In the decision analysed below, regarding the term of the leases entered into prior to 9 May 1985, pursuant to the Spanish Urban Tenancy Act of 24 November 1998 (LAU – Ley de Arrendamientos Urbanos), and where the tenant is a body corporate that cannot accredit payment of the relevant business tax (IAE), the Supreme Court upheld the ruling of the Valladolid Provincial Court that found for the eviction due to the expiry of the term of the lease of the business premises.

The interest of this Supreme Court decision lies in the different interpretation that the Provincial Courts have given to Third Additional Provision, Section B, number 4, 2nd rule, of the Spanish Urban Tenancy Act, when establishing the duration of the business premises leases entered into prior to 9 May 1985, when the tenant is a body corporate and whose business activities are different to those envisaged in Rule 1 and where there is business tax liabilities, with the tenant being responsible for providing proof of the amount of business tax effectively paid.

The key legal issue consists of establishing if it is sufficient to only accredit the municipal minimum business tax liability for the business operations in 1994 (the year when the current Urban Tenancy Act came into force) or, on the contrary, the tenant needed to be registered and to pay the relevant tax, that is, to provide proof of the effective payment of the business tax liability.

The Supreme Court dismissed the appeal in cassation brought by the tenant and upheld the ruling of the Provincial Court, based on the following considerations:

It first referred to the Preamble of the LAU, which literally establishes that, “Fixed periods of notice, between five and twenty years, are established for the leases of bodies corporate, according to the nature and the volume of the operations at the leased premises. A short term is established for those leases involving business activities with such economic potential that they place the holders of these contracts in positions of equilibrium with respect to the lessors when negotiating new lease conditions”.

With respect to the above, we can see how the Act tends towards a purely economic criterion, identified by business tax liability, pursuant to which it establishes a longer or shorter term of the contract, that is waived in the case that the business tax liability for the operations at the leased business premises limits its duration to the minimum term of five years. The problem arises when the Act does not establish the consequences that arise from the leases where the tenant is not registered for any business activity and therefore does not pay the IAE. Therefore, the High Court establishes the idea that the balance that the Act takes into account to set the length of these contracts is not merely nominal, but also real. The crucial point is to enjoy the rights that the legislation grants to the tenants that are, effectively, in good standing with their tax obligations, when establishing the number of years of the extension of the contract.

Therefore, following this decision, the Supreme Court has clarified a situation that was for a long time marred by the different legal rulings from the Provincial Courts, by finally establishing that the aforementioned minimum term, that is, a period of five years extension shall be applied, as the tenant has not met its tax obligations and therefore has not been able to justify the payment of its tax liability, even though the activity at the business premises would have allowed the tenant to enjoy a longer period pursuant to the business tax tariff.