Commercial leases in Spain: the contract is what decides
In a lease of business premises, what the parties signed governs. There is no compulsory extension, no controlled rent and almost none of the protections of a residential tenancy: the statute only steps in where the contract is silent. Which is why a well-drafted lease of business premises is worth more than any later litigation, and why it is worth reading before signing and before claiming.
Why the contract governs
If you are coming from a residential tenancy, change your expectations here. Leases of business premises in Spain are not covered by the protections people associate with renting a home. There is no minimum term the tenant can insist on, no statutory cap on rent reviews, no automatic right to leave early. Whatever was signed is what applies, and a clause you skimmed over is likely to be the one that decides the dispute.
The statute is explicit: leases for a use other than as a dwelling are governed by the will of the parties; failing that, by Title III of the Ley de Arrendamientos Urbanos (LAU, the Urban Tenancies Act) and, in the alternative, by the Civil Code (art. 4.3 LAU). Only Titles I and IV apply as mandatory law. And where a provision of the Act is to be excluded, that must be done expressly in respect of each one of them (art. 4.4).
This has two consequences worth accepting from the outset. The first: whatever is not agreed is lost or argued about. The second: almost everything people take for granted about renting a home — compulsory extensions, limits on rent reviews, long notice periods — does not apply here unless the contract says so.
What a lease of business premises must say
- Term and extensions. A fixed term, whether there are extensions and of what kind, and the notice required not to renew, with the form that notice must take.
- Early termination by the tenant: whether it is allowed, from when, on how much notice and with what compensation. Without a clause, leaving early may mean paying the remaining rent.
- Rent, reviews and VAT. The index or formula for review — «it shall be reviewed» is not enough — when the review takes place, and how VAT, the IBI (local property tax), service charges and utilities are passed on.
- Permitted use. The particular activity that may be carried on and what happens if it changes. A permitted-use clause drawn too narrowly later blocks any repositioning of the business and any transfer.
- Works. Which ones the tenant may carry out, which need authorisation, and what happens at the end: whether they are removed, whether they accrue to the property and whether they are compensated.
- Assignment and subletting, which is what makes a traspaso possible or impossible.
- Security beyond the deposit: a bank guarantee, a cash deposit, a surety.
- Licences and fitting out: who takes on obtaining the authorisation that covers the activity, and what happens if it is not obtained. It is one of the most useful clauses and one of the most often forgotten.
The deposit and additional security
A cash deposit is compulsory, and in a lease for a use other than as a dwelling it amounts to two months’ rent (art. 36.1 LAU). It is not subject to review during the first five years — seven where the landlord is a legal person — but on each extension it may be adjusted to match two months of the rent then payable (art. 36.2).
At the end, any balance of the deposit falling to be returned carries statutory interest once a month has passed from the handing over of the keys without its being repaid (art. 36.4). It is a small detail worth remembering when the landlord holds on to the deposit «until we see what state the premises are in».
The parties may agree security additional to the deposit (art. 36.5). In business premises an on-demand bank guarantee and a cash deposit of several months are common; what matters is defining precisely when it can be called and when it must be released.
Works and repairs
Business premises are also subject to the Act’s rules on the upkeep of the property, improvement works, works by the tenant and the right to ancillary accommodation, and, from the start of the lease, the rule on raising the rent for improvements (art. 30 LAU, which refers to arts. 21, 22, 23, 26 and 19).
In practice, disputes cluster around three points: the necessary repairs to keep the premises fit for use — at the landlord’s expense, unless the deterioration is the tenant’s fault — the fitting-out works the tenant carries out on moving in, and what becomes of them at the end. If the lease does not say, the tenant usually ends up leaving behind an investment they never recover.
Non-payment of rent and possession proceedings
The landlord may terminate the lease outright on a number of grounds, among them failure to pay the rent or any of the sums the tenant has undertaken to pay, failure to pay the deposit or its adjustment, subletting or assignment without consent, and deliberate damage or unconsented works where consent was required (art. 27.2 LAU). As a general matter, breach by either party gives the other the right to require performance or to terminate under art. 1124 of the Civil Code (art. 27.1).
The usual route is possession proceedings for non-payment with a claim for the arrears, in the same action. It is worth knowing that in leases of business premises the tenant’s right to stop the proceedings by paying does not operate on the same terms as in a residential tenancy, and that the lease can strengthen the landlord’s position considerably where it is registered at the Registro de la Propiedad (the land registry) with the clause provided for in art. 27.4 LAU: in that case, once the tenant has been served with a judicial or notarial demand and ten días hábiles — working days — have passed without a reply, or with the tenant accepting termination, termination takes effect outright and the notarial record serves to cancel the lease at the registry.
If you are the tenant and have fallen behind. The first thing is to look at what the lease says about non-payment and whether a prior demand was agreed; the second is to pay or lodge the money as soon as possible, with a record of it. Negotiating a rent-free period or a deferral in writing is almost always better than waiting for proceedings to arrive: afterwards there is far less room, and the cost includes the other side’s legal costs.
Sale of the premises and the tenant’s rights
Leases for a use other than as a dwelling attract the right of pre-emption — first refusal and the right to be substituted for the buyer — under art. 25 of the Act (art. 31 LAU), unless it has been expressly waived in the lease, which many leases do. If the landlord sells the premises without giving notice of the sale in the terms the law requires, the tenant may step into the buyer’s place; if they signed a valid waiver, they may not.
It is therefore another point where reading the lease decides everything, and it is worth reviewing when buying tenanted premises as well: acquiring without checking whether the tenant still holds that right is risky.
When the lease ends
Besides handing back the premises and the return of the deposit, there is a right peculiar to commercial premises that is lost by failing to give notice in time: the compensation under art. 34 LAU where the lease ends on expiry of the term and for the last five years a retail business selling to the public has been carried on at the premises. It requires that notice of the wish to renew for five further years at market rent has been given four months in advance, and it can reach up to eighteen months’ rent. We deal with it in detail on the page on transferring business premises and licences.
It is also worth documenting the state of the premises on handover, with a photographic record and a schedule signed by both parties. That is the evidence that heads off the argument about damage that always arrives later.
How we handle it, step by step
Drafting or reviewing the lease
With the points that are actually argued about later: term, early termination, permitted use, works, assignment, security and licences. We act for landlords and for tenants, never for both in the same matter.
Assessment where the dispute already exists
What the lease says, what has been breached and what can be required, with an estimate of what each route recovers and what it costs.
Formal demand and negotiation
A burofax (certified letter with proof of its contents) setting out the breach, the time allowed and the consequences. Many arrears are resolved with a documented payment schedule that avoids losing either the tenant or the premises.
Proceedings
Possession and a claim for arrears in the same action, or whichever claim fits the breach in question.
Enforcement and settling up
Eviction where appropriate, settling rent, deposit, damage and works, and bringing the relationship to an orderly close.
Frequently asked questions
Can I give up the premises before the lease ends?
That depends entirely on what was agreed: leases for a use other than as a dwelling are governed by the will of the parties (art. 4.3 LAU) and there is no statutory right to terminate early as there is in a residential tenancy. If the lease does not provide for it, leaving early may mean being liable for the outstanding rent. Before handing back the keys it is worth seeing what room there really is and negotiating it in writing.
The landlord will not return my deposit.
The deposit on business premises is two months’ rent (art. 36.1 LAU), and any balance falling to be returned carries statutory interest once a month has passed from the handing over of the keys without repayment (art. 36.4). If the landlord is withholding for damage, the damage has to be established. Hence the importance of documenting the state of the premises on the day they are handed back.
My tenant has not paid for three months.
Failure to pay the rent or the sums the tenant has undertaken to pay allows the lease to be terminated outright (art. 27.2 a) LAU) and is pursued by possession proceedings with the arrears joined to them. It is worth making a written demand first: it fixes the debt, interrupts time limits and, in a good many cases, produces payment without proceedings. If the lease is registered with the art. 27.4 clause, the route can be quicker still.
I want to change the activity carried on at the premises.
Two things have to be looked at: the permitted-use clause in the lease, which may require the landlord’s consent, and the administrative authorisation covering the activity, which will not normally serve for a different one. Both are sorted out before any works are done, not after.
The premises I rent are being sold.
These leases attract the right of pre-emption under art. 25 LAU by virtue of art. 31, unless it has been expressly waived in the lease. The first step is to check whether you signed that waiver; if you did not and the sale goes through without the statutory notice, you may step into the buyer’s place, within short time limits that should not be allowed to pass.
Where we work
Our office is in Villanueva de la Cañada, with cases in Brunete, Villanueva del Pardillo, Valdemorillo, Quijorna, Majadahonda, Las Rozas, Boadilla del Monte, Pozuelo de Alarcón and the rest of western Madrid. This page forms part of our civil law and tenancies practice; see also transferring business premises and licences and breach of contract.
Tell us about your case
If you are about to sign a lease of business premises, if your tenant is not paying, or if your landlord is demanding something you do not recognise, send us the lease and we will tell you what it actually says and what room you have. We study every case before taking it on, and we tell you frankly whether it has any prospect of success.
First consultation: quoted before we start.
28691 Villanueva de la Cañada (Madrid)