Real Estate 2024 Comparisons

The main sources of real estate law in Spain include:

• the Spanish Civil Code or equivalent regional legislation (legislación foral);
• Act 49/1960, of 21 July, on Horizontal Division (special condominium regime applicable to buildings);
• Act 29/1994, of 24 November, on Urban Leases;
• Decree of 8 February 1946, on the Mortgage Act;
• Decree of 14 February 1947, on Mortgage Regulation;
• Royal Legislative Decree 7/2015, of 30 October, on the Land Act;
• Act 38/1999, of 5 November, on Building Development (LOE); and
• Act 12/2023, of 24 May, on the Right to Housing.

The autonomous regions have competencies in territorial and urban planning, as well as housing. Zoning, however, falls under the jurisdiction of the municipalities.

For the real estate market, after a 2022 marked by strong growth in residential property prices, 2023 has seen a slowdown in activity, with a decline in the number of transactions and an increase in prices overall. In addition, the real estate market has grown strongly on the back of development in the hospitality and logistics sectors, as a complement to residential assets.

Some of the most relevant transactions executed during 2023 were:

• the sale and purchase of a 17-hotel portfolio owned by Equity Inmuebles, SL to the Abu Dhabi Investment Authority – EUR600 million;
• the sale and purchase of a 70-building portfolio owned by WP Carey to the Junta de Andalucia – EUR328 million; and
• the sale and purchase of the hotels and club branded as “Pacha” in Ibiza owned by Trilantic Capital Partners to Five Holdings – EUR320 million.

The economic repercussions of the conflict in Ukraine, such as increased interest rates, inflation, rising construction and energy costs, etc, have prompted significant regulatory activity in Spain’s real estate market throughout 2023, particularly regarding residential rental properties. Of particular note in this regard are:

• the restriction on annual rent adjustments for residential rental contracts, which remained in effect throughout 2023 as per the provisions of Royal Decree-Law 6/2022, dated 29 March; and
• Act 12/2023, which passed on 24 May, concerning the right to housing, and which introduces several interventionist measures in the rental market aimed at curbing residential rent in Spain.

Several additional trends have been observed in the Spanish real estate market:

• Property repurposing – in response to changing market demands, underutilised commercial office spaces has been repurposed into residential properties, mixed-use developments or co-living spaces, reflecting evolving lifestyle preferences and work dynamics.
• Financial diversification – the real estate market has expanded beyond traditional bank financing to explore a range of alternative funding sources including debt funds and crowdfunding platforms.
• Sustainability and ESG focus – developers and investors are increasingly integrating energy-efficient features, green building certifications and sustainable design practices into their projects to meet evolving market demand and regulatory requirements.
• Digital transformation – the adoption of digital tools and platforms in the real estate sector has accelerated, especially in areas such as virtual property viewings, online transactions, and property management.

Among all the measures and concepts outlined in Act 12/2023, dated 24 May, regarding the right to housing, perhaps the most significant is the provision allowing autonomous regions to declare areas with a stressed housing market. The above-mentioned declaration involves the implementation of rent limitation in said areas.

However, as of the issuance of this document, only the region of Catalonia has declared a stressed residential market area. There are rumours in the press suggesting that Navarre, Asturias, and the Basque Country may also be considering such measures.

The main property right in Spain is absolute property or full ownership, the civil law equivalent of the common law concept of “freehold”. Absolute property grants the entire right to enjoy, use, encumber and dispose of an asset without limitations other than those set forth in the applicable regulations, such as planning and zoning limitations, the rights of neighbouring owners, and other general considerations such as aviation easements.

Spanish legislation also stipulates other property rights such as: 

• co-ownership (condominio), which refers to the ownership of a thing or right belonging pro indiviso to several owners; and
• bare ownership (nuda propiedad), which is the right of a person (called the “bare owner”) to own a property with the limitation of not being able to enjoy or benefit from it, and where the “usufruct” is the right of enjoyment, use, and benefit of a person (called the “usufructuary”) over a property owned by a bare owner.

The Spanish Civil Code contains the general applicable regulations for the transfer of private properties. Concerning public properties, Section 1.1 of Act 33/2003, dated 3 November, on Public Administration Holdings, applies.

Additionally, depending on the intended use of the property, the type of transmission, and its location, additional administrative regulations and authorisations may apply. These may include sector-specific legislation and regulations applicable to foreign investors.

In Spain, to acquire ownership of real estate, it is necessary to have a valid acquisition title (“title”) and the physical delivery or legal transfer of the property (“mode”). In other words, having a document that demonstrates the intention to acquire the property (the title) is not sufficient; it is also necessary to carry out a material or legal act that effectuates the transfer of ownership (the mode).

The title can be a sale and purchase agreement, a donation, or an inheritance, among other legal documents that establish the right of acquisition over property.

Regarding registration in the Land Registry, it is not compulsory (except for certain rights such as mortgages or surface rights), but it is common practice and highly recommended to register the granting of a public deed. Such registration grants public protection to any good-faith third-party purchaser who acquires their title from a registered owner.

The system is so effective and secure that recourse to title insurance is often not required and only necessary in certain circumstances. Evidence of the effectiveness of the system is the fact that it has remained unchanged since the COVID-19 pandemic.

The prospective investor often conducts a due diligence review to check legal, technical, environmental and other matters affecting the targeted real estate. Such review usually includes issues such as:

• title of ownership of the asset;
• charges and encumbrances;
• cadastre information;
• leases and occupancy status;
• co-ownership rules;
• urban planning status and licences;
• payment of property taxes; and
• third-party rights (including those of public administrations).

The Spanish Civil Code automatically provides legal warranties against any dispossession regime (“eviction”) and a warranty against hidden defects in the sold asset.

An alternative or complementary regime of representations and warranties (“R&W”) may be agreed upon by the parties. Some examples of the most common seller’s R&W include:

• the seller’s capacity to execute the transaction;
• the asset is free of charges, encumbrances, tenants, and occupants, up to date with tax payments, expenses, and free from any litigation or administrative procedures;
• compliance with current regulations; and
• confirmation that there are no third-party rights such as preferential acquisition or right of first refusal.

Sellers often seek to limit their liability arising from the R&W regime, which is initially unlimited, by methods such as:

• establishing a threshold for compensation;
• limitation periods (12–24 months, except for tax and urban planning representations); and/or
• liability caps

Buyers’ remedies against the seller for misrepresentation include contract resolution, return of any reciprocal benefits, compensation for damages to the buyer, or mandatory execution of the agreement.

Furthermore, it should be noted that some of the most common R&W are also mandatory content in sales contracts, such as those related to environmental status, the existence of rights of first refusal and the existence of urban charges.

The most important areas of law for an investor to consider when purchasing real estate are:

• real estate contractual law – civil law, property rights, charges and encumbrances that may affect the asset; 
• urban planning and administrative – public law:
1. the regulations pertaining to planning and zoning which may affect the asset; and
2. the granted licences;
• corporate law – structuring the investment; and
• taxation – the direct and indirect tax structure implications of real estate transactions.

R&W regarding environmental matters are not common practice, but some regulations request them under certain parameters or on certain occasions. In Spain, starting from 10 April 2022, it is mandatory to include an explicit statement in the deed formalising the acquisition regarding whether any activity that may have contaminated the soil has been carried out on the property. This statement will be subject to a marginal note in the Land Registry, for the purpose of providing corresponding registry publicity.

Regarding liability, the “polluter pays” principle applies in Spain. This means that the person who caused the pollution is liable and shall assume the expenses involved in compensation and will bear the costs of remediation. 

General municipal urban development plans (PGOU) contain the uses permitted for a plot, sector, and zones.

Urban agreements with the relevant public authorities are common in Spain to facilitate a project, eg, the execution of public interest or local sectorial plans. In addition, it is possible to subscribe to an urban agreement (convenio urbanístico) between the town hall and a developer, see 4.6 Agreements with Local or Governmental Authorities.       

Expropriation is permitted under Spanish Law if the expropriation is justified by public interest and under the payment of compensation or “fair price” to the title holders affected.

The procedure first requires the prior declaration of “public utility” of the project and requires the occupation of the property or the acquisition of the affected economic rights.

In order to carry out the expropriation, the expropriator must submit a file, which must be duly published.

Taxation on real estate transactions depends on the envisaged deal scheme (ie, asset or share deal), the type of real estate asset to be transferred (rustic or urban land), and constructions, as well as the condition of the parties intervening in the transaction, eg, an entrepreneur acting as such or a consumer.

Asset Deal

VAT and property transfer tax

The condition of the seller determines whether an asset deal shall be subject to VAT or property transfer tax.

If the seller does not qualify as an entrepreneur or as a professional for VAT purposes, the real estate transfer will be subject to property transfer tax (“transfer tax”) borne by the purchaser. Applicable tax rates vary depending on the autonomous region where the asset is located (tax rates range from 6% to 11% on the “value of reference”).

If the seller qualifies as an entrepreneur or professional for VAT purposes, the real estate transfer will be subject to VAT, which shall be charged by the seller and borne by the purchaser. The applicable VAT rate shall generally be 21% (10% in the case of transfers of dwellings).

However, the transfer of real estate subject to VAT could benefit from a VAT exemption if certain requirements are met. Nevertheless, should the transfer be exempt from VAT, it shall be subject to transfer tax.

Tax on the increase of the value of the urban land

Where an asset deal concerning urban land is carried out, it is generally subject to tax on the increased value of the urban land (TIVUL).

However, the transfer would not be subject to tax on the increased value of the urban land if the seller does not derive profit from the transfer of the relevant real estate.

Stamp duty (actos jurídicos documentados)

A transfer of a real estate asset that is subject to VAT shall also be subject to stamp duty, which shall be borne by the purchaser. The applicable tax rate would depend on the autonomous region within Spain where the real estate asset is located and range from 0.75% to 1.5% on the value consigned in the notarial deed by means of which the real estate asset is being transferred. Also, in the case of a waiver of the VAT exemption, an increased tax rate for stamp duty (up to 2.5%) shall apply.

Share Deal

Should the transfer of real estate be carried out by means of a share deal, the transaction would not be subject to VAT, transfer tax or TIVUL.

However, Section 314 of the Spanish Securities Market Act set forth an anti-abuse rule to prevent circumvention of the taxation that would correspond to a regular direct transfer of real estate should the latter be directly transferred. In this context, this specific anti-abuse rule shall apply in those cases where:

• the acquirer obtains the control over an entity in which at least 50% of its assets are comprised of real estate assets located in Spain not used for business or professional activities;
• the acquirer obtains control over an entity in which some assets are shares in other entities whose asset is, in turn, comprised of at least 50% of real estate assets located in Spain not used for business or professional activities; or
• the shares transferred have been previously received in consideration for in-kind contributions materialised by means of a contribution of real estate assets within a three-year clawback period.

In Spain, the system for foreign investment and exchange controls has been totally liberalised, in line with EU legislation.

In this regard, only foreign direct investments to be made in critical sectors or in places considered as defence zones of national interest, or carried out by specific categories of investors, shall be subject to prior authorisation by the competent public authority.

Acquisitions of commercial real estate are generally financed by loans (bilateral or syndicated) granted by local Spanish banks.

The structure of the financing and security package granted (see 3.2 Typical Security Created by Commercial Investors) depends mainly on the specific characteristics of the transaction and the borrower profile.

When the commercial real estate asset that is being financed requires construction work (either for its development or refurbishment), lenders usually structure the financing in two different tranches: one in the form of a loan facility for the partial financing of the purchase price and the other, in the form of a credit facility, to fund the construction works.

Banks in Spain also offer financing for the acquisition of commercial real estate assets in the form of real estate leases. Under the leasing, the use of the real estate asset is transferred by the lessor to the lessee in exchange for the payment of instalments that can be constant, increasing or decreasing. Renovation costs can also be financed.

When the leasing ends, the lessee has the option to acquire the property. This form of financing also offers certain tax advantages.

Structures may be adjusted but not differ materially when the transaction being financed is the acquisition of large portfolios of commercial real estate assets.

The most common security package to secure repayment of the financing granted for the acquisition and/or development of commercial real estate would typically comprise:

• a mortgage on the real estate asset;
• a pledge over the shares of the company holding the real estate asset (the “borrower”);
• a pledge on the borrower’s bank accounts;
• a pledge granted on the credit rights arising from any income producing agreement entered by the borrower and related to the specific real estate asset (such as insurance policies, construction agreements and/or lease agreements).

Each type of security has, under Spanish law, its own formalities to be effective against third parties, and therefore, it is advisable to confirm on a case-by-case basis that the security is validly created and perfected.

There are no restrictions on granting security over real estate assets to foreign lenders, provided that the mortgagor is not considered a consumer.

Nevertheless, it is necessary to highlight that the lender must confirm the potential enforceability of the mortgage granted in a default scenario and ensure that the charge is properly granted and registered at the relevant land registry.

A security:

• is granted in a public deed; 
• has valuable content; and 
• may be registered in a public registry, the formalisation of that security shall trigger stamp duty. 

The tax rate would vary depending on the region where the public deed is executed but will range from 0.5% to 3%.

No stamp duty shall be levied should the security not be granted on a public deed (ie, only in the granting of mortgages may stamp duty not be avoided).

Spanish corporate law prohibits Spanish companies from providing financial assistance in the form of financing, advancing funds, granting security or guarantees, or assisting in any manner that contributes to the purchase of their own shares or of their parent company (public limited liability companies) or any of the group companies (private limited liability companies).

Infringement of this legal prohibition would render any such financial assistance null and void.

With respect to the corporate benefit rules, under Spanish corporate law, the directors of a company must exercise their powers in the interests of the company and its shareholders, acting diligently in the management of the company and faithfully and with loyalty to the company.

Accordingly, when the borrower is a Spanish company, it is necessary to confirm that the relevant corporate resolutions have been adopted to incur in the financing and to grant the relevant security.

Before starting a judicial or extra-judicial foreclosure proceeding, the lender must formally notify the concurrence of an event of default and the termination of the loan to the borrower. The notification must state:

• that a breach of the terms of the loan has occurred, detail the specific breach and that, consequently, the loan is terminated early according to the relevant clause of the loan agreement; and
• the total amount due because of the early termination of the loan.

Spanish courts have traditionally been reluctant to uphold loan acceleration and subsequent enforcement of security if the default is not deemed material.

Please note that Spanish law expressly prohibits what is known as pacto comisorio, which comprises any agreement by virtue of which the lender would be entitled automatically to acquire the mortgage property in case of default by the borrower. 

The subordination of existing debt to a newly created one is possible under Spanish law by an agreement between the different creditors and the borrower which establishes an order of preference of the debt (ie, senior, mezzanine, junior).

The subordination implies that certain debts are subject to prior repayment of other debts.

Spanish legislation stipulates the order of preference of certain kinds of credits and establishes those which have special privileges (ie, properties secured by a mortgage).

A lender may not be liable for the borrower’s breach of the environmental regulations unless it acquires the property where the environmental infringement has been committed due to the enforcement of the security. In such a scenario, the lender could be deemed liable for the environmental damage.

In principle, the validity of security interests created by the borrower shall not be affected by the declaration of insolvency of the borrower.

Nevertheless, Royal Legislative-Decree 1/2020, of 5 May, approving the Restated Insolvency Act provides that the special privilege of secured creditors shall be restricted to the fair value of the property or right over which the security has been created, subject to certain deductions, understood in this case as the value resulting from a valuation report issued by an approved appraisal company registered in the Bank of Spain’s Special Register.

If the borrower becomes insolvent, certain effects related to security interests are created. Secured claims on assets or rights that are used in the insolvent debtor’s business or required to continue the running of the business may not be initiated or continued until the earlier of:

• the date a settlement agreement becomes effective, which does not prevent the right of separate enforcement over those assets or rights; and
• a year from the date of the declaration of bankruptcy without the liquidation phase being opened.

The constitution of a mortgage loan involves a series of necessary expenses, among which are:

• fees for the Property Registry, derived from the Inscription in the Registry of the mortgage – these will be determined according to the price of the property and the amount of the mortgage; and
• stamp duty.

Regional governments hold the territorial and urban planning competence, whilst the Spanish central government has the competence to set out the basic and general rules and liaise with the regional planning regulation through its sectorial competences (such as ports, roads, coastline and coasts, water planning and energy networks).

Town halls are competent in drafting and approving the general municipal urban development plans (PGOU) and other planning and development instruments, as well as in granting the building licences and permits.

The Act on Building Development (Ley de Ordenación de la Edificación), which regulates the building process, sets out the rights and obligations of the intervening parties in the building procedure, including liabilities and cover for purchasers.

Requirements are further developed by the Technical Building Code, which stipulates basic safety and habitability requirements.

Depending on the scope of the works, construction licences may be required, together with technical documentation. The authorities, in general, are regulating to simplify the urban planning process, including the substitution of the occupancy licence for a responsible statement (declaración responsable) made by the constructor, declaring the validity and compliance of the executed work with the building licence granted.

As previously stated in 4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning, different authorities are involved when it comes to regulating the development, design and use of a plot, such as the local authorities, regional government and the State.

Competent local authorities are responsible for the drafting and approval of a general urban development plan (plan general urbanístico) that determines the land classification (urban land, developable land and no developable land). In urban land, the general urban development plan also determines the uses of each plot of land.

Finally, state and regional regulations must be considered for certain actions, such as areas of special protection and coastal and public domain areas or military territory.

As stated in 4.2 Legislative and Governmental Controls Applicable to Design, Appearance and Method of Construction, a building licence by the town hall must be granted to develop a new project or complete a major refurbishment.

The procedure for a building licence approval is divided, in general terms, into the following stages.

• Phase 1 – Submission of the building licence request with some technical documents, among others, the basic project (proyecto básico), the project’s history and plans, together with a tax fee.
• Phase 2 – Review: the town hall shall review the documents submitted and draft the applicable technical, legal and sectorial reports regarding the compliance of the project with the applicable regulation.
• Phase 3 – Granting of the licence: the granting may be subject to the fulfilment of certain conditions (ie, technical amendments that the town hall may consider).

In some regions, the functions of the town hall are partially replaced by a private urban planning entity.

Any citizen can appeal to declare null and void, or claim amendments to, any administrative decision or act related to urban planning law, if these decisions or acts infringe the law. The decision may be reviewed by a judicial court.

Such a claim does not require proof of a subjective right or legitimate interest.

It is possible to enter into an agreement – named “urban planning agreements” – with local or governmental authorities, agencies, or utility suppliers to facilitate the development of a project. These agreements are subject to the principles of legality, transparency and publicity.

Depending on the scope of the urban activity affected, they may be classified into two main groups:

• planning agreements, the main objective of which is urban planning modification; and
• management agreements, which seek to speed up the management and execution of planning.

Expropriation agreements may be reached during an urban expropriation process with the payment of a “fair price” or compensation.

Restrictions on development and designated use are enforced “ex ante” and “ex post”.

Ex ante controls are applied by granting licences through a regulated procedure, as stated in 4.2 Legislative and Governmental Controls Applicable to Design, Appearance and Method of Construction and 4.4 Obtaining Entitlements to Develop a New Project.

Ex post mechanisms are applied through the exercise of the sanctioning power of the administration and the granting of additional measures aimed at stopping any administrative infraction, including the suspension of construction works and demolition.

Several alternatives are available to hold real estate assets in Spain. The typical vehicles to hold real estate assets are the following.

• A limited liability company (Sociedad de Responsabilidad Limitada) or a public limited company or Spanish corporation (Sociedad Anónima).
• Regulated investment vehicles, such as:
1. a variable capital investment company (SICAV);
2. the SOCIMIs (further explained in 5.3. REITs); and
3. the real estate investment company (Sociedad de Inversión Inmobiliaria) known as a non-financial collective investment institution, necessarily a public limited company which invests mainly in urban real estate for rental purposes, or the real estate investment fund (Fondo de Inversión Inmobiliaria or FII) known as a non-financial collective investment institution, without legal personality, which invests mainly in urban real estate for rental purposes.

The regulated investment vehicles are subject to a special legal regime, with obligations deriving from their regulation. Moreover, regulated collective investment vehicles are more restricted due to incorporation costs and prior registration requirements to be fulfilled before the National Securities Market Commission (CNMV).

The main features of the constitution of an entity are the following.

Limited Liability Company (SL)

An SL company may be incorporated by a sole or several shareholders.

Capital is divided into shares (participaciones) according to the capital contributed by each shareholder, who benefits from the limitation on personal liability from the company’s debts. They are not marketable securities. An SL is incorporated by public deed and registered with the Commercial Registry.

Spanish Corporation or Public Limited Company (SA)

An SA may be incorporated by a sole or several shareholders. Capital is divided into shares (acciones) according to the capital contributed by each shareholder, who benefits from the limitation on personal liability from the company’s debts. The incorporation process is like an SL, with some specifications.

An SA has an open structure that allows the transmission and traffic of shares as negotiable securities.

It is common practice to sign a shareholders’ agreement to regulate matters not strictly related to the governance and ownership of the company, such as:

• mechanisms and restrictions to the transfer of shares;
• voting criteria;
• the resolution of deadlocks;
• financing requirements and capital calls;
• business plans and strategies; and
• control of management and shareholders meetings, etc.

The Act 11/2009, of 26 October, which regulates Listed Real Estate Investment Companies (SOCIMIs) introduced the figure of the REIT (real estate investment trust) into the Spanish legal system. The purpose of the SOCIMI is to invest, directly or indirectly, in urban real estate assets for rental, including housing, commercial premises, residences, hotels, garages and offices, among others.

Formally, SOCIMIs must adopt the form of a Spanish corporation and must be listed on a regulated market or in a multilateral trading system in Spain or in any other country with which there is an effective exchange of tax information on an uninterrupted basis throughout the tax period. This also subjects SOCIMIs to the supervision, information, and transparency regime of the CNMV.

Therefore, investment by non-residents through SOCIMIs is only subject to the requirements they must comply with to acquire shares of Spanish corporations.

Among the advantages of investment through SOCIMIs, the following should be noted:

• a special corporate income tax regime applies (0% rate if the SOCIMI complies with the requirement of permanence of its assets);
• special tax regime for shareholders; and
• others (including capital increases being exempt from stamp duty).

The minimum capital required to incorporate an entity in Spain is as follows:

• for an SL – EUR1 fully subscribed and paid up upon incorporation;
• for an SA – EUR60,000, necessarily fully subscribed and at least 25% paid up upon incorporation;
• for a SOCIMI – EUR5 million, necessarily fully subscribed and paid up;
• for a FII – EUR9 million, necessarily fully subscribed and paid up with a minimum number of 100 stakeholders, and if a real estate investment fund is incorporated by compartments, each shall have a minimum share capital of EUR2.4 million, and the aggregate of all compartments shall not be less than EUR9 million; and
• for an SII – EUR9 million: if a real estate investment fund is incorporated by compartments, each of them shall have a minimum share capital of EUR2.4 million, and the aggregate of all compartments shall not be less than EUR9 million.

The applicable Spanish regulation is the Royal Legislative Decree 1/2010, of March 1st (the “Act on Corporations” – Ley de Sociedades de Capital), for which governance requirements are flexible and allow their setting up and organisation mainly on a shareholder’s consensus basis.

• Shareholders’ meetings – for an SL, different majorities (and quorums if an SA) are established depending on the content of the resolutions.
• These majorities/quorums may be increased in the by-laws.
• The management body, which must be appointed by the shareholders’ meeting, may adopt different forms:
1. a sole director;
2. two or more directors who act jointly;
3. several directors acting joint and severally; or
4. a board of directors with a minimum of three members.
• Directors must act diligently and with loyalty to the interests of the company.
• Transfer of shares:
1. an SL must be recorded in a public document, and is generally not freely transferable (unless acquired by other shareholders, ascendants, descendants, or companies within the same group) – in fact, the law establishes a pre-emptive acquisition right in favour of the other shareholders or the company; and
2. for an SA, the transfer depends on how they are represented (share certificates, book entries, etc) and on their nature (registered or bearer shares) – in principle, they may be freely transferred unless the by-laws provide otherwise.
• Every shareholder has several rights, such as the right to information and the right to challenge corporate resolutions.

Governance requirements applicable to collective investment schemes (FIIs or SIIs, and in some cases, for SOCIMIs) are provided for in Law 35/2003, of 4 November, on Collective Investment Schemes applying to open-ended funds and Law 35/2003, of 4 November, on Collective Investment Undertakings.

The incorporation of a company requires that certain obligations related to accounting and, sometimes, auditing be carried out. These requirements depend on the type of entity.

An SL and an SA are obliged to keep accounting records of their business activities. In this regard, entities should register their annual accounts before the Commercial Registry.

It is mandatory for some capital companies to audit their annual accounts when they exceed the regulatory limits.

Some rights established in the Spanish regulation allow the use of a property without ownership:

• A lease (arrendamiento) – one of the parties, the landlord, undertakes to provide to the other, the tenant, the use of a property for a certain period of time and price. The law distinguishes between urban leases, which may be dwelling or residential leases (“dwelling-use lease”) and non-dwelling or commercial leases (“commercial lease”), and rural leases. Furthermore, seasonal lease agreements are expressly excluded as urban leases and governed by regional and local specific legislation.
• Right of usufruct (usufructo) – entitles the beneficiary to use and obtain benefit of a property owned by a third party, the bare owner, in exchange for a price and for a limited time.
• Use and habitation (uso y habitación) – entitles a person to receive and use a property belonging to a third person.
• Surface right (derecho de superficie) – like common law, separates land ownership from the right over the construction. The right entitles its owner to build on third parties’ land, taking ownership of what has been built for a certain period (which may not exceed 99 years).

In a commercial lease, a landlord rents a property to a tenant to perform a business or economic activity. The leases are governed by the principle of freedom of contract, with the exception that the rent guarantee shall be at least equal to two months’ rent.

In the absence of an agreement, the leases are governed by the Title II of the Urban Lease Act and, subsidiarily, by the Spanish Civil Code.

In general, parties may freely agree on the rent and terms of lease agreements. However, the Urban Lease Act establishes a few mandatory provisions.

Urban Lease Act

Residential leases’ minimum period

For residential leases entered after March 2019, the landlord must allow the lease to be extended for up to a minimum of five years if the landlord is an individual, or seven years if it is a legal entity. The parties may freely agree on the duration of a commercial lease.

Rental guarantee

It is compulsory to require and provide a cash deposit equivalent to one month’s rent for residential leases and two months’ rent for commercial leases.

Rent review

The Spanish Urban Lease Act regulates that residential leases can be reviewed every year and apply the corresponding increases or decreases to the rent, according to either the Consumer Price Index (CPI) or the Competitiveness Guarantee Index (CGI), which are published by the National Statistics Institute, upon agreement by the parties.

The CPI is the main index in Spain that reflexes the inflation. The Spanish government decreed that all reviews of rent on residential lease agreements, unless agreed otherwise by the parties, shall be made according to the CGI, which by definition cannot be higher than a 2%.

Additionally, for the year 2024, the limitation to the rent review established by Royal Decree-Law 6/2022, of March 29 is still on force. See 6.5 Rent Variation for further detail.

New Rent Maximum Under the Housing Act

The Housing Act introduced some amendments and new provisions to the Urban Lease Act by virtue of which limitations are applied to the determination of new rents for dwellings leased in areas that are declared as stressed residential market zones. See 6.6 Determination of New Rent for further detail.

The typical terms of a residential lease agreement are as follows.

• The term of the lease may be freely agreed upon by the parties. For residential leases, however, the minimum term shall be of five years or seven years, depending on whether the landlord is an individual or a legal entity.
• The rent is paid as agreed by the parties. In the absence of an agreement, the rent shall be paid monthly, within the first seven days of each month.
• The sublease and assignment of the agreement must be expressly agreed; otherwise, the tenant shall not be entitled to sublease or assign the contract.
• Unless otherwise agreed, the landlord is obliged to perform the necessary repairs so that the tenant may continue carrying out the purpose for which the real estate was leased. Normally, the parties agree that the tenant must repair any damages to the property and perform any necessary actions to keep it in a good state of maintenance and repair.
• In the event of sale, the tenant has a pre-emption right, but it is market practice that the right is expressly waived by the tenant.

It is standard practice that the parties agree to review the rent after a certain period.

As stated in 6.3 Regulation of Rents or Lease Terms, rent variation in residential leases must be expressly agreed by the parties. Variation may only be set to happen annually.

Additionally, the amendment of the Royal Decree-Law 6/2022, of 29 March, approved by the Housing Act, established that rents for housing leases subject to the Urban Lease Act may only be increased by a maximum of 3% during the 2024 fiscal year.

The Housing Act introduced some amendments and new provisions to the Urban Lease Act by virtue of which limitations are applied to the determination of new rents in those dwellings leased in areas that are declared as stressed residential market zones.

In this sense, the rents to be applicable to new residential lease agreements in dwellings located in stressed residential market zones (dully declared) will be limited as follows.

The new rent may not exceed the previous rent for a residential lease agreement that had been in force in the last five years in the same dwelling. Additionally, the new contract cannot foresee new conditions that entail the charging of fees and expenses to the lessee that were not foreseen in the previous contract. The rent may only be increased by a maximum of 10% when the dwelling:

• has been the object of a rehabilitation intervention in the two years prior;
• has been the object of accredited accessibility improvement actions in the two years prior; or
• when the lease contract is signed for a period of ten or more years, or a right of extension is established that the lessee may voluntarily exercise for a period of ten or more years.

When the lessor is a large housing holder (an individual or legal entity that owns more than ten urban properties for residential use or a built-up area of more than 1,500 square metres for residential use, excluding garages and storage rooms), the new rent may not exceed the maximum limit of the price applicable according to the reference price index system, which will be calculated and published by the Ministry of Housing, based on the conditions and characteristics of the leased property and of the building in which it is located.

Likewise, when the property has not been subject to any housing lease agreement in force in the last five years, the price reference index system will also be applied to set the maximum rent.

The lease of real estate is generally subject to VAT at a 21% rate. The lessor shall charge VAT to the lessee, who shall bear the VAT cost. However, residential leases are generally exempt from VAT.

Commercial leases owned and leased by businesses are subject to VAT at a rate of 21% if specific Spanish tax law requirements are met.

Other costs payable by a tenant at the start of a lease are:

• a mandatory rent deposit (fianza) borne by the tenant in an amount equivalent to one month’s rent for residential lease agreements and two months’ rent for non-residential lease agreements;
• it is usual to undertake complementary guarantees to secure payment of rent (under a limit in dwelling lease agreements);
• although not obliged, the tenant may also subscribe to a home insurance to limit their liability in the event of any contingency; and
• a tenant is obliged to declare the transfer tax to the region when formalising the lease contract, although it is exempt in some regions (eg, Madrid) if several requirements are met.

The landlord is legally obliged to carry out the necessary repairs so that the tenant may continue carrying out the activity for which the property was leased. Nevertheless, it is common that the parties agree that the tenant must repair any damage to the leased property resulting from normal wear and tear and perform any actions necessary to keep it in a good state of maintenance and repair.

Utilities and telecommunication expenses, including taxes, are usually borne by the tenant.

No legal restrictions apply to the agreement between the parties to state the landlord’s ability to recover service charges from tenants. In most cases, the tenant enters into a contract directly with the utility services.

It is common practice that the landlord subscribes to an insurance policy to protect the property itself. It may also freely subscribe to a rent payments recovery insurance policy. These insurance policies may be borne by the tenant if expressly agreed.

The tenant is obliged to use the leased property as a “diligent parent”, assigning it to the agreed use. This rule applies to residential and commercial leases. Furthermore, the landlord is entitled to terminate the lease agreement in the case of annoying, unhealthy, harmful or unlawful activities on the leased property or if the tenant carries out activities forbidden in the by-laws of the community of owners.

Concerning the commercial lease agreements, it is common practice that parties may agree on the possibility of terminating the contract in the event of the impossibility of obtaining an opening/activity licence.

The tenant is not entitled, without the written consent of the landlord, to carry out works that modify the configuration of the dwelling or its accessories (eg, garage, storage room), and the tenant may not carry out works that decrease the stability or safety of the dwelling

Urban leases are regulated by the Urban Leases Act (as amended by Royal Decree Law 7/2019) and, subsidiarily, the Spanish Civil Code. Urban leases are divided between residential and non-residential leases (see 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time).

Rural leases are regulated by the Spanish Rural Leases Act (Ley de Arrendamientos Rústicos), which applies to leases such as the lease of a farm, including all machinery and the right to cultivate crops, etc. In default of express regulation, the Spanish Rural Leases Act, the Civil Code and custom and practice, apply.

The Urban Lease Act does not expressly provide as a cause for termination of lease agreements the insolvency of the tenant.

The Spanish Insolvency Act states the general principle of the continuation of the lease agreements in the event of the tenant’s insolvency. Any outstanding payment obligations under the lease agreement shall be paid to the landlord directly against the insolvency estate. In the same respect, the Insolvency Act establishes the nullity of the clauses of the contract that set the termination solely due to the declaration of insolvency.

The Urban Lease Act states that, prior to taking possession of the leased property, the tenant must deliver to the landlord a rent guarantee equivalent to one month’s rent for residential leases and two months’ rent for commercial leases. This deposit is held by the landlord (or deposited in a public administration, depending on the region), to be returned to the tenant upon termination of the lease agreement.

The parties may also agree additional guarantees to cover payment defaults by the tenant (ie, bank guarantees, comfort letters, deposits, or specific default insurances). However, additional guarantees in residential leases shall not exceed two months of rent.

When the initial term expires, lease agreements are automatically extended by one year if the rent was fixed annually or extended by one month if the rent was fixed monthly, provided that:

• the parties have not agreed on anything in this regard; and 
• the tenant stays in the leased property more than 15 days after the termination of the lease agreement without express opposition from the landlord.

This automatic renewal is named “tacit holding over” (tácita reconducción), laid down by Section 1566 of the Spanish Civil Code. The “tacit holding over” may be expressly excluded by mutual agreement of the parties.

In commercial leases and unless otherwise agreed by the parties, the tenant may:

• assign its position in the lease agreement to any third party without the landlord’s consent; and
• sublease the premises.

The landlord may increase the rent by 10% (in the case of partial subleases) or in an amount of 20% (for total subleases or assignments).

In residential leases, and unless otherwise agreed by the parties, any such assignment or sublease shall be expressly authorised by the landlord.

The landlord is entitled to terminate the lease agreement if the tenant, among other reasons:

• defaults on rent payment or any other amounts assumed by the tenant or which corresponds to the tenant;
• subleases or transfers totally or partially the leased property without prior consent from the landlord; and
• causes harm to the leased property due to wilful misconduct or gross negligence.

The tenant is entitled to terminate the lease agreement if the landlord:

• interferes in the use of the leased property; and
• fails to carry out the necessary repairs to preserve the property in a suitable condition for its normal use

Lease agreements may be registered in the Land Registry; however, it is not mandatory. Unregistered urban leases may not be effective against a third-party purchaser registering their rights if that purchaser fulfils the requirements laid down in Article 34 of the Spanish Mortgage Law.

In practice, it is not usual to register lease agreements in Spain since, in order to register the lease, the agreement must be notarised as a public deed (ie, implies notary and registry fees and the payment of the stamp duty tax).

The landlord may force the tenant to leave if the lease agreement has been terminated for any reason. The estimated time is usually over six months.

In the strict sense, a lease agreement may not be terminated by a government or a municipal authority. However, if a public authority orders the closure of the premises where the specific economic activity is carried out due to non-compliance, eg, with certain measures regarding occupational hazards, then by virtue of this, as well as in accordance with the clauses of the contract, the contract may be terminated.

The owner may collect, in addition to the rent outstanding up to the date of termination of the lease, the compensation corresponding to the cost incurred by the landlord in restoring the property to the condition in which it was originally leased.

Likewise, additional penalties may be established for non-compliance with the minimum term of the lease. In this regard it is customary to pledge additional guarantees to ensure the payment of additional rents or indemnities in the event of early termination of the contracts (subject to a limit in the case of residential leases).

On the contrary, in housing contracts, the Urban Lease Law establishes that only the first six months of the agreement will be mandatory for the lessor, so that the establishment of any additional penalty would be contrary to this rule.

The most common structures used to price construction projects are as follows.

• A fixed price – the price shall be considered as a lump sum, fixed, and closed pursuant to the definition in Article 1,593 of the Spanish Civil Code. In this case, the contractor shall not be entitled to claim a price increase, even if the actual costs and expenses result in a sum higher than budgeted. However, depending on the contract, the lump-sum price may be subject to review in particular circumstances.
• A unit price – a price is agreed by means of a unit or quantity or unit prices per piece or based on a module (ie, per unit of work or unit of measurement).
• A price agreed based on the costs incurred and duly proved by the contractor in the execution of the works, to which a spread is added in favour of the contractor.

Act 38/1999, of 5 November 1999, on Building Development (LOE) establishes certain obligations and liabilities which may be involved in a construction project.

In this respect, the “building agents”, as defined in the LOE, are all the individuals or legal entities involved in the building procedure that are liable to the owners and third-party purchasers of buildings or parts of buildings from the date of reception of the construction works. The liability may be joint and severally requested when it may not be allocated individually and when there is a concurrent fault, without it being possible to specify the involvement of each agent in the damage caused.

The contractor usually assumes the risk of damage or destruction of the construction works until the delivery of the completed works to the developer, including some period of guarantee after delivery of the works.

The LOE establishes specific periods during which a claim may be made against the party involved in the construction, depending on the type of the defect affecting the building:

• for a ten-year period, for damages caused to the building affecting structural elements which compromise the stability of the building;
• for a three-year period, for damages caused to construction elements which result in the failure to fulfil habitability requirements; or
• for a one-year period for damage due to defects in construction affecting elements of the finished building.

The developer and the rest of the building agents may be deemed liable for construction flaws under the regime of Article 1,591 of the Spanish Civil Code.

In addition to the guarantees stated in the LOE some typical guarantees that may be agreed upon are as follows:

• withholdings;
• work certifications (partial and final work certificate);
• bank guarantees;
• the developer’s right to designate or impose subcontractors for certain parts of the project; and
• restrictions on the use of materials.

On the contractor’s side, there are commonly agreed measures, such as advance payments or rights to suspend work if payment is delayed.

There is no standard form to establish any mechanisms to cover the events of breach by the contractor of any of the partial milestones or the final time limit fixed in the works deadlines programme.

The owner is entitled to claim damages in accordance with the Spanish Civil Code, but the assumptions of force majeure shall not be attributable to the contractor. In the case of serious delay, the owner shall be entitled to terminate the contract.

It is standard practice to specifically regulate these points in the contract.

Construction contracts always require the works to be completed by a specified date and in a specified form. Despite the guarantees stated in Act 38/1999, of 5 November 1999, on Building Development, additional guarantees may be agreed to ensure the execution of a construction project (see 7.3 Management of Construction Risk and 7.4 Management of Schedule-Related Risk). Comfort letters, bank guarantees, parent and group guarantees and letters of credit are commonly used.

Under the Spanish Civil Code, the contractor is entitled to terminate the works agreement or claim its compulsory performance (ie, the pending payment), including the payment of damages (Article 1,124 Spanish Civil Code).

In the case of default of payment, the contractor shall not take direct legal action against the works; however, it may initiate a court case and request a precautionary measure claim to encumbrance the property.

The contractor should comply with some legal provisions; depending on the location of the property and its use, the following licences/certificates must be obtained:

• if the property has a residential use, a final works certificate is required as well as, in most cases, a first-occupation licence or self-declaration to verify that the property may be used for residential purposes;
• some regions establish the need for a certificate of occupancy (cédula de habitabilidad), or a formal architectural declaration stating the compliance of the property with the requirements to obtain such a certificate to allow its transfer; and
• if the property is intended for professional use, it shall also be necessary to obtain an activity and opening licence, and some other permits may be required, depending on the type of activity considered.

See 2.10 Taxes Applicable to a Transaction for the tax implications arising from the transfer of real estate.

Subject to certain requirements, the transfer of real estate companies with a large real estate portfolio engaged in economic activities cannot be subject to stamp duty.

Only the owning of real estate is subject to real estate tax (IBI). This local tax is paid annually by the owner to the city council where the asset is located. The final tax liability is calculated from the cadastral value of the asset.

Income tax for foreign investors depends on whether the asset is owned directly by an individual or through a company.

If the asset is directly owned by a foreign company or individual without a permanent establishment in Spain, income derived from rent is subject to a general non-resident income tax of 24% in Spain. Should the investor be an EU/EEA tax resident, the applicable rate shall be reduced to 19% and certain expenses could be deducted (eg, depreciation of 3%).

In the case of a transfer by a foreign company or individual without a permanent establishment in Spain, the capital gain derived from the transfer will be subject to a 19% tax rate. The purchaser must withhold 3% of the purchase price on account of the non-resident income tax to be paid by the seller.

Under certain circumstances, the transfer of Spanish companies owning real estate in Spain by foreign individuals could be exempt from taxation by application of a Double Taxation Treaty.

Non-resident individuals are subject to non-resident income tax at a 19% or 24% rate for the mere ownership of real estate located in Spain. The relevant tax burden is calculated by determining a notional income linked to the cadastral value of the relevant property.

Finally, the ownership of real estate by a non-resident could be liable to wealth tax under certain circumstances and, in tax years 2023 and 2024, liable to the temporary solidarity tax on major fortunes.

Spanish companies subject to corporate income tax have the right to deduct the depreciation of construction contributing to economic activities. Depreciation expenses are allowed in the corporate income tax taxable base if they are accounted for in accordance with the depreciation rates set forth in the corporate tax law. Certain accelerated amortisation schedules may be of application provided certain specific requirements are met.

Spanish individuals who derive rental income may be entitled to deduct certain expenses from their personal income tax due, such as the relevant real estate asset depreciation. In addition, the rental income of dwellings may benefit from a 60% reduction on the personal income tax due. Certain tax benefits apply to different regulated Spanish real estate vehicles.

Furthermore, the Spanish Corporate Income Tax Law set forth a special tax regime for entities involved in the rental of dwellings located in Spain, provided that, among other requirements, these entities own and operate at least eight different dwellings during a period of three years.