Free Rent Update and Commercial Increases in the Canary Islands

The Spanish Urban Leases Act (Ley de Arrendamientos Urbanos or LAU), effective 1 January 1995, governs commercial leases ("Leases for Use Other Than Housing") in the Canary Islands. Unlike residential leases, commercial leases are exempt from state-mandated rent increase caps, allowing parties to freely negotiate rent review mechanisms based on mutual agreement.

1. Exemption from Residential Rent Caps

The rent increase limits imposed on residential leases by the government do not apply to commercial premises.

• Commercial leases (B2B) in the Canary Islands are entirely exempt from residential rent control caps (such as the transitional 3% cap or the Housing Right index).
• Landlords and tenants have complete freedom to agree on rent updates, typically tying them to the full Consumer Price Index (CPI) without any state-imposed limits.

2. Precondition: Express Clause Required for Rent Increases

The freedom to apply CPI or other rent updates requires an explicit agreement within the lease contract:

• Express Clause: The lease must contain a specific clause detailing the rent review mechanism (e.g., annual adjustment based on the CPI).
• Consequence of Omission: If the contract is silent on rent updates, the rent is frozen. Under the LAU, no rent increase can be applied unless an updating mechanism is expressly stipulated in the contract.

3. Statutory Rent Increases upon Transfer or Sublease

Under the LAU, if a commercial tenant decides to transfer (assign) the lease or sublet the premises to a third party without requiring the landlord's consent, the landlord holds specific statutory rights to increase the rent:

• Partial Sublease: The landlord is entitled to a 10% rent increase if the premises are partially sublet.
• Full Transfer or Total Sublease: The landlord is entitled to a 20% rent increase in the event of a complete transfer of the lease or a total sublease of the premises.

This statutory increase is applied automatically by law to compensate the landlord, without the need for judicial approval.

Return to the Canary Islands Commercial OverviewPreview unavailable.