A LANDMARK SUPREME COURT RULING: HOW LFI HELPED RESHAPE INSOLVENCY SALES

Bringing this matter before the Supreme Court enabled its First Chamber to address an issue that had led to conflicting decisions in the Courts of First Instance and Provincial Courts, including the two decisions preceding this appeal on points of law.

The judgment, delivered with Justice Pedro José Vela Torres as reporting judge, establishes that a disposal in insolvency proceedings (in this case, under Article 155.4 of the Insolvency Act, now Article 211 of the Consolidated Insolvency Act) constitutes a forced disposal for the purposes of Article 13.1 of the Spanish Urban Leases Act (LAU). This principle covers transactions outside the insolvent debtor’s control, whether by direct sale, transfer in satisfaction of a debt or for its repayment, or insolvency auction.

The ruling has significant practical implications for the NPL, banking, insolvency, real estate and commercial sectors, resolving an issue that had previously been subject to differing interpretations.

The Supreme Court holds that the absence of an express reference to insolvency sales in Article 13.1 of the LAU does not warrant a strictly literal reading or treating the listed cases as exhaustive. A property transfer in insolvency proceedings constitutes a forced disposal when it follows a court decision approving the transaction, the liquidation plan or, under the current framework, the liquidation rules.

The practical consequence is significant: a transfer of real estate in insolvency proceedings may terminate leases affecting the property where those leases were not previously registered in the Land Registry. Any obligation to honour a statutory minimum lease term depends on the date of the agreement and the applicable legal framework.

I would like to thank everyone who worked on this matter and the company that chose to pursue the appeal to its conclusion. Securing a Supreme Court judgment that establishes a legal principle with such practical impact is the strongest outcome of our collective efforts.

You can read the press coverage of this judgment in the Expansión article.