CRITICAL ANALYSIS OF THE EFFECTS OF THE ROYAL DECREE LAW 11/2020 SURROUNDING STANDARD HOUSING LEASES

2020-04-07

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The Royal Decree Law 11/2020 of 31st March, in which urgent complementary social and economic measures are adopted to tackle COVID-19 has set out a series of measures that affect leases currently in affect in Spain. Without analysing which measures could have been put in place regarding other types of lease contracts (of non-standard housing or not subject to the Urban Lease Law (from now on referred to as “ULL”), for different housing purposes, industry or agricultural tenure), which will have benefitted from some sort of regulation in the current situation of economic instability and uncertainty, we will briefly summarise and analyse the new rules that affect standard housing leases.
There are three types of measures: firstly, the regulation of lease contract extensions whose termination is close to the declaration of the state of alarm decreed by Royal Decree 463/2020, of 14 March; secondly the regulation of the effects on lease contracts in which the tenants are in a financially unstable situation as a result of COVID-19; and thirdly, a series of public measures and interventions to help finance the contracts affected by the economic vulnerability caused by COVID-19.

 

1. EXTENSION OF STANDARD HOUSING LEASE CONTRACTS

The first of the measures is an extension of standard housing lease contracts, the motive behind this measure could be (the Explanatory Memorandum does not indicate anything on this measure) to secure a room for tenants whose contracts will end soon, in a situation like the current one, in which general confinement and restrictions of movements set out in the Royal Decree Law 463/2020, of 14th March, in which the state of alarm was declared for the management of the health crisis caused by COVID-19, prevents tenants from finding alternative accommodation (for example, there is difficulty in terms of going to visit potential accommodation options that could be used for standard housing)
The measure only affects standard lease contracts, whose obligatory extension periods (article 9.1 of the ULL) or implied (article 10.1 of the ULL) may end during the state of alarm (currently set to be until 26th April 2020) or within the two months following the end, and in these exceptional circumstances, will be extended for a maximum period of six months, during this period the rest of the terms and conditions of the contract will remain in effect.
It is essential to point out that the Royal Decree Law 11/2020, of 31st March, sets out the maximum extension deadline but not the procedure. In any case, tenants and landlords can come to an agreement about this extension, without clarifying whether such agreements can agree to terms of the extraordinary extension that are more detrimental to the tenant, this is an extension of less than the indicated period of a maximum of six months or in terms and conditions more detrimental to it than those currently regulating such contracts, although, if no other type of agreement is reached, the lessor must bear the extension in question (it must even be understood, as nothing to the contrary is said, that the lessee would not be up to date with the fulfilment of his obligations – of payment or others – or would become in breach of such obligations).
The Royal Decree Law 11/2020 does not explain when the intention not to renew the contracts affected by this measure should be communicated, although interpreting the new rule in conjunction with the provisions of Articles 9.1 and 10.1 of the LAU, we understand that successive extensions of the contracts extended by the Royal Decree-Law can be avoided by giving 30 days’ notice to the date of termination as a result of the legal extension or agreed by the parties.
Situations in which the landlord needs to dispose of the rented property, for himself or for his relatives in the first degree of consanguinity or by adoption, or for his spouse in the event of a final judgment of separation, divorce or marriage annulment, are not protected, both in cases in which the tenant has already been notified of this need before the state of alarm is declared, and in cases in which the tenant is notified afterwards.

 

 

2. MORATORIUM (OR REMISSION) OF RENTAL LEASES TO TENANTS IN A SITUATION OF VULNERABILITY BECAUSE OF THE COVID-19 FOR LEASE CONTRACTS WHOSE LANDLORES ARE LARGE HOLDERS OR COMPANIES OR PUBLIC HOUSING ENTITIES.

The second block of measures affects some standard housing leases whose tenants are in a situation of economic vulnerability due to COVID-19, establishing which contracts may be affected, what is understood by economic vulnerability due to COVID-19, as well as the method of accreditation of this vulnerability and the procedure by which the contracts in question may be affected.
The contracts which may remain affected are those where the landlord acts as a business or a public housing entity or a large holder understood as the individual or legal entity that owns more than ten urban properties, excluding garages and storage rooms, or a built area of more than 1,500 square meters. Also affected are all leases corresponding to the Social Housing Fund derived from Royal Decree Law 27/2012 of 15 November, on urgent measures to reinforce the protection of mortgage debtors. All of the above, understanding that when this Royal Decree-Law refers to a company or public housing entity, it does so without prejudice to the powers that each Autonomous Community has with respect to the companies or public entities that depend on them (for example, the Community of Madrid published a decree in the Official Gazette of the Community of Madrid on April 2, regulating the reduction of the price of rent for housing administered by the Community of Madrid).
Royal Decree-Law 11/2020 does not establish how the tenant can prove that the landlord is a large holder. We understand that by trusting the good faith of the parties in the face of an alarm situation such as the present one. In any case, and given that the Property Registries continue to operate in the current state of alarm, a diligent lessee will be able to obtain information about his or her landlord for this purpose, all without prejudice to the cost that the lessee in a situation of social and economic vulnerability may incur in obtaining said registry information.
Nor does the Royal Decree-Law regulate how situations of pro-individual ownership or those cases in which ownership derives from an inheritance or transmission mortis causa without a will affect the concept of large holder, when these concepts are used in determining the concept of economic vulnerability as a result of the COVID-19.
The measures that will affect these contracts may be, at the landlord’s discretion, either (i) a 50% reduction in the rental income for the duration of the state of alarm decreed by the Government and the following monthly payments, if that period is insufficient in relation to the situation of vulnerability caused by the COVID-19 (we want to understand that this is equivalent to saying that the reduction is maintained if that vulnerability is maintained), with a maximum of four months in any case; or (ii) b) a moratorium on the payment of rental income that will affect the period of time that the state of alarm decreed by the Government lasts and the following monthly payments, which may be extended one by one, if that period is insufficient in relation to the situation of vulnerability caused by COVID-19, with a maximum of four months in any case. This rent will be deferred, as from the next monthly rental payment, by means of the instalment of the quotas for at least three years (without establishing a maximum instalment period), which will be counted from the moment in which the aforementioned situation is overcome, or from the end of the four-month period mentioned above, and always within the period during which the rental contract or any of its extensions continues to be in force. The lessee will not be penalized in any way and the deferred amounts will be returned to the lessor without interest.
We understand that, in the absence of the landlord’s discretion, the second option, the moratorium on rent payments, applies, since when referring to it the Royal Decree-Law says that it “shall apply automatically”.
Thus, in an extreme case, and assuming that we accept that the first rent which is able to be postponed is the monthly rent for the month of April, and that the state of alarm does not extend beyond this month, a tenant may obtain a postponement of the monthly rent from April to August 2020, payable in instalments from September 2020 until at least September 2023, assuming that the affected contract has a duration until that date, and if it does not, until the date of duration of the contract. All this without, as we say, making it clear who determines whether the period in which the deferred rent is paid ends in September 2023 or later.
The terminology used in the Royal Decree-Law is also confusing when it refers to the fact that the measures (Explanation of reasons and name of Article 4) affect the rental debt. Should it be understood that debt already generated before the entry into force of the Royal Decree-Law, and which is not affected by an eviction procedure – to which Article 1 of the Royal Decree-Law would apply or provide – may be subject to a remission or a moratorium? It does not seem so, in the spirit of the rule, but it would have been more convenient to always use the term rental income throughout the rule, as well as to refer expressly to the income accrued during the time of the state of alarm as mentioned in Article 4.2.
On the other hand, paragraph 4 of Article 4 of Royal Decree-Law 11/2020 regulates that the moratorium will be lifted from the moment the tenant begins to receive the transitional financing aids regulated by Article 9, without it being clear whether this also affects the partial remission of rent, in the event that the aids begin to be received before the end of the state of alarm. This doubt arises from the fact that Article 4 is called “Automatic application of the moratorium on rental debt in the case of large holders and public housing companies or entities” and from the analysis made earlier of the measure that applies in the absence of a decision by the lessor on the measure that he prefers to apply to the contract concerned. Thus, a lessor granting a remission to its tenant cannot know at the date of this Decision whether or not that remission will cease if its tenant has access to the aid in question. Once again, the brevity of the explanatory memorandum does not allow us to interpret Article 4(4) better, since it only refers to the fact that these measures are intended to be balancing measures which prevent vulnerability from being transferred to small owners by resolving the situation of tenant.
On the other hand, in order for the contracts affected to be effectively affected, it is necessary that the aforementioned situation of economic vulnerability due to the COVID-19, a situation of vulnerability defined in Article 5, and whose accreditation is regulated in Article 6, be present.
Thus, a situation of economic vulnerability due to COVID-19 will be considered to exist when the following subjective requirements are jointly met
The first requirement (paragraph 1(a)) has been drafted, again in a confusing manner, and seems to include two cumulative ‘sub-requisites’:
• That the person who is obliged to pay the rent (1) becomes unemployed, (2) has a Temporary Employment Regulation (ERTE) file, or (3) has reduced his or her working hours due to care, (4) in the case of an employer, or other similar circumstances involving a substantial loss of income. We want to understand that this is the correct reading of this letter a), the wording of which, again, is confusing. We understand that the third or fourth cause may be applied to the employer, provided that it involves a loss of income and provided that it is “similar” to losing one’s job or having one’s hours reduced for care purposes. Likewise, we understand, in the spirit of the rule and of the reading together with the second “sub-requisite”, that it will be enough, for the cases in which there are several tenants of the same habitual residence, that it will be enough that one of them has been affected by one of the three situations referred to here, as long as the mentioned second “sub-requisite” is fulfilled.
That the total income of the family unit does not reach, in general, the limit of three times the monthly Public Indicator of Multiple Effects Income (hereinafter IPREM) in the month prior to the application for the moratorium, that is 537.84

This limit will be increased by 0.1 times the IPREM for each dependent child in the family unit. The applicable increase per dependent child will be 0.15 times the IPREM for each child in the case of a single-parent family unit.

The limit will also be increased by 0.1 times the IPREM for each person over 65 years of age in the family unit.

In the event that any of the members of the family unit have a declared disability of more than 33 percent, a situation of dependency or illness that permanently incapacitates them to carry out a work activity, the limit provided for in sub-section i) shall be four times the IPREM, without prejudice to the accumulated increases per dependent child.

In the event that the person obliged to pay the rental income is a person with cerebral palsy, with mental illness, or with an intellectual disability, with a recognised degree of disability equal to or greater than 33 per cent, or a person with a physical or sensory disability, with a recognised degree of disability equal to or greater than 65 per cent, as well as in the cases of serious illness that makes the person or his/her carer demonstrably incapable of carrying out a work activity, the limit provided for in subsection (i) shall be five times the IPREM.

It does not regulate the rule if the date of application for the moratorium determines that the moratorium (or remission) will only affect income subsequent to the application. Given that, as we shall see, the request for a moratorium by the tenant has an expiry date of 1 month from the entry into force of the Royal Decree-Law (i.e., it must occur no later than 2 May 2020), this – and the tuitive nature of the rule in general – would seem to determine that it affects not only income subsequent to the request, but all income accrued since the tenant can be considered a vulnerable person because of the COVID-19 (we understand that not the previous ones, although the wording is confusing).
For the purposes of the provisions of this Article 5, a family unit shall be understood to be composed of the person who owes the rental income, his or her spouse not legally separated or registered partner and the children, regardless of their age, who reside in the dwelling, including those linked by a relationship of guardianship, custody or foster care and their spouse not legally separated or registered partner, who reside in the dwelling.

The second requirement (paragraph 1(b)) means that the rental income, plus basic expenses and supplies, must be at least 35 per cent of the net income received by all the members of the household. For these purposes, ‘basic expenses and supplies’ means the amount of the cost of the supply of electricity, gas, heating oil, running water, fixed and mobile telecommunications services, and any contributions to the owners’ association, all of which are payable by the tenant of the main dwelling.
In any case, it will not be understood that there is economic vulnerability as a result of the health emergency caused by the COVID-19 for the purposes of obtaining moratoriums (and, we understand, condonation) or aid in relation to the rental income of the main dwelling when the person renting it or any of the persons who make up the family unit that inhabits it is the owner or usufructuary of a dwelling in Spain (it is not understood why other forms of property are not valued – shares or holdings in companies, savings on deposits, current accounts, …-). In any case, these circumstances will not be considered to exist when the right falls only on an aliquot part of the dwelling and it has been obtained by inheritance or by means of transmission mortis causa without a will. This requirement will also be waived for those who, being the owners of a dwelling, certify the unavailability of the same due to separation or divorce, for any other cause beyond their control, or when the dwelling is inaccessible due to the disability of the owner or of any of the persons who comprise the cohabitation unit.
Once again, it seems that the rule would oblige those tenants who have a dwelling in their own name, to dispose of these dwellings by means of article 9.3 of the LAU, without prejudice to the fact that this implies a 2-month prior notice to their own tenant, which represents a serious problem in the management of these situations, both for the tenant who owns another rented dwelling, and for the tenant of that dwelling, who must deliver it to its owner. For example, if the rental contract in which the tenant is the owner of another dwelling expires on 10 April 2020 and for more than two weeks he or she has not been able to visit the property in order to obtain a new dwelling, where will this tenant stay for the two months after giving notice – with legal advice to confirm that he or she complies with the requirements of the aforementioned article 9.3 of the ULL – to his or her own tenant, for example, on 3 April 2020? The question is where will they stay until June 3, 2020? And if that dwelling, due to its size, cannot meet the housing needs of the owner’s family unit, for example, because they have a one-bedroom dwelling and three dependent children? And how will the evicted tenant locate a habitual residence if the confinement and mobility restrictions are extended?
Similarly, it does not seem congruent with the spirit of the rule that a tenant is not considered to be in a situation of vulnerability when he or she owns a second home for, for example, holiday use; it is intended that the tenant of a habitual residence affected economically and socially as a result of the health emergency caused by the COVID-19 and that he or she owns a second residence should now move his or her first residence to that second residence, even if it is located in another municipality?
With regard to the accreditation of the requirements that make up the situation of vulnerability due to the COVID-19, Article 6 states that the legal situation of unemployment is accredited by a certificate issued by the entity that manages the benefits, in which the monthly amount received as unemployment benefits or subsidies is stated; the cessation of activity of self-employed workers, by a certificate issued by the State Tax Administration Agency or the competent body of the Autonomous Community, as appropriate, on the basis of the declaration of cessation of activity declared by the interested party; the number of people living in the usual residence, by means of the Family Book or document accrediting the status of unmarried couple, by means of a certificate of registration relating to the people registered in the residence, with reference to the time of presentation of the accrediting documents and the previous six months, which must be requested from the corresponding Town Hall (we imagine that some of the towns most affected by the COVID-19 may take a while to issue these certificates in view of the avalanche of requests they may receive), or by means of the corresponding declaration of disability, of dependency or of permanent incapacity to carry out a work activity (it is understood that, although the rule says that with said declarations, the number of persons in the family unit is accredited, in reality, they will serve to accredit the causes of application of one or another level of income of said family unit for the purpose of evaluating the supervening vulnerability). The ownership of the real estate property that the tenants must prove in order to avoid the exclusion provided for in article 5 point 3 will be a simple note from the index service of the Land Registry of all the members of the family.
In addition, the tenant (debtor or debtors, according to the Royal Decree-Law) must provide a responsible statement regarding the fulfilment of the requirements demanded to be considered “without sufficient economic resources according to this Royal Decree-Law” and that may also serve to complete the absence of other documents referred to above, temporarily, having to provide these documents within 1 month from the end of the state of alarm.
Without prejudice to the fact that, in terms of legislative technique, it would have been more correct for the aforementioned responsible declaration to serve to accredit all those requirements whose method of accreditation does not already appear in article 6. 1, in order to maintain a unity of terminology (the Royal Decree-Law has not defined the concept of “sufficient economic resources”), we find it certainly striking that, since the subjective requirements of an economic nature established in the Royal Decree-Law itself (and already referred to) can certainly be accredited with supply invoices and bank statements (not even certified, although the banking services continue to operate for the provision of indispensable services), the method chosen for the accreditation of that absence of sufficient economic resources is a responsible declaration.
Nor is it understood that there is not even a method of providing documentation, even after the alarm has been lifted, by which lessors can control the veracity of their tenants’ declarations. Neither is the lessor granted the right to demand the documentation that accredits the situation of vulnerability due to the COVID-19, so the only way that the lessors will have to control the veracity of the declarations received, to obtain the satisfaction of the damages generated by those incorrect or fraudulent declarations and of the expenses generated (which cannot be less than the benefit unduly obtained by the lessee due to the application of the rule, According to article 7 of the Royal Decree-Law) will be the criminal procedure, we understand that the presumed crime of fraud with the complication that a unilateral responsible declaration can be considered to be sufficient deception and with the requirement of at least eventual fraud, in which it is also difficult for the lessor to have sufficient data to constitute indications that lead the Courts of Instruction to open Preliminary Proceedings.
Having explained the requirements for obtaining a moratorium or remission of rental income, the procedure established for obtaining it is regulated in Articles 4 and 6, and involves, as we have already mentioned that the deadline for requesting the postponement of income or the remission of income is 2 May 2020 (regardless of any extension of the state of alarm and unless otherwise provided for in the rules governing them), the subjective requirements being that the request must be met in the month prior to the request, and without prejudice to any agreements that may be reached by mutual agreement between the parties. The lessors may choose between the two options indicated within 7 working days, under the terms already stated.
In order to put an end to this block, Article 8 regulates the possibility that tenants whose landlords are not large holders or public housing companies or entities, may request from their landlords before 3 May 2020 a temporary and extraordinary postponement of the payment of the rent without indicating that this postponement is the same as that defined in Article 4.2.b), provided that this postponement or total or partial remission of the rent has not been voluntarily and previously agreed with the landlords. The lessor will have 7 working days to accept the proposal or make an alternative proposal, but, if he does not accept any agreement and, in addition, the lessor is a natural person, the lessee may have access to the transitional financing aids for lessees regulated in Article 9 of the rule.
It is not clear whether this is a mistake or not, or why it is included as a requirement for access to transitional financing aids that the lessor must be a natural person, which would certainly limit access to aids for many tenants.

 

3. HELP FOR TENANTS AND MOBILISATION OF ECONOMIC RESOURCES

The third and final block of measures consists of a series of aids to tenants and provisions for mobilising financial resources at administrative level.
The first of the approved aids (Art. 9) consists of an authorisation for the Ministry of Transport, Mobility and the Urban Agenda, through an agreement with the Official Credit Institute, to develop a line of guarantees so that banks can offer transitional financing assistance to people who are in a situation of vulnerability as a result of COVID-19 (in accordance with the criteria and requirements defined through an Order from the aforementioned Ministry) and which will include in all cases, and at least the situations defined in Article 5 of this Royal Decree-Law), so that they can pay the rental income (up to six months’ rent) with a return period of up to six years, exceptionally extendable for a further four years and in no case accruing any costs or interest for the applicant and with full State coverage for banks. This agreement between the Ministry and the ICO will be for a period of 14 years, on the understanding that this is the period within which the State must reimburse the amounts not returned to the banks by the beneficiaries of the aid.
Secondly, it is agreed that a new programme of direct rental assistance for people with temporary problems will be incorporated (by Order of the same Ministry of Transport, Mobility and the Urban Agenda) into the State Housing Plan 2018-2021 to cover the partial or total payment of rent and to fit in with the situations of supervening economic and social vulnerability that will be defined and which will include in any case, and as a minimum, the situations defined in article 5 of the Royal Decree-Law. The amount of this aid will be determined by the competent bodies of each Autonomous Community and of the cities of Ceuta and Melilla, with a limit of 900 euros per month and up to 100% of the rental income or, where appropriate, up to 100% of the principal and interest of the loan taken out to pay the rent for the permanent home.
Thirdly, an Order of the Ministry of Transport, Mobility and the Urban Agenda will replace the Programme of assistance to persons in a situation of eviction or the launch of their habitual residence under the State Housing Plan 2018-2021, with the new “Programme of assistance to victims of gender violence, persons subject to eviction from their habitual residence, homeless people and other particularly vulnerable people” with the aim of providing or facilitating an immediate housing solution for these people and public administrations, public companies and non-profit, collaborative economy or similar entities, always on a non-profit basis, whose aim is to provide a housing solution for these people and on their behalf. This program, without having a necessary link with the situation of economic vulnerability due to the COVID-19, is understood to affect people affected by this situation.
The Ministry of Transport, Mobility and the Urban Agenda will also modify the programme for the promotion of rental housing, but will incorporate a new case that will make it possible to allocate the aid to public administrations, public bodies and other public law entities, as well as public companies and third sector entities (associations, foundations, etc.) with no profit motive in mind, for the purchase of housing in order to increase the public housing stock to be used for rental or social use.
On the other hand, as measures to mobilize economic resources between administrations, the Ministry of Transport, Mobility and the Urban Agenda is authorized to transfer to the Autonomous Communities and the cities of Ceuta and Melilla 100% of the funds committed for 2020 and 2021 in the agreements for the execution of the State Housing Plan 2018-2021, without waiting for the acquisition of the financial commitment by the former or any other requirement demanded in the agreements, simplifying in part the processing of the transfer, and also authorising the Autonomous Communities and the cities of Ceuta and Melilla to dispose of the funds committed by the Ministry of Transport, Mobility and Urban Agenda) in the agreements for the execution of the State Housing Plan 2018-2021 and that had not been committed, in turn, by the same, for the granting of rental subsidies, by means of direct award, in application of the new program of subsidies to contribute to minimizing the economic and social impact of the COVID-19 on the rents of habitual residence, without the need for the prior agreement of the Bilateral Monitoring Commission which, in accordance with Article 6(5) of Royal Decree 106/2018 of 9 March regulating the State Housing Plan 2018-2021, should be formalised to redistribute State contributions among the various programmes of the Plan.
Finally, Article 6(2) and (3) of Royal Decree 106/2018 of 9 March regulating the State Housing Plan 2018-2021 will not apply to the state funds that the Autonomous Communities and the cities of Ceuta and Melilla commit to in the aid programme to help minimise the economic and social impact of COVID-19 on rents for permanent housing.

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