First judicial pronouncement made on the "Berlin clause" in Spanish residential leases

The right to housing is a cornerstone of policy in Spain and confronts significant challenges across various regions. The barriers to entering the rental market at affordable rates have created uncertainty and tension within the property sector, catapulting price control policies to the forefront of an ever-evolving public debate.

After the implementation of Act 11/2020 on 18 September in Catalonia, concerning urgent measures for rent control in housing lease agreements, the debate was amplified due to the introduction of a system that restricted the free setting of rental prices in areas classified as tense residential markets. The objective was to halt and temper the escalation of rental costs in regions that inherently could not provide affordable housing for all citizens.

Nevertheless, the market viewed the application of this law as a significant encroachment on the freedom of contractual agreements, leading to several challenges to its constitutionality before the Constitutional Court.

"Berlin clause"

In light of this legal uncertainty and considering the high probability that the rule would be declared unconstitutional, many landlords chose to include in their lease contracts the so-called "Berlin clause" or "Berliner clause". Ultimately, on 12 May 2022, the Constitutional Court declared several provisions of Act 11/2020 unconstitutional, including the rent limitation provisions.

The so-called "Berlin clause" is that stipulation in the lease agreement where the landlord and tenant set two rental amounts, which will be applied according to the rent control regulations in force during each period of the contract:

• The first, subject to the legislation applicable at the time of signing the lease contract, which until the declaration of unconstitutionality was Act 11/2020 in Catalonia, and currently, would be the Housing Act 12/2023, of 24 May, for the right to housing applicable throughout the Spanish territory.
• The second, a free-market rent agreed upon by the parties in the event that Law 11/2020, or currently, Law 12/2023, was invalidated, thereby rendering the rent control system ineffective.

The application of the "Berlin clause" has been a cause for litigation. Many tenants have shown reluctance to accept this clause in their contracts and consider it abusive.

Court of First Instance decision

The issue was brought before the Court of First Instance number 55 of Barcelona, which recently favoured the enforcement of the "Berlin clause". On 27 May, the court delivered a verdict affirming its legality, subject to the fulfillment of certain conditions.

In the specific case, the tenant maintained that the "Berlin clause" was abusive and, therefore, should be annulled. He also requested the return of all amounts paid to the landlord that he considered undue.

The court fully dismissed the tenant's demands in its ruling, stating that the clause cannot be considered null since "the tenant was clearly and precisely aware of the obligations stemming from the contested agreement, hence the entire claim must be dismissed".

In other words, it emphasises the need for the landlord to act with "total transparency towards the tenant" at all times. It is essential that the tenant clearly understands the content of the contract, the implications of the "Berlin clause", the cost of the rent, among other relevant aspects. If transparency between the parties is demonstrated, the court considers that there is no reason to consider the clause as abusive and, therefore, it is fully valid.

In the case analysed by the judgment, the judge found that there was transparency in the lease contract, given that the landlord and tenant exchanged a series of emails that clarified the operation of the "Berlin clause", and the tenant expressed his understanding and acceptance of it.

Osborne Clarke comment

The Court of First Instance of Barcelona has set a precedent and defined parameters that until now had not been considered in the application of this type of clauses, such as the importance of transparent negotiation between the parties.

It should be noted that this resolution can still be appealed and reviewed by higher instances. Nevertheless, everything indicates that this is a judicial decision that could mark a significant trend in future judicial resolutions on this matter.