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Your commercial lease agreement: get the clauses right before you sign

Expert legal guidance on commercial lease agreements in Spain under the LAU: key clauses, rent reviews, subleasing, termination rights, VAT implications and tenant and landlord protections.

The problem

A commercial lease is one of the most significant financial commitments a business makes. It defines where the company operates, at what cost, and under what conditions for years. Yet many commercial leases in Spain are signed using template contracts downloaded from the internet — documents that fail to address the scenarios that actually arise: what happens if the business underperforms and the tenant needs to exit early; what the tenant can do to the property in terms of fit-out works; whether the landlord can sell the property and force out the tenant; how rent is reviewed; and whether subletting or assigning the lease to a buyer of the business is possible. Spain's Urban Leases Act (Ley de Arrendamientos Urbanos, LAU) gives commercial landlords and tenants exceptional freedom to negotiate their own terms. This freedom is an opportunity for those who use it well and a trap for those who do not.

Our solution

At BMC we draft and review commercial lease agreements for both landlords and tenants, from small retail units to large commercial premises and office buildings. Our [real estate law](/en/legal/real-estate-law) team has in-depth knowledge of the LAU, the relevant case law, and the market terms in the main Spanish cities. We design agreements that anticipate the most common disputes, protect the legitimate interests of both parties, and minimise the likelihood of future litigation. We coordinate with our [tax team](/en/tax/tax-compliance) on VAT treatment and IRPF withholding obligations.

Process

How we do it

1

Transaction analysis and party objectives

We review the agreed economic terms (initial rent, any free-rent period, rent review mechanism) and the specific objectives of each party: the landlord typically seeks security of payment, protection of the asset, and predictable income; the tenant typically needs flexibility to adapt the premises and a viable exit route if the business plan changes.

2

Drafting of critical clauses

We draft with precision the clauses that generate the most disputes in practice: rent review mechanism (CPI, fixed percentage, revenue-linked variable component), fit-out works and reinstatement obligations, subletting and assignment rights, early termination conditions, and the landlord's pre-emption right on any business sale.

3

Guarantee and deposit structure

We determine the appropriate guarantee package for the risk profile of the transaction: the statutory two-month deposit, additional cash deposits, bank guarantees on demand, and personal guarantees from directors or shareholders. We draft each guarantee instrument so it is enforceable swiftly in the event of default.

4

VAT review and notarisation

We verify the VAT treatment applicable (generally 21% on commercial leases), the IRPF withholding obligation where the landlord is an individual, and the advisability of executing the lease as a notarial deed and registering it at the Land Registry for enhanced enforceability. For high-value transactions, we coordinate with [tax compliance](/en/tax/tax-compliance) specialists.

5-10
Years typical duration of a commercial lease
2
Months statutory deposit for commercial premises
21%
VAT rate on commercial lease payments

As a landlord with four commercial properties in Malaga, I had always used standard contracts. After a tenant sublet without permission and left without reinstating the fit-out works, I commissioned BMC to draft bespoke leases for all my properties. I have not had a dispute since.

Antonio Fernandez Private landlord, Commercial property investor, Malaga

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Commercial leases in Spain: freedom with consequences

Spain’s Urban Leases Act treats commercial leases (leases for a purpose other than permanent habitation) very differently from residential ones. Residential tenants enjoy extensive statutory protections — minimum contract durations, rent control mechanisms, and regulated grounds for termination. Commercial tenants and landlords, by contrast, operate in a contractual environment where almost everything is negotiable and the law provides relatively few default protections.

This freedom is both the commercial lease’s greatest strength and its most significant risk. For parties with experienced legal representation, it allows the negotiation of a genuinely tailored agreement that reflects the specific transaction — the property, the business using it, the landlord’s objectives, and the realistic scenarios for the life of the lease. For parties relying on a generic template, it means that the scenarios not addressed in the contract will be resolved by whatever the law says in the absence of agreement — which may not be what either party would have wanted.

The clauses that matter most

Rent review: The LAU does not specify a mandatory rent review mechanism for commercial leases. The parties can agree to review by the Consumer Price Index (CPI), a fixed percentage, a reference index, or a variable component linked to the tenant’s revenue. If no mechanism is agreed, the rent stays fixed for the entire lease term — an outcome that can be very costly for landlords in inflationary environments and very valuable for tenants. Market practice in Spain has shifted in recent years towards CPI-linked reviews with a cap and floor.

Fit-out works and reinstatement: Most commercial tenants need to adapt the premises to their business. The lease should specify precisely what works require landlord consent (usually all structural or external changes), who bears the cost, whether the tenant receives a fit-out contribution from the landlord, and — critically — whether the tenant must restore the premises to their original condition at the end of the lease. Reinstatement obligations are a major source of end-of-lease disputes.

Early termination: Many commercial tenants need the ability to exit before the lease term expires if the business changes or underperforms. Without an express early termination provision, the tenant is liable for the full remaining rent. Market practice typically involves a notice period of six months and a penalty of between three and six months’ rent, but these terms are entirely negotiable and should be agreed at the start.

Registration at the Land Registry

For leases of significant duration or value, we recommend executing the agreement as a notarial deed and registering it at the Land Registry. This provides two key protections: the tenant’s right to continue the lease is preserved against any buyer of the property (the lease becomes an encumbrance on the title, visible to any buyer); and the landlord’s ability to enforce penalty clauses and request expedited vacant possession proceedings in the event of default is enhanced. For the tax implications of commercial leases and related VAT compliance, we coordinate with our tax advisory team.

FAQ

Frequently asked questions

Commercial leases (leases for a purpose other than permanent habitation, including retail, office, warehouse, and parking) are governed by Title III of Spain's Urban Leases Act (Ley 29/1994 de Arrendamientos Urbanos, LAU). Unlike residential leases, commercial leases are governed primarily by what the parties agree in the contract — the LAU provides very few mandatory protections that cannot be modified by agreement. This makes the content of the contract far more important than in residential leasing.
No. Spanish law imposes no minimum or maximum duration on commercial leases — the parties are free to agree any term they wish. Market practice for medium-sized commercial premises typically ranges from five to ten years, often with options to extend. Larger commercial developments (shopping centres, business parks) commonly use lease terms of fifteen to twenty years. Early termination clauses and the conditions under which they can be exercised are among the most important provisions to negotiate.
Yes, under the LAU the tenant of a commercial property has a statutory right of first refusal (tanteo and retracto) when the landlord decides to sell. The landlord must notify the tenant of the intended sale with all material terms, and the tenant has 30 days to exercise the right of first refusal at the same price and conditions. If the landlord sells without notifying the tenant or on different terms, the tenant can exercise the right of retracto within 30 days of learning of the sale. This statutory right can be excluded by agreement of the parties in the lease.
Yes. Commercial lease payments are subject to Spanish VAT (IVA) at the standard rate of 21%. The landlord must issue a monthly invoice including VAT and declare and remit it to the AEAT quarterly. Where the landlord is an individual (not a company), the tenant is also obliged to withhold 19% of the rent as an IRPF prepayment and pay it directly to the AEAT quarterly. The lease contract should clearly specify whether rents are expressed inclusive or exclusive of VAT to avoid disputes. We advise on this as part of our [commercial lease review service](/en/legal/commercial-law).
Only if the lease expressly permits it or the landlord gives explicit consent. Under the LAU, partial subletting requires the landlord's consent. Full assignment of the lease (where the tenant transfers all their rights to a third party, typically as part of a business sale) also requires consent, but the LAU gives the landlord the right to a rent increase of 10% to 20% in this case. A well-drafted lease addresses these scenarios explicitly, setting out the conditions, approval process, and any compensation due to the landlord.

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