1. The Housing Affordability Problem

In recent years, housing prices in Spain have increased significantly, particularly in areas with the highest demand. A shortage of available housing, real estate investment, tourism, and speculative activity have all contributed to this increase. As a result, many individuals, particularly young people and middle- and low-income households, face considerable difficulties in accessing affordable housing. Because of this, the government has introduced new measures to help more people find affordable housing and increase the number of homes available through the public housing system.

2. The Purpose of the Legislature

In response to this situation, the Spanish legislature has introduced various measures with the aim of guaranteeing access to adequate housing and increasing the supply of affordable homes.

To achieve these objectives, the legislation seeks to facilitate the intervention of Public Authorities in certain real estate transactions through mechanisms such as the designation of Residential Market Pressure Zones (zonas residenciales tensionadas) and the exercise of statutory rights of pre-emption and redemption (derechos de tanteo y retracto).

3. The Mechanisms Used to Achieve These Objectives

The main mechanisms established by the legislature are the designation of Residential Market Pressure Zones and the statutory rights of pre-emption and redemption.

Residential Market Pressure Zones identify areas where it is especially difficult to buy or rent a home because housing is too expensive or there are not enough properties available. The rights of pre-emption and redemption allow the Public Administration, in certain cases, to buy a property before or instead of another buyer. The aim of incorporating them into the public housing stock and allocating them to social housing policies.

4. Regulation under Regional Legislation

Although national legislation establishes the general legal framework, housing is largely regulated at regional level in Spain. As a result, Autonomous Communities have enacted their own regulations governing rights of pre-emption and redemption, with significant differences as to their scope of application.

Valencian Community

The Valencian Community regulates these rights through Decreto-Ley 6/2020, subsequently enacted as Law 7/2021, significantly expanding the circumstances in which Generalitat Valenciana may exercise its rights of pre-emption and redemption.

Valencian legislation allows the Public Administration to intervene in certain transfers of residential properties, particularly those arising from mortgage foreclosures, sales of entire buildings, and large-scale real estate transactions, with the objective of increasing the public housing stock.

Catalonia

Catalonia has been one of the Autonomous Communities to develop the most extensive legal framework in this area.

Its regulation is primarily contained in Decreto-Ley 1/2015, which has subsequently been amended on several occasions. The legislation grants broad rights of preferential acquisition in favour of the Generalitat de Catalunya and certain local authorities.

These rights apply particularly to residential properties resulting from mortgage foreclosure proceedings, properties owned by large-scale property holders (large landlords), certain transfers of entire buildings, and other transactions connected with public housing policies.

Balearic Islands

The Balearic Islands regulate rights of pre-emption and redemption through Law 5/2018 on Housing of the Balearic Islands, subsequently reinforced by various legislative amendments.

The Balearic legislation allows the Public Administration to acquire certain residential properties on a preferential basis where circumstances relating to the protection of access to housing exist, particularly in a region where tourism-related demand and a highly competitive housing market have contributed to a substantial increase in property prices.

Andalusia

In Andalusia, these rights are primarily governed by Law 1/2010 on the Right to Housing in Andalusia, together with subsequent legislative amendments.

Their application focuses mainly on specific situations involving protected housing and other transactions expressly provided for by law, thereby enabling residential properties to be incorporated into the public housing stock for social housing purposes.

5. What Is a Residential Market Pressure Zone?

A Residential Market Pressure Zone is a designated geographical area where access to housing is particularly difficult due to high purchase or rental prices and a shortage of available housing.

Law 12/2023 on the Right to Housing allows an area to be designated as a Residential Market Pressure Zone when certain objective criteria are met, such as where housing costs exceed 30% of the average household income or where housing prices have increased at a rate significantly higher than the Consumer Price Index (CPI). Such designation falls within the competence of the Autonomous Communities and enables the implementation of specific measures intended to facilitate access to housing.

The reference to a stressed area can be a neighbourhood of a city, a specific area or even an entire city.

6. What Are the Rights of Pre-emption and Redemption?

The right of pre-emption is a statutory right of preferential acquisition that entitles the Public Administration to purchase a residential property under the same terms and conditions agreed between the seller and the prospective purchaser before the sale is formally completed. To this end, the owner must give prior notice of the essential terms of the proposed transaction, thereby granting the Public Administration a statutory period within which to decide whether to exercise its rights.

The right of redemption, on the other hand, arises once the sale has already been completed. Where the Public Administration was unable to exercise its right of pre-emption because it was not duly notified or because the transfer was carried out in breach of the applicable legal requirements, it may step into the legal position of the purchaser and acquire the property by paying the same purchase price and assuming the same contractual terms and conditions.

Accordingly, these rights constitute statutory mechanisms of preferential acquisition that enable Public Authorities to act in certain transfers of residential properties in order to allocate them to the public interest.

7. Issues and Criticisms of the Rights of Pre-emption and Redemption

Although these mechanisms pursue the legitimate objective of protecting the public interest, their application also gives rise to a number of legal and practical concerns.

First, they may create a degree of legal uncertainty for both buyers and sellers, since the completion of a real estate transaction may remain subject to the period during which the Public Administration decides whether or not to exercise its rights of preferential acquisition.

The right of redemption can also affect buyers after they have already bought the property. Even if the sale has been completed legally, the Public Administration may still take the buyer’s place and buy the property instead. This creates uncertainty and may leave buyers feeling that their purchase is no longer secure.

From an economic perspective, the existence of these rights may reduce the attractiveness of certain real estate investments or slow down the property market by increasing administrative formalities and extending the time required to complete transactions.

Furthermore, the practical effectiveness of these mechanisms largely depends on the financial resources available to Public Authorities. Although the law grants them the right to acquire certain residential properties on a preferential basis, exercising those rights requires sufficient budgetary resources to finance the acquisition. Consequently, the practical application of these rights may, in some cases, be limited. It should be noted that the regional governments have designated centralized bodies.

In addition, the exercise of the right of redemption may have significant financial consequences for the purchaser. By the time the Public Administration decides to exercise this right, the sale may already have been completed by means of a notarial deed of sale, and the purchaser may already have paid the earnest money deposit, notarial fees, Land Registry fees, the applicable taxes (such as Property Transfer Tax (ITP) or, where applicable, Stamp Duty (AJD), and may even have entered into a mortgage loan, thereby beginning to incur interest payments and other financing costs as well as notary and registry expenses. Although the Public Administration is required to reimburse the purchase price and, as a general rule, the necessary and useful expenses arising directly from the transaction, there is no automatic entitlement to reimbursement of all indirect or financial costs incurred by the purchaser. As a result, the purchaser may suffer financial loss in relation to a property that they ultimately do not retain.

Pursuant to Article 1,518 of the Spanish Civil Code, the party exercising the right of redemption must reimburse the purchaser for the purchase price, the costs of the contract, any legitimate payments made in connection with the sale, and any necessary or useful expenses incurred in respect of the property. However, recovery of other costs, such as those associated with mortgage financing, including interest, arrangement fees, early repayment charges or other financing costs, is not always automatic. Consequently, a purchaser acting in good faith may nevertheless suffer financial prejudice.

Where such costs are not reimbursed by the Public Administration, the purchaser will ultimately be required to bear them personally. However, this situation is not unavoidable, as certain contractual safeguards may be adopted to minimize this risk. In particular, the parties may include a clause in the arras agreement requiring the seller to confirm that the Public Administration has been duly notified of the proposed sale, that it has been afforded the statutory 30-day period within which to exercise its rights of pre-emption and redemption, and that, on the date of execution of the final deed of sale, that statutory period will already have expired. Such a clause significantly reduces the risk of the Public Administration subsequently exercising its right of redemption after completion of the transaction or, failing that, the seller will have to assume the damages inherent to the operation.