On 5 June the Official Gazette of the Spanish State (BOE) published Act 4/2013, 4 June, on measures for increased flexibility and promotion of the rental housing market. The main objective of this Act is to achieve greater flexibility of the rental market, reinforcing freedom of contract and giving priority to the will of the parties, reducing the tacit renewal of the validity of the lease agreement and its extension, recovery of the property by the lessor in certain cases and allowing the lessee the ability to withdraw from the agreement at any time, after a minimum period of at least six months.

Among the main provisions that modify the Urban Leasing Act (LAU) applicable to rental housing agreements, the following are worthy of mention.

The drafting of the new Article 4 LAU establishes that the agreement will be governed by the pacts, clauses and conditions determined by the will of the parties. The LAU and Spanish Civil Code will be applied supplementarily.

With regard to the duration of the leasing agreement, the period of tacit renewal is reduced to a maximum period of 3 years instead of the 5 that was in force previously. The tacit renewal will not be applicable if the lessor, first degree relatives or spouse in the event of separation or divorce, need the property for use as a permanent dwelling and notifies this at least 2 months prior to the date on which it is going to be needed.

The drafting of the new article 11 LAU allows the lessee to cancel the agreement following a minimum period of 6 months, for which an advanced notice of 1 month will be enough. The parties may agree upon the compensation to be applied in the event of unilateral early termination by the lessee.

If the lessor loses his right as a result of a conventional right of first refusal, the opening of a trustee substitution, the compulsory transfer deriving from a mortgage foreclosure or legal ruling, or the exercise of a purchase option, the lease will be automatically terminated, unless such agreement is entered in the Land Registry, in which case it will remain valid for the duration stipulated. The automatic termination of the lease is likewise permitted if the property is transferred to a third party and the lease agreement has not been previously entered in the Land Registry.

With regard to the rent for the lease agreements, the amendment of the LAU establishes that it is permitted that the *lessee cover the expense of the fitting out of the dwelling in exchange for a rental period. It likewise allows that the rent be updated yearly by the amount that has been agreed upon by the parties. In the absence of an agreement, it will be updated by application of the Consumer Price Index. If renovation works] are performed to the dwelling, the rent may be updated upon the conclusion of a term of 3 years. The new Article 25 LAU establishes that the parties may resolve to waive the right of first refusal by the lessee, which will be applicable at any time for the duration of the agreement and not following the tacit renewal, as set forth in the repealed version thereof.

In its new version of Article 27.4, the amendment of the LAU also establishes the possibility of terminating lease agreements in cases in which the lack of payment by the lessee refers to agreements entered in the Land Registry. In this case, the termination will take place with full rights once the lessor has sent a legal or notarial summons to the lessee, petitioning for the payment or fulfillment thereof and the latter does not respond to the summons within the next 10 business days, or responds by accepting the termination, all of which by means of the judge or notary that sent the summons. The supporting document furnished to the proceeding and the copy of the deed of summons, with or without a response accepting the termination, will suffice for the cancellation of the lease in the registry.

Finally, we should emphasize that Act 4/2013 also includes given changes to the Spanish Civil Procedure Code in order to expedite eviction processes. To this regard, the eviction is linked to the lack of opposition of the defendant, so that if the latter fails to address the payment notice or appear to challenge or settle, a decree will be pronounced deeming the trial as having ended and ordering the eviction. Lastly, and for the protection of lessors, a registry of final rulings for the nonpayment of rent is created, to which all property owners that wish to execute leasing agreements for these will have access. The persons entered in such registry may seek the cancellation of the entry once they have paid the debt to which they were convicted. Entries will be cancelled automatically once the maximum period of 6 years has elapsed.

The new provisions of the LAU will be applicable for any new lease agreements executed as of 6 June 2013. The new provisions of the Spanish Civil Procedure Code will not be applicable for those processes that were already underway on 6 June 2013.