Large holders are forced to choose between a 50 percent deduction or a deferment of rent

The main measures regarding residential leases passed in the context of the Covid-19 Crisis in Spain are included in Royal Decree-Law 11/2020 of 31 March ("RDL 11/2020"). This RDL 11/2020 was afterwards slightly amended by Royal Decree-Law 15/2020, of 21 April, Royal Decree-Law 16/2020, of 28 April, Royal Decree-law 30/2020, of 29 September, Royal Decree-Law 2/2021, of 26 January; Royal Decree-law 8/2021, of 4 May; and Royal Decree-law 16/2021, of 03 August. The most important aspects of this RDL 11/2020, as amended, are described below in a question-and-answer format:

1. MORATORIUM ON RENT LEASE

1.1 What is it?

Certain tenants may apply for a reduction in their rent lease or a moratorium that will be applied automatically (without the landlords' consent) if certain circumstances are proved. We will see the details below.

It is important to note that this measure concerns only residential leases (not premises/industrial).

1.2 Who are the landlords affected?

The landlords who are mandatorily affected by the moratorium are the following (the "Mandatory Moratorium"):

• companies or public entities;
• the social housing fund (Fondo Social de la Vivienda); and
• large holders (grandes tenedores), meaning individuals or legal entities that own more than ten urban properties (excluding garages and storage rooms) or properties with an aggregate built area of more than 1,500 square meters.

For the remaining lessors (private owners who are not large holders) the moratorium is subject to the voluntary agreement between the parties. Lessees may ask for a moratorium in the terms referred to in point 1.5 below but, if the parties do not reach an agreement, the lessee may only have access to a financial assistance programme through an ICO (Instituto de Crédito Oficial) guarantee line which is also established under RDL 11/2020 (and which we summarise below). In this case, therefore, the moratorium is optional for the lessor (the "Optional Moratorium").

1.3 Who is entitled to request the moratorium?

These requirements must be met cumulatively:

• the lease agreement must be for permanent residence and must have been entered into subject to Law 29/1994 of 24 November 1994, on Urban Leases ("LAU");
• the tenant must be an individual who is under economic vulnerability situation as defined in RDL 11/2020 (and detailed below); and
• the moratorium does not apply if the parties had previously reached an agreement for the deferment or partial or total write-off of the rent.

Nor does the moratorium apply where the tenant or someone in his/her family unit has any other residential unit available under the conditions that we will see later when referring to economic vulnerability situation.

1.4 From when and until when may the moratorium be requested?

Tenants who are under economic vulnerability situation may request the moratorium until 31 October 2021. To do so, they shall provide the documentation that proves their situation.

1.5 What does the Mandatory Moratorium consist of?

The terms of the moratorium are, firstly, subject to an agreement between the parties.

If no agreement has been reached, the landlord must necessarily choose between two alternatives within a maximum of seven business days as from the tenant's request:

• A 50% reduction of the rental income during the period of the state of alert and up to four months thereafter if the tenant remains in a vulnerable situation.
• A moratorium of the payment of the rent during the period of the state of alert and the following monthly instalments, extendable one by one (while the tenant is under economic vulnerability situation) up to a maximum of four months.

This deferral is automatically applied from the next monthly instalment and will be recovered through splitting rent instalments once the tenant has overcome the situation or four months have passed since the end of the state of alert (whichever occurs first). From that moment on and until three years have passed (or until the termination of the lease agreement, if it expires earlier) the tenant will pay on each instalment a fraction of what he did not pay at the time without any penalty or interest.

RDL 11/2020 does not indicate what happens if the landlord does not expressly communicate to the tenant, as required, which option has been chosen.

1.6 What are the assumptions of economic vulnerability for this RDL 11/2020?

Two requirements must be met cumulatively:

1. The tenant becomes unemployed or, suspended by virtue of the procedure known as ERTE (Spanish for Temporary Employment Regulation Procedure), has reduced working hours for care reasons, in the event of an entrepreneur, or similar circumstances which imply a substantial loss of income, due to which the total income of the members of the family unit does not exceed, in the month prior to the request of the moratorium:

(i) As a general rule, the limit of three times the monthly Public Indicator of Multiple Effects Income (Indicador Público de Renta de Efectos Múltiples, hereinafter IPREM). This limit shall be increased by:

• 0.1 times the IPREM for each dependent child in the family unit. The applicable increase per dependent child shall be 0.15 times the IPREM for each child in the case of a single-parent family unit; and
• this limit shall be increased by 0.1 times the IPREM for each person over 65 years of age in the family unit.

(ii) The limit shall be four times the IPREM in the event that any of the members of the family unit has a declared disability equal to or greater than 33 percent, a situation of dependency or illness that makes him/her permanently incapable of carrying out a work activity, without prejudice to the accumulated increases per dependent child.

(iii) The limit shall be five times the IPREM in the event that any of the individuals living in the leased residence:

• has cerebral palsy;
• mental illness;
• intellectual disability, with a recognised level of disability equal to or greater than 33 percent;
• physical or sensory disability, with a recognised level of disability equal to or greater than 65 percent; or
• serious illness that incapacitates the person or his/her carer, on an accredited basis, to carry out a work activity.

Please note that the IPREM is an indicator published yearly (which is currently EUR 537.84 per month for 2020), similar to the minimum wage, used in Spain to determine access to public grants and subsidies.

2. The rent instalment, plus basic expenses and supplies, is greater than or equal to 35 percent of the net income received by all the members of the family unit.

For these purposes, family unit is defined as an unit consisting of the debtor, his or her spouse not legally separated or registered partner and the children, regardless of age, residing in the permanent residence, including those linked by a relationship of guardianship or foster care.

It will not be understood that the situation of economic vulnerability concurs where the tenant or any of the persons who compose the family unit is the owner or usufructuary (usufructuario) of a residential unit in Spain unless (i) they only have an aliquot part and have obtained it by inheritance or by transmission mortis causa without a will; (ii) when they prove that they cannot dispose of the residential unit (due to separation, divorce or any other cause beyond their control) or (iii) when the residential unit is inaccessible due to the disability of the owner or any of the persons who form the cohabitation unit.

1.7 What if the tenant was not entitled to a deficiency but he/she does request it and it is granted? What if he/she is artificially kept in a vulnerable situation?

The tenant will be liable for damages (at least for the amount of the benefit enjoyed) and for the costs generated by the exceptional measures. Notwithstanding any other penalty that may be applicable (for example, in the event of false documentation).

2. OTHER AIDS FOR TENANTS

2.1 What other aids do tenants have under this new RDL 11/2020 that directly affect the corresponding landlords?

(a) Suspension of eviction. For further information on this measure, please click here.

(b) Mandatory extension of permanent residential lease agreements: Tenants may request an extension of up to six months of those permanent residential lease agreements subject to the LAU whose mandatory or tacit extension (articles 9.1 and 10.1) ends from 2 April 2020 (entry into force of the rule) and up to 31 October 2021.

The landlord must accept this extension unless he can reach a different agreement with the tenant. Exceptions are made in cases where the landlord has communicated in time and form the need to occupy the rented residential unit as permanent residence for himself, his relatives in the first degree of consanguinity or his spouse (in cases of a final judgment of separation, divorce or marriage annulment).

(c) Approval of an ICO guarantee line. Together with ICO (Instituto de Crédito Oficial), guarantee lines (totally covered by the State) will be issued by banks for a period of up to fourteen years under the following conditions:

• the applicant must be a tenant in a vulnerable situation (as defined in the relevant regulation which may go beyond this RDL 11/2020);
• the repayment must be up to six years, exceptionally extendable for another four years;
• no expenses or interest will accrue for the applicant;
• the funds can only be used to pay rent; and
• maximum amount of six monthly instalments.

Obtaining financing in this way lifts the moratorium on rent payments and, where appropriate, triggers the payment of previously deferred amounts in instalments from the next rent payment due.

A maximum of Eur 1,200 million is assigned to the line.

2.2 Is there any other option for tenants?

• State public aid programme. Granting of rental public aid to vulnerable adult tenants (as defined in the corresponding regulation that may go beyond this RDL 11/2020) who have difficulties in the payment of their rent.
• Modification of the programme for the promotion of residential housing. The modification must incorporate a new scenario that allows the public aid to be allocated to the purchase of residential units in order to increase public housing. Therefore, aids will be available for residential units acquired by public law entities to increase the public real estate portfolio for social rent or social use.