NOVELTIES OF THE NEW HOUSING LAW
In this article we will discuss the major the New developments in the new housing law that may result from the amendment of the Urban Leases Law, also known as the “Housing Law”.
The Housing Law, whose opinion on the Bill has been paralyzed since May 2022, was approved by the Commission of Transport, Mobility and Urban Agenda on April 20, 2023.
Thus, the amendment is intended to be definitive after approval by the Congress and the Senate during the month of May, so that it could be incorporated into our legal system as of May 28, 2023.
However, what will be the impact of this Law? In this article we deal with the modifications regarding price increases:
a. Limitation on the increase of an active lease
Although it is true that the Urban Lease Law indicates that the rent increase may be in accordance with the CPI increase, since March 2022, in order to curb inflation, the Guarantee and Competitiveness Index, which does not exceed 2%, was used as an index. This measure is foreseen until the end of 2023.
The new Housing Law empowers the National Statistics Institute to provide a new reference index so that the CPI will no longer be used.
Furthermore, the new Law determines that leases may not increase by more than 3% of their value when the lessor is a large tenant (if not, it will be agreed and, in the absence of an agreement, it may not be higher than 3%).
b. Limitation on the price of new contracts
If new leases are signed, the consequences will be different depending on whether the lessor is a large holder or not a large holder.
If the lessor is not a large tenant, the rent may not exceed that of the previous lease, once the annual update clause has been applied, except for certain cases in which it may be increased by a maximum of 10%.
Cases in which it may be increased by 10%:
o If in the 2 previous years rehabilitation or improvement actions have been carried out that entail a saving of non-renewable primary energy;
o If in the previous 2 years, accessibility improvement actions have been carried out; or
o When the agreed term is 10 years or more.
Likewise, the lessee may not be charged any fees or expenses that were not provided for in the previous contract.
Notwithstanding the foregoing, if the lessor is a large tenant, the rent of the new contract may not exceed the maximum limit of the price applicable in accordance with the system of reference price indexes to be published in the future.
This regulation will apply to contracts entered into as from the entry into force of the Draft Law, once the index system is approved.
It should be noted that although the Draft Bill defines large holders as individuals or legal entities owning more than 10 residential properties or a built-up area of more than 1,500 m2 for residential use, excluding garages and storage rooms, it expressly allows that, in areas with a stressed residential market, the autonomous communities may lower the threshold to 5 or more properties.
In summary, the proposed amendment to the Urban Leasing Law, also known as the “Housing Law,” raises important changes regarding rental price increases. These changes, scheduled to take effect as of May 28, 2023, seek to address concerns about inflation and housing affordability in Spain.
One of the key aspects of this modification is the limitation on active rent increases. It is proposed to replace the CPI-based increase index with a new one provided by the National Institute of Statistics. In addition, a maximum limit of 3% is established for rent increases when the lessor is a large tenant.
In the case of new leases, the restrictions vary depending on whether the lessor is a large holder or not. For non-large tenants, the rent cannot exceed that of the previous lease, unless specific conditions are met, which limits increases to 10%. For large holders, the rent will be adjusted according to a benchmark price index system to be published in the future.
It is important to note that, although the law defines large tenants based on the amount of properties they own, it allows the autonomous communities to adjust these thresholds in stressed residential market areas, which provides some flexibility to address local situations.
Ultimately, this amendment to the Housing Law seeks to balance the interests of landlords and tenants, with the goal of making the rental market more stable and accessible in Spain. The ultimate impact will depend on how these regulations are applied and adapted in the local context.
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