A new Spanish housing decree that entered into force on October 1 introduces major changes to the rules governing habitual rental contracts, including a new compensation requirement for landlords who choose not to continue a tenancy after the initial legal rental period.

Under the new rules, once a habitual housing contract has completed at least five years, or seven years when the landlord is a legal entity, the contract can automatically continue through successive annual extensions for up to three additional years if neither party gives the required notice.

The measure was approved by the Council of Ministers on September 29 and published in the Official State Gazette on September 30. It remains subject to ratification by Congress.

What changes after five or seven years?

The new system modifies Article 10 of Spain's Urban Leasing Law.

For contracts where the landlord is an individual, the initial period is five years. Where the landlord is a legal entity, it is seven years.

Once that period has been completed, the contract will be extended automatically in annual periods for a maximum of three additional years unless the required notice is given.

The landlord must give at least four months' notice of an intention not to renew. The tenant must give at least two months' notice if they do not wish to continue.

The tenant can also decide not to continue at the end of any of the annual extensions, provided the required notice is given.

This is the mechanism that has been described by the Government as a move towards more indefinite rental arrangements. Legally, however, the decree establishes successive annual extensions for up to three years after the initial five- or seven-year period rather than an unlimited contract with no end date.

When would a landlord have to compensate the tenant?

If the landlord decides not to continue the tenancy after the relevant minimum period and does not fall within one of the exceptions established by the decree, the landlord must compensate the tenant.

The compensation is set at a minimum equivalent to 12 months of rent for a comparable property.

For example, a tenant paying €1,000 a month would potentially be entitled to compensation of at least €12,000 if the conditions for the compensation applied.

The amount is based on the rent of a home with similar characteristics, rather than automatically being calculated from every individual tenant's existing rent in all circumstances.

There are important exceptions

The 12-month compensation does not apply in every case.

Among the exceptions established in the decree is when an individual landlord genuinely needs the property for their own permanent residence or for a family member within the second degree.

The new rules also establish exceptions relating to the tenant's use of the property and certain alternative housing circumstances.

The decree therefore does not mean that every landlord who ends a tenancy after the initial period will automatically owe a year's rent to the tenant. The specific circumstances of the termination matter.

What about contracts that are already in place?

The new regime includes transitional provisions for existing rental contracts.

The decree states that the new rules apply to habitual housing contracts that are already in force when the measure enters into effect, but specifically in relation to contractual expirations or extensions occurring after the new regime comes into force.

Contracts that were already within the previous statutory extension regime remain under that regime until it ends before becoming subject to the new provisions.

There are also specific transitional rules for contracts with less than six months remaining before expiry and for contracts operating under tacit renewal.

This means existing tenants do not simply receive an immediate additional three-year extension on October 1. The timing and legal status of each individual contract have to be considered.

Tenants can still leave

The new system does not prevent tenants from ending their contracts.

Under the amended Article 11, a tenant can withdraw from a habitual housing contract after at least six months, provided they give the landlord at least 30 days' notice.

For temporary housing contracts, the new rules establish a separate withdrawal mechanism after at least one month, with at least 10 days' notice.

In both cases, the exercise of the statutory withdrawal right does not create a right to compensation for the landlord.

Temporary rentals are also affected

The decree introduces new requirements for temporary housing rentals.

A landlord must justify the reason for the tenant's temporary relocation.

As a general rule, temporary housing contracts must last more than 31 days and no more than 12 months, although the legislation includes specific provisions for situations in which the temporary reason continues.

The new framework also addresses repeated temporary contracts. If a temporary arrangement exceeds the permitted limits without a properly justified temporary reason, or more than two consecutive temporary contracts are entered into between the same parties for the same property, the first contract can be treated as a habitual housing rental and become subject to the protections applicable to those contracts.

Existing temporary contracts have transitional protection

The rules do not simply convert every existing temporary rental into a permanent residential tenancy overnight.

The decree contains a transitional provision for temporary or seasonal housing contracts signed before October 1.

Those contracts continue under the legal regime that applied when they were signed until their agreed term ends. Once that term expires, the contracts end under the transitional rules rather than automatically continuing under the new system.

Additional protection for vulnerable tenants

The decree also maintains and modifies extraordinary extensions in specific circumstances.

For tenants experiencing recognised social and economic vulnerability, an extraordinary extension can apply for up to one year under the conditions established by law.

For homes located in officially designated stressed residential-market areas, the legislation provides for extraordinary annual extensions of up to three years, subject to the conditions set out in the law.

Separately, the Government has established a temporary mechanism allowing certain tenants with contracts that remain in force until December 31, 2028 to request an extraordinary extension of up to two additional years, subject to the conditions established in the decree.

These are separate mechanisms and should not be confused with the standard three-year extension system under the amended Article 10.

The measure is not yet permanently confirmed by Parliament

Although the decree entered into force on October 1, it is a Real Decreto-ley and therefore must be submitted to Congress for convalidation.

The Government published the measure in the BOE on September 30 and confirmed that parliamentary ratification is required.

This means the rules are currently in force, but their continued application depends on the parliamentary process.

What it could mean for Ibiza tenants and landlords

The changes are particularly relevant to Ibiza's housing market, where long-term rental availability and affordability have become major issues.

For tenants in habitual housing, the new system is intended to provide greater certainty about what happens when the initial legal rental period ends.

For landlords, the rules introduce additional notice requirements and, in certain circumstances, a significant financial obligation if they choose not to continue the tenancy.

The distinction between habitual, temporary and tourist accommodation is also becoming increasingly important, as the new legislation introduces additional requirements intended to prevent temporary rental arrangements from being used to avoid the protections attached to ordinary residential leases.

For anyone with an existing rental contract in Ibiza, the precise effect will depend on when the contract was signed, whether it is classified as habitual or temporary, how long it has already been running and which extension regime currently applies.