Lease agreements with indefinite extensions: are they valid?

The duration of lease agreements is an essential issue for landlords and tenants. Although the Urban Leases Act (LAU) establishes clear limits, the Supreme Court has recently confirmed that it is possible to agree on successive annual and indefinite extensions in favour of the tenant, provided that there is an express agreement between the parties.

Judgment 1387/2025, of 7 October, issued by the Plenary of the Civil Chamber, has generated intense debate, as it recognises the validity of a clause that, in practice, allows the tenant to remain in the dwelling for a period that may extend for decades.

The origin of the case: a contract that extended the duration beyond what is usual

The dispute began when the company that had purchased a building sought to terminate a lease agreement on the grounds that the maximum eight-year period provided for in the LAU had already elapsed. However, the contract contained a specific clause that altered this legal framework.

The contract provided that, once the initial five years and the three years of automatic extension established by law had expired, the lease would be extended for successive years on an indefinite basis. This extension was mandatory for the landlord and optional for the tenant, who could terminate the contract at any time by giving three months’ notice.

The tenant opposed the eviction claim, arguing that this clause allowed him to remain in the dwelling without limit, while the owning company maintained that the LAU did not allow the total duration to exceed eight years.

What does the LAU actually establish regarding the duration of a lease?

To understand the dispute, it is necessary to recall how the LAU operates:

1. Currently, the contract has a mandatory minimum duration of five years if the landlord is a natural person and seven years if the landlord is a legal entity.
2. If neither party objects within the prescribed time limits, the contract is automatically extended for a further three years.
3. In practice, most primary residence lease agreements have a total duration of between eight and ten years.

The owning company based its claim on this legal structure, interpreting that, under no circumstances, could a lease exceed those limits. However, the key issue was to determine whether the parties could voluntarily agree on a different regime through an express contractual clause.

The decision of the Supreme Court: the clause is valid and must be respected

The Supreme Court concluded that the clause providing for successive and indefinite extensions in favour of the tenant is valid and does not infringe the LAU or the Civil Code.
The legal reasoning is based on three main ideas:

Freedom of contract prevails when mandatory rules are not infringed

Article 1255 of the Civil Code allows the parties to establish the agreements they deem appropriate, provided they are not contrary to the law, morality or public order.

The LAU, in its Article 4.2, also recognises this possibility in matters relating to residential leases when the agreements expand rights, rather than restrict them.

In this case, the landlord and the tenant expressly agreed to the indefinite extension, and that agreement must be respected.

The contract is not left to the sole discretion of the tenant

The Court clarifies that Article 1256 of the Civil Code, which prohibits leaving contractual performance to the discretion of one of the parties, is not infringed. The clause does not arise unilaterally from the tenant, but from an initial agreement freely accepted by both parties. Furthermore, the clause had a justification: the tenant was required to make significant investments in the property.

The conventional extension does not contradict the nature of the lease

Although a lease is, by definition, a temporary contract, this temporariness may be extensive. The Court had already accepted in 2009 long-term extensions in leases for uses other than residential purposes, integrating the contract with the rules governing usufruct.

Therefore, the existence of an indefinite extension does not distort the nature of the contract, provided that it does not become a perpetual transfer.

The necessary limit: contracts cannot be perpetual

Despite recognising the validity of the clause, the courts establish that a lease agreement cannot be perpetual. To avoid this, they apply the doctrine of usufruct and set a reasonable maximum limit.

Specifically:

• The contract may last for a maximum of thirty years, or
• It may be limited to the lifetime of the tenant.

Both options prevent the contract from becoming a figure prohibited under civil law: contractual perpetuity. This limit was first established by the lower courts and subsequently upheld by the Supreme Court.

Dissenting opinion: the position of the judge who disagreed

The Plenary judgment was not unanimous. One judge issued a dissenting opinion stating that accepting these indefinite extensions, even if agreed upon, effectively deactivates Articles 9 and 10 of the LAU in practice.

According to this judge, if the tenant can remain in the dwelling for an indefinite period, the statutory extensions lose their meaning. He considers that this interpretation reintroduces, through contractual means, a situation that the 1994 reform sought to avoid: excessively prolonged leases that prevented the owner from having the property at their disposal. Although it is a well-reasoned opinion, it remained in the minority.

Practical consequences for landlords and tenants

The judgment has significant effects in the field of urban leases.

Implications for the tenant

• A clause providing for successive and indefinite extensions signed in the contract is fully valid.
• The landlord (whether the original one or a subsequent purchaser) is obliged to respect it.
• The tenant’s right to continue is not perpetual, but it may extend for decades.

Implications for the landlord

• They cannot terminate the contract on the grounds that the eight years provided for in the LAU have elapsed.
• They cannot annul the clause by claiming that it is contrary to the nature of the lease.
• They must be particularly cautious when signing contracts that include extraordinary extensions, as these also bind future owners.

Consequences in the rental market

• The idea that freedom of contract allows parties to agree on conditions broader than those provided by law is reinforced.
• A clear limit is maintained to prevent perpetual contracts.
• Legal certainty is provided in cases where the tenant makes significant investments in the dwelling.

Indefinite extensions: final conclusions

In accordance with Supreme Court Judgment 1387/2025, the following conclusions can be drawn:

1. Clauses allowing successive annual and indefinite extensions at the tenant’s discretion are valid if they have been freely accepted by both parties.
2. These clauses do not infringe the LAU or the Civil Code and are considered a legitimate part of contractual autonomy.
3. However, they must have a time limit to avoid perpetuity, usually set at thirty years or the lifetime of the tenant.
4. Landlords who seek to terminate the contract alleging the nullity of the clause will see their claims rejected.
5. The judgment balances the protection of the tenant with respect for the temporary nature of the lease.