particularly small older businesses in a central location in our cities.

The abovementioned date also marks the moratorium established in the third transitional order of the Act for the leases of business premises granted prior to the 9th of May 1985, which remained in force until the 1st of January 2015.

Under these circumstances many tenants who were interested in maintaining their business premises open were forced to update their rental agreements before the 31st of December 2014 as their lease contracts were terminated on the first day of this year. However, while renegotiating their leases, the majority of tenants saw the monthly payment of the rent tripled in price. Failure to meet the new rental price for their business premises has led to closure of many small and medium companies, which had previously thrived for the past two decades in the hearts of Spanish cities.

On the other hand, in the termination of the leases of “old rent” premises, it is essential to differentiate according to whether the tenant is a natural or a legal person, in order to determine whether, pursuant to the Urban Lease Act, the lease of the commercial premises exchanged before 9th May 1985, and which were valid at 1st January 2015, will or will not be terminated.

Thus, in the scenario where the tenant of the business premises is an individual (natural) person, the lease will expire once the tenant retires or passes away, unless their spouse chooses to continue with the same business. However, in the scenario where the tenant is also the descendant, the contract would have ended on the 1st of January 2015. In those cases where the tenant is a legal person, the lease would have been terminated on the 1st of January 2015, except for the local areas exceeding 2,500 square meters or non-commercial activities.

It should also be noted that if there were a transfer of contract in the ten years prior to the 1st of January 1995, the date when the Urban Lease Act came into force, the term of the contract of lease of the “old rent” could be extended until the 1st of January 2020.

Finally, it is important to know what rights the tenant has once the lease contract of the “old rent” is terminated. In this regard, we note that the tenant is entitled to compensation in an amount equivalent to eighteen months´ income, calculated at the time of termination of the lease, as long as, before one year passes from the date of the termination, another person begins a similar business at the same premises, benefitting from the customer base of the previous establishment.

Furthermore, one must keep in mind that by terminating the lease, the tenant shall have a preferential right to stay in the leased premises if the landlord intends to sign a new contract with other tenant before one year has elapsed from the legal termination of the lease.

If you find yourself in a position where you have to renegotiate an old rental contract of the business and have questions that you would like to be answered, contact us for a free initial consultation.

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