This article provides an overview of the key legal elements of a material breach in commercial lease agreements in Spain and explores the applicable legal framework, the criteria used to determine its existence and the legal consequences of such a breach.
Legal Framework
The main legislation governing lease agreements in Spain is Law 29/1994 of 24 November on Urban Leases (LAU), which distinguishes between residential leases and leases for other uses (e.g., commercial premises, offices, warehouses).
In addition, the Spanish Civil Code—especially Article 1,124—provides general rules on obligations and contracts, applying subsidiarily where the LAU does not specify.
What Constitutes a Material Breach?
A material breach—also referred to as a fundamental or resolutory breach—occurs when a party fails to fulfil essential obligations, frustrating the economic purpose of the agreement and depriving the non-breaching party of what it legitimately expected.
Not all breaches justify termination; only those with sufficient severity and legal relevance qualify.
Key Factors in Determining Material Breach
Courts evaluate material breaches on a case-by-case basis. The following factors usually play a role in evaluations:
- Nature and severity of the breach: A slight delay in rent payment may not qualify, while persistent non-payment likely would. Unauthorised structural alterations can also constitute material breaches.
- Frustration of contract purpose: The breach must significantly hinder the intended economic use. For example, if the landlord fails to carry out necessary repairs, making it impossible for the tenant to run its business, this may constitute a material breach.
- Parties’ intent: If the contract explicitly states that a specific breach justifies termination, courts will generally respect that clause unless it violates mandatory law.
- Good faith principle: According to Article 7 of the Civil Code, parties must act in good faith. A minor breach may be considered material if done in bad faith.
- Opportunity for remedy: If the breaching party can reasonably fix the breach within a given time, termination may not be justified, particularly if the consequences are disproportionate.
Examples of Material Breach
By the Landlord
- Failing to maintain the property in a usable condition.
- Disturbing the tenant’s peaceful possession.
- Denying access to the leased property.
- Failing to obtain required licenses (if obligated).
- Undertaking unauthorised structural changes that disrupt the tenant’s activity.
By the Tenant
- Repeated or prolonged non-payment of rent.
- Changing the use of the premises without consent.
- Making unauthorised alterations that affect safety or configuration.
- Subletting without the landlord’s consent (if required).
- Engaging in illegal or disruptive activities.
Legal Consequences
According to Article 1,124 of the Civil Code and Articles 27 and 35 of the LAU, material breach enables the non-breaching party to seek termination and claim damages. (https://www.boe.es/buscar/act.php?id=BOE-A-1994-26003).
Termination extinguishes the agreement and may include restitution and compensation for losses caused by the breach, as well as other agreed penalties.
Termination Procedure
The termination process depends on whether there is a mutual agreement:
- By mutual agreement: The parties may sign a termination agreement that includes key terms such as the handover date, deposit refund, and compensation.
- Without agreement: The non-breaching party must file a lawsuit requesting termination based on a material breach and prove its existence, severity, and the damage suffered.
Conclusion
A material breach in lease agreements requires careful assessment of the specific facts of each case. Only serious breaches that frustrate the purpose of the contract may justify termination and compensation. Understanding the legal framework and practical examples can help landlords and tenants assert their rights with clarity and legal certainty.
If you require additional information regarding material breach in lease agreements,
