Renting commercial premises is, almost always, the physical foundation of an entire business. When a lease comes under strain, what is at stake goes far beyond a monthly rent payment: it is the continuity of the business, the customer base built up over years, and, in many cases, the investment made in fitting out the premises. This is why disputes between landlords and commercial tenants are rarely resolved through a simple conversation. They tend to become a matter of contract terms, applicable law, and, more often than not, legal proceedings.
What each party is obliged to do: the starting point
Before debating who is in the right, it is worth establishing the legal framework. Commercial leases are governed first by the terms agreed in the contract and, on any matters not covered, by the Urban Leases Act (Law 29/1994) and the Spanish Civil Code.
Article 1555 of the Spanish Civil Code sets out the tenant's core obligations: to pay the agreed rent on the terms stipulated; to use the property as a prudent and responsible occupier, putting it to the agreed use or, in the absence of any agreement, to the use implied by the nature of the property according to local custom; and to meet the costs of executing the lease deed.
The second of these obligations, use of the premises for the agreed purpose, is the one that generates the most disputes in commercial leases. Common flashpoints include using premises for a different activity than the one originally agreed, carrying out unauthorised works, installing fixtures that affect the structure of the building, or using the property in a way that causes deterioration. The first obligation, payment of rent, is the one that gives rise to the greatest number of legal claims.
Tenant obligations under Article 1555 of the Spanish Civil Code
- To pay the agreed rent on the terms stipulated
- Use the leased property with reasonable care, for the agreed purpose
- Where no specific use has been agreed, to use it in the manner that may be inferred from the nature of the property in accordance with local custom
- Bear the costs of executing the lease agreement
Non-payment of rent: enforcement or termination
When one party fails to fulfil its obligations, Article 1124 of the Spanish Civil Code comes into play. The right to terminate reciprocal obligations is implied where one of the parties fails to perform. A lease is, by its very nature, a reciprocal contract: the use of the premises is granted in exchange for rent.
The injured party may choose between demanding performance or termination of the obligation, with damages and interest available in either case. This is a strategic choice that should be considered carefully before taking any steps. Seeking performance means claiming overdue rent while keeping the contract in force. Seeking termination means bringing the contractual relationship to an end and recovering the premises, without forfeiting the right to damages and interest.
Article 1124 itself adds a nuance that is often overlooked: termination may also be sought even after the injured party has initially opted for performance, where performance has become impossible. In other words, having first claimed the outstanding rent does not foreclose the option to seek termination at a later stage if performance is no longer viable.
There is one further point worth noting for landlords eager for a swift resolution: the court shall decree the termination sought, unless there are justified grounds authorising it to grant an extension of time. The court retains a degree of discretion. A one-off breach that has already been remedied will not be assessed in the same way as a sustained pattern of non-payment. All of this is without prejudice to the rights of third-party acquirers, in accordance with Articles 1295 and 1298 of the Spanish Civil Code and the provisions of the Mortgage Act.
Automatic termination under the Urban Leases Act (LAU)
Alongside the general provisions of the Civil Code, the Urban Leases Act (LAU) contains a specific rule. Article 35 provides that the landlord may terminate the lease by operation of law on the grounds set out in points (a), (b), (d) and (e) of Article 27(2), and where the commercial premises are assigned or sublet in breach of Article 32.
This cross-referencing requires a careful reading of both the contract and the articles referred to. Not every breach qualifies as a ground for automatic termination, and mischaracterising the breach is the costliest mistake in these disputes: a claim built on a ground that does not actually apply may end in dismissal and an adverse costs order. Before serving any notice, it is essential to verify which specific ground is being invoked, what evidence supports it, and what the contract itself says about the conduct in question.
Assignment and subletting deserve separate attention. In commercial premises, it is common for businesses to change hands, a new shareholder may come on board, the business activity may be transferred, or part of the space sublet. Each of these transactions is governed by its own rules, and if carried out without complying with the statutory requirements, it may open the door to termination.
The landlord sells the premises, does my lease survive?
This is one of the most anxious calls a law firm receives. The tenant discovers that the building has changed hands and fears losing their premises at a moment's notice.
Article 29 of the LAU sets out the rule: the purchaser of the leased property steps into the shoes of the landlord, assuming all rights and obligations under the lease, unless the purchaser meets the requirements of Article 34 of the Mortgage Act (Ley Hipotecaria). The practical consequences are twofold. As a default position, the new owner takes over from the previous landlord and the lease continues on its existing terms, same duration, same rent, same obligations. However, this continuity falls away if the buyer qualifies under Article 34 of the Mortgage Act, which makes registration of the lease at the Land Registry a critical consideration.
For a tenant who has invested in their premises, checking whether their lease is registered is not a bureaucratic formality, it is the difference between being able to enforce the tenancy against a buyer and being unable to do so. For an investor acquiring a property with sitting tenants, the same analysis determines exactly what they are buying.
Lease expiry and the goodwill compensation right
When a commercial lease expires on its contractual term, the tenant may be entitled to compensation from the landlord. This right is governed by Article 34 of the Spanish Urban Leases Act (LAU) and is, in all likelihood, the most underused right in the entire commercial tenancy regime, because it requires a specific action within a strict timeframe.
The conditions are cumulative. First, the premises must have been used for retail trade open to the public throughout the preceding five years. Second, the tenant must have given notice, at least four months before the lease expires, of their intention to renew for a minimum of five further years at a market rent. Market rent is whatever the parties agree; failing agreement, it is determined by an arbitrator appointed by them.
Deadline
The compensation right under Article 34 of the LAU requires the tenant to notify their intention to renew at least four months before the lease expires, for a minimum of five further years and at a market rent. Without that advance notice, the right to compensation does not arise.
If the renewal notice is not given within the required timeframe, the right is lost entirely. It cannot be remedied after the fact, and no court can cure the defect. This is why it is essential to mark the lease expiry date in the business calendar well in advance and to prepare the notice with sufficient lead time, keeping reliable evidence of both its dispatch and its contents.
How compensation is calculated
The legislation itself distinguishes between two scenarios, depending on what the tenant does after vacating the premises and on what subsequently takes place at the property.
| Situation following termination of the lease | Compensation entitlement |
|---|---|
| The tenant resumes the same business activity in the same municipality within six months of the lease expiring | Relocation costs plus damages for loss of goodwill compared with the previous premises, calculated by reference to the goodwill built up during the first six months of the new activity |
| The tenant starts a different activity within the following six months, or starts no activity at all, and the landlord or a third party carries on the same or a related activity at the property within that same period | One month's rent for each year the lease was in force, up to a maximum of eighteen months' rent |
| The parties fail to agree on the amount of compensation | The amount shall be determined by an arbitrator appointed by the parties |
The second scenario introduces a concept that tends to be the main battleground in litigation: related activities. The law defines these as activities that are typically capable of benefiting, even if only in part, from the customer base built up by the tenant's business. Determining whether the new business occupying the premises is related to the previous one requires evidence concerning the type of clientele, the goods or services offered, and the extent to which the incoming business has actually drawn on the former tenant's customer base.
If the parties cannot agree on the amount of compensation, it shall be determined by an arbitrator appointed by them. It is advisable to review what provisions the contract contains regarding the appointment of an arbitrator before any dispute arises.
The court route: what happens after filing the claim
When a dispute cannot be resolved out of court, proceedings are brought before the civil courts under the Civil Procedure Act 1/2000. Understanding what comes after filing the claim helps you make decisions with a clear head.
Article 440 of the Civil Procedure Act governs the summons to the hearing. Once the claim has been answered, and, where applicable, any counterclaim or set-off credit has been addressed, or once the relevant time limits have expired, the Court Registrar shall, where a hearing is to be held in accordance with the provisions of Article 438, summon the parties within the following five days. The hearing must take place within a maximum period of one month.
The summons sets out the date and time, and informs the parties of the possibility of pursuing negotiation to resolve the dispute, including appeal to mediation. In that case, the parties shall indicate, at the hearing or beforehand, their decision on the matter and their reasons for it. This is no mere formality: the position taken in response to that invitation forms part of the overall litigation strategy.
Filing the claim
The court claim is submitted together with the contract, evidence of the breach, and the chosen remedy: performance or termination, with damages and interest claimed in either case.
Response from the defendant
The defendant submits a response and may, where applicable, file a counterclaim or set off a compensable credit.
Summons to the hearing
Once the claim has been responded to, or once the relevant deadlines have elapsed, the Court Clerk summons the parties within the following five days where a hearing is to be held.
The hearing
The hearing must take place within a maximum period of one month. It is not suspended if the defendant fails to appear.
Information on negotiation
The summons includes information on the possibility of resorting to negotiation, including mediation; the parties indicate their decision, and the reasons for it, at or before the hearing.
The summons also warns that the hearing will not be suspended due to the defendant's absence, and notifies the parties that, should they fail to attend and their examination has been admitted, the facts put forward in that examination may be deemed admitted in accordance with Article 304. Both claimant and defendant are likewise notified of the provisions of Article 442 in the event they do not appear at the hearing. In plain terms: failing to attend does not halt proceedings and may be used against the absent party.
When it makes sense to seek a prior agreement
Not every commercial tenancy dispute calls for the same approach. Some cases involve an undisputed debt where the tenant acknowledges the arrears and simply needs to restructure payment; others turn on whether a breach actually occurred, the validity of an assignment, or the scope of a goodwill payment.
In straightforward, clear-cut cases, where the amount owed is not in dispute and there is a genuine willingness to pay, the most efficient route is to document the claim and send a settlement proposal setting out the amounts and due dates. Where all that remains is to agree a repayment schedule and put it in writing, it may be sufficient to draw up a payment plan signed by both parties.
Where, on the other hand, the aim is to terminate the lease, recover possession of the premises, determine the status of a new owner following a sale, or quantify compensation under Article 34 of the Urban Leases Act (LAU), the matter requires legal guidance from the very first step. Every communication sent before the claim will ultimately form part of the evidential record.
Mistakes that drive up the cost of a dispute
The first is failing to read the contract in full. Clauses governing the permitted use of the premises, works, assignment, subletting, guarantees and termination entirely shape the legal strategy, and can sometimes override what a party assumed the law provided.
The second is letting deadlines slip. The notice period under Article 34 of the LAU cannot be recovered, and the procedural time limits under Article 440 of the LEC run regardless of the landlord's or tenant's schedule.
The third is bringing a claim without proper documentation. Unpaid rent must be evidenced with the contract, receipts, bank statements and formal demands; improper use of the premises, with inspection reports, photographs and witness statements; loss of goodwill, with the business's accounting records before and after the relevant events. Without evidence, the right exists on paper, and is lost in court.
The fourth is treating a commercial lease as if it were a residential tenancy. The legal framework is different, the weight given to freedom of contract is far greater, and concepts such as goodwill compensation have no equivalent in the residential rental market.
If you are in the middle of a dispute over commercial premises, whether as landlord or tenant, a thorough preliminary review of the contract and available evidence will determine the outcome long before any hearing. At Conesa Legal, we assess the full picture, identify the most appropriate course of action, and take on the court proceedings when that is the only viable path forward.
