The Housing Rights Bill, currently in parliamentary process and scheduled for approval this May, introduces important measures that will affect large landlords, developers and funds operating in the real estate sector.
We would like to inform you that the Bill on the right to housing, which incorporates the report of the drafting committee and several compromise amendments, has been published in the Official Gazette of the Cortes Generales (Congress of Deputies) of April 24.
Pending the Senate vote and its parliamentary processing (whose final approval is expected by the end of May and its publication in the BOE), the new regulations bring rent control in areas declared to be strained, a new reference index to update rents and the reduction of the declaration of large landlord to five apartments in those price-limited areas.
The new Housing Law will also regulate evictions, housing access assistance, the creation of a public stock of affordable housing, empty properties, and the limitation of rental prices, among other issues.
Below we will see in summary the main new features incorporated in the new Housing Law, without prejudice to the fact that it may undergo modifications during the rest of its parliamentary process.
Main new features
- Limitations on housing rental prices
1.1 Elimination of the CPI as a mechanism for reviewing the annual update of income
Currently in effect, and until December 31, 2023, is the renewal of rental contracts with a maximum increase of 2%. However, the new law establishes that during 2024, for residential rental contracts where rent increases are required, the increase cannot exceed 3% in the case of large landlords (individuals or legal entities owning more than 10 residential properties or a total constructed area of more than 1,500 m2 of residential use, excluding garages and storage rooms).
In cases where the landlord is not a large landlord, the increase will be that agreed between the parties and, in the absence of an agreement, it may not be more than 3%.
Furthermore, the National Institute of Statistics (INE) is authorized to define, before December 31, 2024, a new reference index to be applied instead of the CPI. This will mean the end of the CPI as a reference for rental contracts.
These measures will affect rent updates for all housing lease agreements, regardless of whether the homes are located in a stressed residential market area or not.
1.2 Contracts may not exclude the application of the Housing Law
The clauses that allowed the non-application of the measures contained in the Law if there was an agreement between the parties are eliminated.
Furthermore, it is prohibited to increase rental prices through new expenses, which would force tenants to pay community fees, garbage collection fees, or any other non-attributable expenses that were not previously agreed upon in the contract.
1.3 Declaration of a stressed rental zone
The competent housing authorities, Autonomous Communities and Municipalities, may declare areas of stressed rental market if one of these two requirements is met:
- That the average burden of mortgage or rent costs on the personal or household budget, plus basic expenses and utilities, exceeds 30% of average household income
- That the purchase or rental price of housing in that area has increased, in the last 5 years, at least 3 points above the corresponding regional CPI.
Meeting any of the stipulated conditions will not automatically designate the affected area as a stressed residential market zone; an express declaration from the competent authority will be required. The initial validity of the declaration will be three years, renewable annually.
The declaration of a stressed residential market area will allow modification of the system of extensions of housing lease contracts , establishing that once the mandatory or tacit extension period has ended, the tenant may request an extraordinary extension for annual periods, with a maximum of 3 years, during which the same conditions of the current contract will continue to apply.
The landlord, whether or not a large landlord, will be obliged to accept the extension unless other terms or conditions have been agreed between the parties or the landlord has communicated within the legal deadlines the need to occupy the rented dwelling to use it as a permanent dwelling for himself or his relatives in the first degree of consanguinity or by adoption or for his spouse in the cases of final judgment of separation, divorce or annulment of marriage; or a new contract is signed with the rent limitations.
If new contracts are signed, the implications will differ depending on whether the landlord is a large landlord or not.
If the landlord is not a large property owner, the rent cannot exceed that of the previous contract, once the annual adjustment clause has been applied, except in certain cases where it may be increased by a maximum of 10%. Furthermore, the tenant cannot be charged fees or expenses that were not stipulated in the previous contract.
If the landlord is a large property owner, the rent in the new contract may not exceed the maximum price limit applicable under the reference price index system to be published in the future. This regulation will apply to contracts formalized after the entry into force of the Bill, once the index system has been approved.
Attention. A general definition of "large landlord" is introduced into the State Law, defining it as any individual or legal entity that owns more than ten urban properties for residential use or a constructed area exceeding 1,500 m², also for residential use, excluding garages and storage units in both cases. However, the new Law expressly allows autonomous communities to lower the threshold to five or more properties in areas with a tight residential market.
- The owner will pay the real estate management and contract formalization expenses
The new law establishes that real estate management and contract formalization expenses will be borne by the landlord/owner of the property.
- Tax measures to incentivize homeowners
3.1 Personal Income Tax
Tax incentives will be offered to encourage the rental of primary residences at affordable prices by adjusting the reduction in net rental income from such properties (this applies only to income from real estate capital; it does not affect rental income that qualifies as an economic activity under the Personal Income Tax Law). These new reductions will take effect on January 1, 2024.
Specifically, the new Law provides for the following reductions, which are incompatible with each other and are applied in the following order:
- Increased reduction of 90% when a new lease agreement has been formalized by the same landlord on a dwelling located in a stressed residential market area, in which the initial rent has been reduced by more than 5% in relation to the last rent of the previous lease agreement.
- Increased reduction of 70% when the landlord has rented the property for the first time, provided that it is located in a stressed residential market area and the tenant is between 18 and 35 years of age and it is a property rented to the Administration or non-profit entities and is intended for social rental with a monthly rent lower than that established in the rental assistance program of the state housing plan, or for the accommodation of people in a situation of economic vulnerability or when the property is covered by some public housing program or qualification under which the Administration limits the rental rent.
- Increased reduction of 60% for cases in which rehabilitation work has been carried out in the 2 years prior to the signing of the lease agreement.
The taxpayer may apply the highest of the reductions to which they are entitled among those indicated, always retaining the possibility of applying the 50% reduction. All these reductions become inapplicable if the rules (provided for in the LAU) on rent increases within a stressed residential market area are not met.
3.2. Surcharges on the IBI for empty or unoccupied homes
The new law defines a vacant dwelling as one that remains unoccupied continuously for a period exceeding two years, except for certain justified reasons. This vacancy status will be declared through an administrative procedure with a hearing for the taxpayer.
To promote their release onto the market, municipalities are offered the possibility of establishing a surcharge of up to 150% (currently at 50%) on the net amount of the Property Tax (IBI), which would affect homes that have remained unoccupied for more than two years, without justified cause, for owners with a minimum of four homes.
If the property has been vacant for three years, the surcharge may reach 100%.
Finally, there is the option to increase the surcharge by another 50% (between 100% and up to 150%) when the properties belong to owners of two or more unoccupied homes in the same municipality.
Evictions and mortgage foreclosures
Improvements are being considered in the eviction procedure that may affect the primary residence of vulnerable households to ensure effective and rapid communication between the judicial body and social services through a request for them to assess the situation and, where appropriate, quickly assist people in situations of economic and/or social vulnerability.
It is ensured that Social Services can offer housing solutions to those affected, preventing situations of homelessness as a result of eviction. While these solutions are being developed, the suspension periods for evictions in these vulnerable situations are increasedfrom 1 to 2 months when the owner is an individual, and from 3 to 4 months when the owner is a legal entity. Furthermore, objective criteria are introduced into the procedure to define situations of economic vulnerability.
When the plaintiff is a large property owner and the eviction lawsuit affects people in vulnerable situations, proof of the application of a conciliation or mediation procedure.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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