The Tribunal Supremo opens doors to perpetual leases.

The Supreme Court has created a clear jurisprudential line regarding the prohibition of indefinite or perpetual ties of the contracting parties (STS 02/10/2021, 07/28/2020, 02/20/2020, 11/16/2016, 14 / 03/2013, among many others), so that in the event that the contract has been agreed indefinitely, any of the contracting parties will have the right to terminate the contract ad nutum.

That is why the jurisprudential swings on housing lease contracts agreed indefinitely are shocking. On the one hand, STS 582/2009, in coherence with the aforementioned line, rejects that the parties can, at the mercy of article 1255 CC, agree to a lease for an indefinite term without altering the very essence and nature of the lease, which must be of determined or determinable duration. On the other hand, in much more recent dates, the Supreme Court has admitted the perpetual relationship between a landlord and a tenant, or at least as long as the tenant wishes, and thus establishes it in its Judgment dated 129/2021 of 9 March (Pte. Arroyo Fiestas).

The Judgment is brief in the account of the facts. It is known that the landlord had acquired the house from the tenant two days before the conclusion of the lease, as well as that the contract included an option to purchase the property, exercisable throughout the term of the lease. Specifically, the 2nd stipulation of the contract said

Term of duration is set at 5 years. Upon the termination date of the contract or any of its extensions, the tenant may notify the lessor in a reliable way, at least one month in advance, of his will not to renew said contract; If this communication does not occur, the contract will be automatically extended annually. The landlord may not unilaterally terminate this rental contract for any reason or reason, unless authorized and agreed by the tenant “.

The wording of the clause does not allow an obvious deduction of the indefinite or perpetual duration of the contract; on the contrary, it seems that its editor wanted to fix it at five years and that he was inspired by article 10 of the LAU in force at that time, trying to hold the tacit renewal of the contract up to a maximum of three more years. Well, the lessor acted accordingly and at the end of the eighth year of its validity, the lessor notified the tenant of a burofax in which it communicated her will not to extend the contract any more; Will that was objected to by the lessee due to the literality of the reproduced contractual clause.

After a zigzag crossing through the three instances, the Supreme Court relied on the literality of the mention “the contract will be automatically extended annually”, and granted the reason to the tenant arguing that the agreed extension is not the legal one – as claimed the landlord – but rather a conventional extension agreed upon at the free will of the parties, as well as that the lease and the purchase option constitute an indivisible functional unit, and therefore the agreed indefinite extension does not imply any legal breach.

How long can an indefinite lease last?

The sentence does not say so, and what it indicates is that as long as the lessee wishes to extend it, they can do so, which makes the relationship between the parties perpetual, and even – I think – transferable by hereditary succession on successive occasions (art. 16 LAU refers to the “death of the tenant”, that is, of who – at any time – occupies such contractual position and not necessarily the initial tenant), a regime that would even exceed the life regime of article 57 of the Urban Leasing Law of 1964, which could only be subrogated twice (DT 2 of Law 29/1994).

This factual mutation of a contract in which temporality is essential in an indefinite and unresolvable contract by the landlord is contrary to the aforementioned jurisprudential doctrine of the prohibition of perpetual bonding between the parties (see Sentence 672/2016 of November 16 , of the Civil Chamber of the Supreme Court), and also null and void because it is contrary to article 1,256 (“the fulfillment of the contract cannot be left to the discretion of one of the parties”), at 1,543 (“determined time”) of the Civil Code. And although the perpetual relationship would also violate the right to free development of the personality prescribed in article 10 EC, in our case it is not so since the lessor is a commercial company.

Why, then, does the Supreme Court waive the rule in this case?

The Judgment bases its ratio decidendi on the complex nature of the contract, due to the fact that the lease relationship coexists with a right to purchase option in favor of the tenant on which the Supreme Court reasons that

“Therefore, we are not dealing with a mere rental service but with a related business relationship (judgment 14/2020, of January 16 and those that she cites) that has to be analyzed as a whole and with benefits linked under mutual dependence until the point that they constitute a functional unit that cannot be dismantled at the risk of altering the will of the contracting parties, both being professionals in the sector (art.1255 of the Civil Code).

However, the Judgment does not explain why the immediately preceding sale and the existence of a purchase option allow a letter of nature to be given to the perpetuity of the contractual term.

It is true that the legal relationship discussed has features of the “sale and lease-back” contract, a financial modality consisting, as it is known, “in a loan (call it, if you will, a loan) that, instead of being guaranteed with a right real estate on certain assets, the financial one is assured by making its property the assets that until that moment had belonged to the seller, and that it continues to use it because it has received the right to its use, either tending to the definitive recovery of its ownership through the payment of the financial lease fees and subsequent exercise of the purchase option ”(Resolution 42/1994 of the TEAR of Navarra).

However, the mere coexistence of several legal relationships in a single contract does not make it an associated business relationship, unless the parties have expressly stipulated it, or it must be inferred in an incontrovertible way due to the functional dependence between them. Otherwise, both legal relationships run in parallel and without “linking under mutual dependence”, both in a plurality of contracts, and in a single one in which adjacent but independent legal relationships coexist. In this sense, allow me to cite the SAP Madrid of February 24, 2010, which refers to the “theory of the so-called associated contracts, understood as such according to Professor Diez Picazo those in which the ineffectiveness of one of the contracts only originates the ineffectiveness of the set, when the projected practical result can only be achieved by the validity of the entire negotiated set, the current recurring party understands and considers that there was such a link between the financing contract and the investment contract ”.

But in our case the related nature of the business relationship is not so evident since, first of all, a lease is not necessary – and much less for an indefinite term – to establish a purchase option; and second, to our knowledge, the parties did not record a special purpose that required the conjunction of the prior transfer, the purchase option, and an indefinite-term lease, nor is any typical cause discovered behind the business structure entered into.

On the other hand, the “sale and lease-back” does not contemplate the perpetuity of the lease relationship. Furthermore, the purchase option has as a fundamental element the term, and this is stated by the Supreme Court in its Sentence 620/2021, of October 10, which proclaims that the purchase option “is the most typical unilateral pre-contract that allows the opting to decide, within the established period, the entry into force of the sale contract (judgments of April 11, 2000 and June 5, 2003) ”. And this is logical, since, in the exercise of the purchase option, the only option is whether to acquire or not to acquire, but the opting party must decide on a mandatory basis as this is the typical element of the contract.

And what would happen if the years passed and the tenant of the house did not exercise the purchase option, and it could be demonstrated that her past behavior – for example, having rejected offers to sell at a price lower than that stipulated in the option – makes it foreseeable that will not exercise the option in the future? In this case, it could be considered that the opting party would be leaving the fulfillment of the characteristic provision of the contract (opt) to his sole discretion, or would be preventing the owner of the asset from being able to fulfill his contractual provision (obey the option), contravening both assumptions Article 1,256 CC, (in this sense the STS of October 10, 1994). And it could also be considered that the basis of the contract has disappeared since the purchase option has become inoperative and superfluous, thus frustrating, at least partially, the purpose of the contract and leading it, either to its resolution, or to its treatment as if it were of a simple lease. And as a simple lease – the purchase option has disappeared – nothing prevents us from appreciating that the extension referred to in the contract is none other than the legal one, limited to three years according to the applicable law. In the worst case scenario for the landlord, the lessor could be forced to bear the lease for thirty years

maximum term of the lease (without purchase option) in accordance with STS 582/2009, of the plenary session, by which article 515 CC regarding the duration of the usufruct would be applied analogously (STS 582/2009 of September 9).

The Supreme Court seems to accept as the sole interpretative criterion the very literality of the clause – despite the unusual nature of the indefinite or perpetual terms – without integrating, according to article 1,258 CC, the contractual gap regarding the term, nor resorting to the rest of the interpretation criteria , particularly that contemplated by article 1289 CC: the purchase option was granted to the tenant free of charge, so it should be interpreted that the latter’s rights against the lessor are the most limited possible, without it being understood, consequently, that the The option is granted indefinitely, and therefore without the need to set up an indefinite lease term.

However, the sentence whose comment I have already concluded opens more unknowns than those that it closes (the admissibility of the indefinite term by will of the parties already has a sequel in the SAP Barcelona of 07/15/2021), leaves the owner of housing and, of course, it would be a candidate for its criteria to be either better justified, or rectified, in subsequent rulings of the High Court.

This article was published on 07.10.2021 in Almacén de Derecho.

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