Tacit renewal, new contract and large landlords

When a lease agreement approaches its expiration date, it is common to think that, if neither party says anything, it simply continues. However, in the legal sphere it is not that simple. Lease agreements do not extend indefinitely: first, the agreed term comes to an end; then (if applicable) the mandatory legal extension applies; and once this has also ended, the tacit extension may begin.

Only once all these stages have been completed do we enter a different scenario: tacit renewal. At first glance it may appear to be a natural continuation of the contract, but it is not. In reality, tacit renewal implies the creation of a new contract, with all the consequences this entails. These consequences can be particularly significant when the landlord is a large landlord and the property is located in a stressed area, since in such cases rent limits and very strict obligations are triggered.

What is tacit renewal really?

In other words, if upon termination of the contract the tenant remains in the property and the owner does not demand its return or require the tenant to vacate the premises (at the latest, within the aforementioned fifteen-day period or prior to the lease’s termination date), the law considers that tacit renewal exists. It is not necessary for the parties to sign a new document or to expressly agree to it. It is sufficient that, upon termination of the contract, the same situation of use continues without formal opposition.

Why tacit renewal is a new contract

Although from the outside it may appear to be an automatic continuation of the lease, tacit renewal does not extend the previous contract. According to the case law of the Supreme Court, when this situation occurs, a new contract is created, distinct from the original one. In practice, the new contract usually maintains many of the conditions agreed in the previous one (amount of rent, security deposit, expenses, etc.), unless the parties agree to modify them. However, it cannot be said that the previous contract continues to apply in its entirety, since tacit renewal gives rise to a different contract, subject to a different legal regime, especially with regard to its duration.

As mentioned, the main difference lies in the duration. In tacit renewal, the new contract is no longer governed by the time limits established in the Urban Leases Act (LAU), but by the provisions of Article 1581 of the Civil Code. Thus, if the rent under the original contract was paid annually, the renewal will have an annual duration; if it was paid monthly, the new duration will be monthly; and if it was paid daily, the new contract will have a daily duration. In residential leases, where rent is usually paid monthly, it is customary for the new contract to be renewed on a monthly basis.

In this way, tacit renewal is a different contract. It is not an extension of the previous one; it is a contract that arises automatically from the conduct of the parties.

Practical consequences: what it means for it to be a new contract

The fact that tacit renewal gives rise to a new contract has very significant implications. This new contract must be subject to the regulations in force at that time, not those that applied when the original contract was signed. This affects, among other matters, and in particular, the price limits in areas declared to be stressed.

In other words, even if the content of the contract remains the same, its legal nature changes: it arises within a different regulatory context and must adapt to that context. This point is crucial to understanding why, in certain cases, tacit renewal triggers the obligation to limit the rent.

What happens when the landlord is a large landlord

Law 12/2023, of 24 May, on the right to housing, introduced the figure of the large landlord, which generally includes those who own ten or more residential properties or more than 1,500 m² designated for residential use. This status becomes particularly relevant when lease agreements are located in stressed residential market areas, as is the case in Barcelona.

In these cases, Article 17.7 of the Urban Leases Act (LAU) establishes that when the landlord is a large landlord and the property is located in an area declared to be stressed, the rent under the contract may not exceed the limit set by the system of reference price indices, taking into account the characteristics of the dwelling.

And why is this important in relation to tacit renewal? Because tacit renewal constitutes a new contract. Therefore, if this new contract arises in a context where rent limitations exist for large landlords, those limitations must apply from the very first day. It does not matter that the initial contract predated those restrictions: upon tacit renewal, from a legal standpoint, a subsequent contract arises that is indeed subject to the regulations in force.

The consequences of failing to apply rent limits in a tacit renewal contract

Both national and Catalan legislation provide for a very strict sanctioning regime when rent limitations in stressed areas are breached.

Law 18/2007, on the right to housing, classifies as a very serious infringement the setting of a rent that exceeds the permitted limit by more than 30%, with fines ranging from €90,001 to €900,000. Where the excess rent is equal to or less than 30%, the conduct is considered a serious infringement, with penalties ranging between €9,001 and €90,000.

In addition, the tenant may demand the reimbursement of amounts charged in excess, adjusted to the applicable legal limit.

For all these reasons, attempting to circumvent rent caps through tacit renewal is not only legally incorrect, but may also entail a considerable economic risk for the landlord, especially if the landlord is a large landlord.

Conclusion: a key moment that should not be overlooked

Tacit renewal is one of the most delicate moments in the life of a lease agreement. Although it may appear to be a mere automatic formality, it actually marks the beginning of an entirely new contract, subject to the rules in force at that time. When the landlord is a large landlord and the property is located in a stressed area, this distinction becomes even more important, as it requires the application of the limits established by the system of reference price indices.

Both landlords and tenants must pay particular attention to dates, notice periods and the applicable regulations, since entering into tacit renewal without clearly understanding its effects may lead to conflicts, claims and even significant penalties. In the event of any doubt, the most advisable course of action is to review the contract on an individual basis and, if necessary, seek specialised legal advice.