Cim tax & legal

New Ruling On The So-Called “Berlin Clause”

Professional articles

Cristina Bilbao | Abogada Manager

Housing and rental contracts for residential use are highly topical, with significant legislative developments in recent years. In this regard, on September 29, 2020, in Catalonia, Law 11/2020 was published, concerning urgent measures for rent control in residential lease contracts, amending Laws 18/2007, 24/2015, and 4/2016, all related to housing rights protection.

One of the main measures introduced by this law was the rent control system, implemented through the use of the reference index for rental housing prices, which limited rent fixing. Consequently, rent was no longer freely negotiated between landlord and tenant but was determined by law based on the property's characteristics.

Various constitutional challenges were filed against the published law and the introduction of this rent control system in Catalonia. Faced with this scenario, many landlords, constrained by legal limitations in rent setting, chose to include the so-called "Berlin clause" in residential lease contracts. This clause involved mutually agreeing on a dual rental price in the lease contract. Specifically, a rental price was agreed upon by the parties, but due to the regulations on rent control in force at the time of contract formation, it was reduced by legal imperative. Considering that the regulation imposing such limitation was subject to a constitutional challenge, the same clause anticipated that if such limitation were annulled by the Constitutional Court, the rent applicable would be the one freely agreed upon by the parties, rendering the limited rent ineffective.

On March 10, 2022, the Constitutional Court ruled on the unconstitutionality of certain provisions of the law, including those related to rent control and limitation in lease contracts. Consequently, rent control ceased to apply from that moment onwards, allowing parties to freely agree on rental amounts in contracts signed after the ruling.

In contracts where the "Berlin clause" had been introduced, once the ruling declaring the rent price control imposed by the Government of Catalonia unconstitutional was published, the rent agreed upon by the parties for such a scenario came into effect, as expressly provided. Therefore, from the month following the publication of the Constitutional Court's ruling, the rent whose amount was limited by law ceased to have effect, and the tenant started paying the rent amount that had been freely agreed upon by both parties, all in accordance with what was expressly agreed in the lease contract.

The introduction of this clause in lease contracts has been subject to controversy and debate, yet there haven't been many cases brought to court. In this sense, as a novel development, on May 27, CIM TAX & LEGAL was notified of a judgment from a Barcelona Court of First Instance concerning a case where the tenant, when applying the agreed-upon rent in the event of the law's unconstitutionality, filed a lawsuit requesting the nullity of the aforementioned clause, deeming it abusive, and claiming the amount of rents they believed they had overpaid.

The proceeding concluded with this first-instance judgment dismissing the tenant's claims entirely, confirming the validity of the clause agreed upon by the parties, as well as the appropriateness of paying the freely agreed-upon rent.

Although it's a first-instance judgment subject to appeal, the analysis conducted by the magistrate in the legal grounds is highly revealing and innovative, as it supports the parties' free will in drafting the contract.

Following the terms of the analysis conducted by the judge in the judgment, the key to considering such clause valid has been the existence of the constitutional challenge, thus implying that, at the time of signing the contract, when it is anticipated that the freely agreed-upon rent will come into effect in case the Constitutional Court annuls the rent control system, the tenant is aware of this possibility, as the regulation was already under constitutional challenge.

Furthermore, the landlord's conduct from the moment of offering the lease until signing the contract is crucial. The rental offer itself must already specify the freely agreed-upon rent and the limited rent, ensuring clarity for the tenant from the outset. When contacting the landlord to inquire about the lease, the tenant is already aware of the inclusion of such clause. Subsequently, drafting the contract in a clear and fully understandable manner for the tenant is essential, who must agree to the introduction of such clause. Therefore, to ensure its validity, the clause must be agreed upon by mutual consent, with full transparency towards the tenant, addressing any doubts the tenant may have regarding the clauses and conditions of the contract, specifically ensuring that all information regarding the "Berlin clause" is provided, ensuring understanding of its scope and consequences.

Given the recent amendment to the Housing Law and the introduction at the national level of rent control in certain areas considered to be under tension in the housing market, this first judgment gains special relevance as "Berlin clauses" are being reintroduced in many lease contracts, considering the constitutional challenges already filed against the Housing Law, which are currently pending resolution.

Despite being a very novel controversy, this first-instance judgment sets an initial judicial trend, although we must wait for pronouncements in higher instances that may establish case law in this regard.

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Cim tax & legal