90 | Investor Guide to Europe 2014
the lease (or any extensions, if any) comes to an end, neither the
lessor nor the lessee is able to require the other party to continue
with the lease. Some common terms and conditions in relation to
the duration of lease agreements are outlined below:
Initial duration
•
Lease agreements commonly establish an initial term. In practice,
certain periods are typically established depending on the type of
building or premises being let:
(1)
In the case of commercial units, small spaces or parts of
buildings to be used as offices, the initial term is typically 5
years.
(2)
In the case of entire buildings or large commercial pre-
mises, the initial term tends to be longer, between 10 and 15
years.
(3)
In the case of lease agreement in the context of sale &
lease back transactions, even longer terms can be agreed (up
to 20 or even 25 years).
Extensions
•
Once the initial term has elapsed, the parties can agree an exten-
sion. It is common for the extension to operate in one of the two
following forms :
(1)
At the end of the initial term, the lease agreement is
extended for a new term (equal or shorter; it is not nor-
mally longer than the initial term). If so, the agreement may
establish that the extension is at the discretion of the lessee
(which will be entitled to extend the agreement or not to
do so, normally by serving a minimum prior notice of its
decision) and mandatory for the lessor (which must accept if
the lessee requests the extension); or discretionary for both
parties, in which case either party may reject the extension.
(2)
Annual extensions (or other periods: 2+2+2…), which are
automatic if at the end of the initial term or any extension
period neither of the parties requests the end of the agree-
ment by serving minimum prior notice.
Lessee’s right to terminate the agreement
prematurely
•
It is common for the lessee to be entitled to terminate the agree-
ment once a minimum period of the lease has elapsed, shorter
that the initial term agreed for both parties. That minimum
period is therefore considered to be mandatory for both parties.
Tacit continuation of the lease
•
If at the end of the term of the agreement and extensions, if
any, the lessee continues to occupy the premises or building
for fifteen days with the lessor’s acquiescence, the lease will be
extended for the same period as that set for establishing the rent
(articles 1,577 and 1,581 of the Spanish Civil Code, in relation to
article 1,566 of the Spanish Civil Code).
Î
Rent
•
The parties are free to establish the rent, although this is normal-
ly done according to prevailing market conditions. In Spain, rent
is typically established in two different forms: fixed rent (although
subject to review); variable rent (this is more common in the case
of commercial establishments). In the case of variable rent, the
parties agree a minimum guaranteed rent (accruing in any case)
and a variable rent component depending on the gross turnover
obtained by the premises (which is only paid if the minimum
guaranteed rent is exceeded).
•
In the case of non-residential lease agreements, the parties are
also able to decide how they wish for the rent to be reviewed
throughout the duration of the agreement. It is common to esta-
blish annual reviews of the rent according to the variation of the
Consumer Price Index (CPI) in the 12 preceding months.
•
Other rent review mechanisms may also be established, espe-
cially in the case of long-term agreements: for example, accor-
ding to market prices, extraordinary reviews every so many years
by a certain percentage over the CPI.
Î
Deposit and additional guarantees
•
Under the Spanish Urban Leases Act, lessees in non-residential
lease agreements must pay the lessor a deposit equivalent to
two months of rent when the agreement is signed. The lessor
may be required to deposit that amount at an official organism,
in compliance with the regional legislation applicable at the loca-
tion of the let premises. Breach of this obligation could lead to an
administrative penalty. The deposit cannot be reviewed for the
first five years of the duration of the lease.
•
According to the Urban Leases Act, the lessee may also be
required to provide an additional guarantee; it is common that
this take the form of a bank guarantee for a certain number of
monthly rent payments.
TaX
asset deal
•
Spanish law distinguishes between transfers made by persons
or companies that are subject to Value Added Tax («VAT») and
transfers by persons or companies that are not.
(1)
Transfers of real estate assets by persons or entities which
are not VAT payers: In this case, Transfer Tax is applicable. This
tax is non-recoverable and depends on the autonomous region
where the asset is located. This tax could be up to as much as
11% of the total amount of the transaction.
(2)
Transfers of real estate assets (other than residential proper-
ties) by VAT payers:
- When the asset constitutes urban land, a plot that is being
developed, or land that is to be built upon: the acquisition is
subject to VAT (21%) and to Stamp Duty (between 0.5% and
1.5% of the purchase price, depending on the location of the
asset).
- As a general rule, when the asset does not constitute
developable land or if the transaction entails a second or
subsequent transfer of a building, the transaction will be
subject to but exempt from VAT. If so, the transaction is
subject to Transfer Tax (and the transfer would be subject
to Transfer Tax at rates which range between 2% and 11%,
depending on the location of the real estate asset). This
Transfer Tax is a final cost.
Nevertheless, if the purchaser is entitled to a full deduc-
tion of VAT borne on the acquisition (i.e. this should be
the case if it carries out VATable activities –e.g. activities
subject to and not exempt from VAT such as leasing of
commercial/industrial properties), it may be possible to
