When the mortgage encumbering the property we are renting is foreclosed, the property is consequently disposed of by judicial auction and, therefore, this affects the lease contract signed.

The different situations that arise when, after the auction, the property is acquired by the Bank or by a creditor other than the original lessor are set out below.

RENTAL CONTRACT FOR RESIDENTIAL OR NON-DWELLING USE?

It is important to make this distinction because the Urban Leasing Law offers differentiated treatment according to the type of property leased.

  • LEASE OF PROPERTY FOR USE OTHER THAN AS A DWELLING:

The Supreme Court has established that leases of real estate for use other than as a dwelling (e.g. commercial premises) which are not registered in the Land Registry, or whose registration has taken place after the registration of the foreclosed mortgage, are ineffective against the successful bidder of the property at the auction, which leads to the termination of the lease. Unless the new purchaser chooses to subrogate himself to the position of the previous lessor in such a way that the validity of the lease is maintained.

  • LEASING OF PROPERTY FOR RESIDENTIAL USE:

In order to know the effects of the foreclosure of the mortgage encumbering the leased property, we must refer to the provisions of article 13 of the Urban Lease Law. In this case, as it has been subject to legislative modifications, it is necessary to take into account the date on which the contract was formalised.

In the following cases it is assumed that the lease was not registered in the land register prior to the registration of the foreclosed mortgage, because in that case the lease is not extinguished.

a) Contracts concluded up to June 2013

If the rented property is put up for auction as a result of foreclosure by the bank or any creditor, the tenant has the right to remain in the property until the end of the five years (minimum duration of the lease).

(b) Contracts concluded between June 2013 and March 2019

After the reform of the Law on Urban Leases, during this period, if the mortgage is executed, the contract will be extinguished, although, once the three years of minimum duration established have elapsed if the contract has a shorter duration.

c) Contracts concluded as from March 2019

If during the first five years of the lease the property is auctioned as a result of foreclosure, the tenant has the right to remain in the property until the end of the five-year period, even if the term stipulated in the lease is shorter because this is the maximum extendable term of the lease.

WHAT CAN I DO AS A TENANT OF THE FORECLOSED PROPERTY?

If you are aware of the existence of the auction of the leased property, the most advisable thing to do is to inform the Court where the foreclosure proceedings are being processed of the existence of the lease, providing the contract to justify the occupation and avoid eviction.

However, it may also be the case that the enforcing party himself informs the court of the existence of the tenancy, so that the court informs the tenants of the enforcement and requires them to justify their occupation.

Finally, in the event that the bank or third party creditor, when foreclosing the mortgage, requests the release of the tenants of the property before the Court where the foreclosure is being processed, prior to agreeing on the appropriate action, the tenants will be summoned to a hearing in which they will have the opportunity to argue and prove what they consider appropriate with regard to their situation in the property. It is important to emphasise the importance of attending the hearing, as failure to appear at the hearing will result in the eviction being agreed without further formalities. The court will decide on the eviction and whether the tenants have the right to remain in the property.

Do not hesitate to contact Martínez Sanz Abogados if you need a legal advice. foreclosure lawyer in the field of real estate law.

Patricia Blanco Garrido. Lawyer.