Can a commercial tenant transfer the business (“traspaso”)?

Question

José Manuel Alburquerque · Accepted Answer

Yes, if a business or professional activity is carried on in the premises and the contract does not prohibit it. What is still called a “traspaso” is now, under the “Ley de Arrendamientos Urbanos” (LAU), Spain's urban tenancies act, the assignment of the lease, which does not require the landlord's permission. In return, the landlord can raise the rent by 20 % and the assignment must be notified to the landlord by a means that provides reliable proof, such as a “burofax”, a certified letter with proof of content, within the month after it is signed. But for commercial premises what prevails is the contract as signed, which often prohibits assignment or requires the landlord's consent. If the tenant is a company, selling the company's quotas (“participaciones”) is not assigning the lease, unless it is done to get round a prohibition. What the law says If, when selling the business, the tenant also assigns the lease to the buyer, the buyer takes the tenant's place under the contract. Unless the contract says otherwise, the rules are as follows: The landlord's consent is not needed if a business or professional activity is carried on in the premises. If they are used for something else, for example for storage by a private individual, it is needed. The landlord can increase the rent currently being paid by 20 %. With a rent of 2.000 euros a month, the new rent would be 2.400 euros. The landlord has to ask for the increase. The assignment is notified to the landlord within the month after it is signed, by a means that leaves a record, such as a burofax or a formal notice served by a notary. If the lease is assigned without following these rules, the landlord can terminate the contract, that is, bring it to an end. The landlord is not entitled to a share of the price of the business, unless the contract grants one. That was a feature of the 1964 Act. For commercial premises under old-style protected tenancies (“renta antigua”), with contracts made before 9 May 1985, the rules are different and it is advisable to seek advice. What the contract says For commercial premises what was agreed comes first and the contract usually prohibits assignment, requires the landlord's consent or sets a different increase. Before selling the business, the tenant must read that clause and, if assignment is prohibited, negotiate it before completing the sale. It is advisable to put in writing whether the assigning tenant remains liable for the rent, because the law does not make this clear. It is a different matter if what was let was the business as a going concern, with its fittings, its licences and its customers. That is a lease of a going concern (“arrendamiento de industria”). It is governed by the Spanish Civil Code (“Código civil”) and by what was agreed and, unless otherwise agreed, assignment requires the landlord's permission. If the tenant is a company If the shareholders of the tenant company sell their quotas, in principle there is no assignment. The tenant is still the same company, with its own legal personality. The sale does not entitle the landlord to the 20 % increase, nor does it, in itself, breach a prohibition on assignment. Nor is a merger, conversion or demerger of the company an assignment, although in those cases the law does allow the rent to be increased. The exception is a sale whose only purpose is to get round a prohibition on assignment. The courts may then find evasion of the law and look behind the company, which is known as lifting the corporate veil. Evasion of the law is not presumed and whoever alleges it must prove it with indications such as these: A genuine change in who runs the business, with a different brand, different staff or different management. The tenant company being left with no business of its own and keeping only the lease. Agreements to manage, franchise or lease out the business that pass the risk and the profit to someone else. The transaction making no economic sense other than transferring the lease. For the landlord, the most effective tool is a change of control clause in the contract. It can provide that the sale of a percentage of the quotas, or the arrival of a shareholder who takes control of the company, requires the landlord's consent or is grounds for termination.