Validity of Rental Agreements on Repossessed Spanish Properties
A couple of weeks ago, I received a telephone enquiry relating to an imminent bank repossession where the soon-to-be ex property owner, seemingly knowing the ins and outs of rental law, requested a quote to draw up a rental agreement. Out of curiosity I asked him if he was going to submit it to the Courts to stop the eviction, and unsurprisingly, he confirmed my question.
His plan was pretty simple: he as the landlord would sign a backdated tenancy agreement with a friend, for a smallish rent (around €200, inclusive of utilities!), with a view to not be considered an “unlawful occupant” and therefore, avoid eviction on grounds that Spanish laws do actually dispense protection to tenants.
What this enquirer forgot is that common sense applies in Spain too and therefore, in the absence of proof of a history of payments to him by his friend, the Courts would deem the contract bogus and deny its existence and therefore, validity. Moreover, I had to quickly advise him that in fact, the Spanish Criminal Code in its article 257 states that “any person who in detriment of his creditors, carries out any act of valuable disposition or creates obligations that delay, hinder or impede the efficacy of an embargo, executive procedure or reposession, whether judicial, extrajudicial or administrative, initiated or of foreseable initiation, will serve a prison term of between 1 and 4 years.
The Courts uphold the principle of common sense when judging the validity of rental agreements submitted by tenants; let us have a quick look at these 2 examples:
Appeal Court in Toledo: in this case, the rental agreement was deemed a simulation and thus did not express the true intent between the parties because, according to the presiding Judges, it was signed between brothers, the monthly rental was €400 on a 2,000 m2 warehouse, there was no visible activity in it (a big lock on the door is mentioned on a photographic report) and there were only private receipts to prove the rental payments. An accumulation of evidence that, in the eyes of the Court, was consistent with that of a simulated contract and thus, the repossessing bank was granted possession.
Appeal Court in Madrid: Judges in the capital city found the rental contract to be fully valid, as there is a presumption of validity of juridical contracts that needs to be destroyed by the bank, and this has not been achieved as the latter entity since only invoked that the contracts were subsequent to the mortgage loan. And the Spanish Supreme Court is clear on this point: “…not even a bank foreclosure extinguishes tenancy agreements agreed to after signing the mortgage loan, if there is no sufficient proof that there was collusion or fraud.”