Measures relating to leases for use other than housing provided for in Royal Legislative Decree (RDL) 15/2020 of 21 April (BOE 22 April)

This note aims to comment on the main aspects of the recent RDL 15/2020 of 21 April (published in the official gazette – BOE – on 22 April) that affect leases for use other than housing or industry.

Justification of the measures of RDL 15/2020 relating to leases for use other than housing

The Preamble to RDL15/2020 provides a justification for proposing the adoption of the measures developed therein. This justification is based on:

  1. The state of alarm declared by Royal Decree 463/2020 of 14 March has meant that many economic activities have been forced to suspend or drastically reduce their activity.

  2. As a result, the lack of income or its reduction during the state of alarm may lead to the financial inability of self-employed workers and SMEs to meet all or part of their obligations to pay rent for rental premises, which seriously jeopardizes the continuity of their activities.

  3. The Law of Urban Leases (the “LAU” or Law 29/1994, of 24 November) does not provide for any cause for exclusion from the payment of rent due to force majeure or the declaration of a state of alarm or other causes, except for the provisions of article 26 LAU, relating to the habitability of housing resulting from the execution of works, which could be applicable to business premises by application of article 30 LAU.

  4. The regulation of force majeure in the Civil Code does not offer an ideal solution either because it does not adjust the distribution of risk between the parties, although it may justify contractual termination in the most serious cases.

  5. In view of this situation, RDL 15/2020 aims to provide specific regulation in line with the “rebus sic stantibus” clause [material adverse change], developed by case law, which allows for the modulation or modification of contractual obligations if the following requirements are met:

  1. the unpredictability and unavoidability of the risk involved,

  2. excessive burden of the benefit due; and

  3. contractual good faith.

It is interesting to note that, for the first time, a law in Spain includes the application of the so-called rebus sic stantibus clause in accordance with the requirements set out, among others, in the important Supreme Court ruling No. 333/2014 of 30 June, thus laying the foundations for facilitating the future application of this criterion by Spanish courts in the field of urban leases.

Therefore, RDL 15/2020 considers that it should provide a response to address this situation and regulate a procedure to enable the parties to reach an agreement on the modulation of the payment of rent for premises.

Lease agreements affected by RDL 15/2020

  1. Lease contracts for use other than housing subject to the LAU
  2. Industry leases (subject to the Civil Code)

A lease for use other than that of a dwelling is considered to be that which, falling on a building, has as its main purpose one other than that established in article 3.1 LAU, that is to say, different from that of a habitable building whose main purpose is to satisfy the permanent need for housing of the tenant.

In particular, those leases of urban properties (including those for non-permanent housing) held by season, whether in summer or any other season, and those held to carry out an industrial, commercial, craft, professional, recreational, welfare, cultural or educational activity on the property, will be considered to have a use other than that of housing, regardless of the persons who hold them.

It would not affect rental contracts other than the above (e.g., parking spaces or independent storage rooms, assignment of the use of terraces for installations or similar, or the so-called “tourist rentals”).

Landlords affected by RDL15/2020

  1. Landlords who are large holders or public housing company or entity
  2. Landlords other than the above

A large holder of real estate is understood to be the natural or legal person who is the holder of

  1. Ten (10) or more urban properties other than garages or storage rooms, or
  2. A built area of more than 1,500 m2

RDL15/2020 does not refer directly or indirectly to the concept of a group, so the lessor will be exclusively the individual or legal entity that leases the premises or industry, without the other properties of the group companies having to be added to determine whether or not they are a large property holder.

Property must be understood to be a registered property and constructed surface area must be understood to correspond to a registered property, regardless of the different properties included in the same rental contract.

RDL 15/2020 remains silent on cases of shared ownership, especially in the case of undivided properties with a surface area of 1,500 m2 or more, and those with nude ownership or usufruct, for the purposes of calculating their inclusion or not, given the spirit of RDL 15/2020.

Nor does RDL 15/2020 provide for how to prove the status of a large property holder. This could be done through the Registry of Indexes and Titles or the Cadaster, although it would be necessary to identify the properties to be excluded (non-urban, parking spaces, storage rooms, etc.)

Tenants affected by RDL15/2020

  1. Tenants who are self-employed, or
  2. Tenants who are SMEs,

provided that they meet the requirements of Article 3 RDL15/2020, i.e.:

  1. That, in any case, the premises are affected by the economic activity carried out by the tenant
  2. In case of SME tenants:
  1. That the tenant does not exceed the limits established in Article 257.1 of the Capital Companies Law:

    Article 257. Abridged balance sheet and statement of changes in equity

    1. A company may draw up an abridged balance sheet and statement of changes in equity if, for two consecutive financial years, at least two of the following circumstances apply
    1. The total of the items of the assets does not exceed four million euros.
    2. That the net amount of their annual turnover does not exceed eight million euros.
    3. The average number of employees employed during the year does not exceed 50.

    […]

  2. That its activity has been suspended as a result of the entry into force of RD 463/2020 or by orders issued by the competent authority (and the delegated competent authorities) under that RD 463/2020.

  3. If its activity has not been directly suspended by virtue of the provisions of RD463/2020, proof must be provided that its turnover for the calendar month prior to that to which the postponement is requested has been reduced by at least 75% in relation to the average monthly turnover for the quarter to which that month belongs, referring to the previous year.

  1. In the case of a tenant who is self-employed

  1. That he was affiliated and registered, on the date of the declaration of the state of alarm by means of RD 463/2020 (14 March), with the Special Social Security Scheme for Own-Account or Self-Employed Workers (RETA) or with the Special Social Security Scheme for Sea Workers or, where applicable, with one of the RETA’s substitute mutual insurance companies.

  2. That its activity has been suspended as a result of the entry into force of RD 463/2020 or by orders issued by the competent authority (and the delegated competent authorities) under that RD 463/2020.

  3. If its activity has not been directly suspended by virtue of the provisions of RD 463/2020, proof must be provided that its turnover for the calendar month prior to that to which the postponement is requested has been reduced by at least 75% in relation to the average monthly turnover for the quarter to which that month belongs, referring to the previous year.

Accreditation by the tenants of the requirements

The self-employed tenant or SME must prove to the landlord that the requirements have been met with the following documentation:

  1. Reduction of activity

    It will be accredited initially by the presentation of a responsible self-declaration in which, based on its accounting information and income and expenses, the reduction of the monthly turnover by at least 75%, in relation to the average monthly turnover of the same quarter of the previous year, is stated.

    In any case, when the lessor requires it, the lessee will have to show its accounting books to the lessor to prove the reduction of the activity.

  2. Suspension of the activity

    It shall be accredited by a certificate issued by the State Tax Authority or the competent body of the Autonomous Community, as the case may be, on the basis of the declaration of cessation of activity declared [to the STA or the Autonomous Community] by the interested party.

Moratorium applicable in the case of landlords who are large property holders or public enterprises or entities

The lessee may request from the lessor within one (1) month from the entry into force of RDL 15/2020 (i.e. 23 April 2020, the day after its publication in the BOE and no later than 22 May 2020), the moratorium established in Article 1.2 of RDL15/ 2020, which will apply automatically. In other words, its application will not require a pronouncement or agreement by the parties, only the request made within the deadline and the due accreditation of the requirements.

The moratorium will affect the period of time that the state of alarm lasts and its extensions and the following monthly payments, which can be extended one by one, if that period is insufficient in relation to the impact caused by the COVID-19, without it being possible to exceed, in any case, four (4) months.

This rent will be deferred, without penalty or interest, from the next rental payment, by means of the division of the instalments into two years, which will be counted from the moment the situation mentioned above is overcome, or from the end of the four-month period mentioned above, and always within the term of the rental contract or any of its extensions.

This moratorium must be accepted by the lessor, provided that an agreement between both parties on the moratorium or rent reduction has not been reached before (at the time of the request for moratorium or its application).

Clarifications regarding the moratorium in the case of landlords who are large holders or public housing enterprises or entities

RDL15/2020 refers to the rent:

  1. Accrued during the alarm state and while it lasts, including its extensions. That is, those accrued after 14 March 2020.

  2. If necessary, the following monthly payments if the period of the alarm condition was not sufficient to compensate for the impact on the tenant of [the measures taken in relation to] COVID-19. The moratorium would be applied to these monthly payments, month by month, depending on whether this impact was justified (apparently by the initial responsible self-declaration and the subsequent possibility of verification with the accounting records).

  3. In any case, the maximum income to which the moratorium would apply would be four (4) monthly payments, including those accrued during the alarm state.

Deferred income shall be collected in installments (in equal parts, unless otherwise agreed) within a period of two (2) years, starting from the month following that in which (i) the alarm state ends, (ii) the impact of COVID-19 is exceeded, or at the most, (iii) when four (4) months have elapsed.

This period would be shortened if the remaining period of the lease (or its mandatory extensions for the lessor) was less than 2 years, which would mean the fractioning of the moratorium in a period lower than this period.

Moratorium applicable in the case of lessors other than the above

The tenant may request from the landlord, within one (1) month from the entry into force of RDL 15/2020 (i.e. 23 April 2020, the day after its publication in the BOE and no later than 22 May 2020), a temporary and extraordinary postponement in the payment of the rent, provided that such postponement or a reduction in the rent has not been already voluntarily agreed by both parties.

In case of agreement, the parties are also free to use the deposit provided for in Article 36 LAU (2 monthly rent payments) which may be used for the total or partial payment of one or more of the monthly rent payments subject to the agreed moratorium.

If the deposit is totally or partially disposed of, the lessee must replace the amount disposed of within one year of the conclusion of the agreement or within the remaining term of the contract, if this term is less than one year.

Clarifications to the moratorium in the case of lessors other than the above

In this case, RDL15/2020 does not provide for an automatic moratorium, but rather the possibility of the parties reaching an agreement on it, and thus it seems to have failed to regulate (or to do so with a deficient legal technique) a reference framework and automatic enforcement mechanism, unlike what it provides for other lessors.

Thus, given the legal system of RDL 15/2020, the regime of large property holders would not be applicable to this case, even if there were no agreement, since, had it been desired, the RDL 15/2020 would have expressly indicated so.

With regard to the possibility of agreeing on the provision of the legal guarantee in article 36, RDL 15/2020 seems to indicate not only that they can agree among themselves on its use by the lessor to compensate for uncollected rent, but that such an agreement should be sufficient so that the deposit of rent made with the competent authority or entity can be released, in the same way as in the case of the resolution or termination of the contract. Obviously, the parties can also agree on the destination of the additional deposit that would have been established in the lease.

Concept of rental income

The LAU establishes that the lessee is obliged to pay the rent and, if applicable, any of the amounts that it has assumed or that correspond contractually. The receipt (or supporting document that replaces it) that the lessor issues to the lessee must contain separately the amounts to be paid for the different concepts that make up the total payment and, specifically, the rent in force.

The LAU does not say anything about the concept of “rental income” used in RDL 15/2020, or whether the other amounts paid by the tenant could be considered included in it. However, a regulation with a similar objective or purpose to that of RDL 15/0202, such as RDL 11/2020, of 31 March, also enacted on the occasion of the alarm state for housing leases, does not consider “basic expenses and supplies” to be included in the rental income, understood as such (according to its article 5.1,b) the cost of the supplies of electricity, gas, heating oil, running water, fixed and mobile telecommunications services, and possible contributions to the community fees, all of which are payable by the tenant of the main dwelling.

By analogy, this concept should also be understood to apply to RDL 15/2020, so that the moratorium on rental income should not (necessarily) include contributions to the community or property tax or other expenses that the tenant must bear by virtue of the rental contract.

Tenants’ responsibility

Finally, it is necessary to emphasize that, in accordance with the provisions of article 5 of RDL 15/2020, tenants who have benefited from temporary and extraordinary deferment of rent without meeting the requirements established in the regulation, will be responsible for any damages that may have been caused to the lessor, as well as for all expenses generated by the application of these exceptional measures, without prejudice to the responsibilities of another nature that their conduct may give rise to (termination of contract, fraud, etc.).

Disclaimer: this memorandum is for informational purposes only and does not constitute a legal opinion