Last 16 March, the Government's new reference index for capping rent and the ratio of stressed residential market areas in Catalonia (140 towns and cities) came into force. Ashurst law firm has prepared this guide to address all rent cap queries. For example, the new reference index does not include data from the Basque Country or Navarre, nor does it address buildings under five years old. It also does not provide data on flats with less than 30 m2 or more than 150 m2.
The Reference Index can be consulted by entering the property's address or cadastral reference, and some characteristics. Once this data is entered, the new application determines a range consisting of a lower and higher value. The latter will be taken as a reference for the rent cap, as recalled by Ismael Fernández Antón and Joaquín Macías, Real Estate Law partners at Ashurst.
The reference index is national but why has it only come into force in Catalonia?
For the rent cap to apply, autonomous communities must carry out an administrative process to declare the areas they deem appropriate and which meet the Housing Act's criteria for stressed areas.
Until now, only Catalonia has made use of the regulatory authorisation and has requested that 140 towns and cities declare that they are stressed residential market areas. It did so through Resolution TER/2940/2023 of 11 August, modified by Resolution TER/800/2024, of 13 March (Resolution TER/800/2024) which was published on Thursday 14 March in the Official Gazette of Catalonia (available here in Spanish).
As Ashurst Madrid lawyers explain, the Ministry of Housing and the Urban Agenda had to validate this regional-level approval of the stressed residential market areas. This was validated on 14 March by another resolution from the Secretary of State for Housing and the Urban Agenda (the ZMRT Resolution), published the following day in the BOE (available here in Spanish) and which also came into force on Saturday 16 March.
Apart from Catalonia, no other autonomous community has announced its firm intention to cap rent in the short term, although some autonomous communities have shown interest, such as Navarre, Asturias and the Basque Country. However, the autonomous communities governed by the Popular Party, and some others such as Castile-la Mancha, have expressly rejected, at least for the moment, putting the measure into practice.
Declaring an area as a stressed residential market area has other implications beyond the rent cap, including:
- additional reporting obligations for large holders;
- possible extraordinary extensions of up to three years;
- specialities concerning mandatory urban transfers;
- the programmes that the autonomous communities must develop to solve the rent increase.
How the Housing Law regulates rent caps
In stressed residential market areas, tenants have the right to have their rent not exceed the last lease in the property for the last five years. Furthermore, the landlord cannot pass on common expenses if it was not provided for in the previous rental agreement.
If the landlord is a large holder (a natural or legal person with more than ten properties or five in stressed areas in Catalonia), rent must not exceed the limit established by the state property reference index.
If there has not been a rental agreement in force in the last five years, the maximum rent cap will be calculated according to the reference index.
Rent higher than the previous limit can only be agreed upon if exceptional circumstances occur and in no case can it be above 10%. Those exceptional circumstances are:
(a) That the home has been the subject of a rehabilitation action in the terms provided in Art. 41 section 1 of the Personal Income Tax Regulations two years before a new rental agreement is signed.
There are two rehabilitation actions:
(i) Subsidised actions in line with Royal Decree 233/2013, of 5 April, which regulates the State Plan to promote rental properties, building rehabilitation, and urban regeneration and renewal, 2013-2016.
(ii) Actions with the main objective of reconstructing the home by treating structures, facades, roofs or similar and whose overall cost is over 25% of the purchase price (discounting the proportional share corresponding to land).
(b) That the home has been the subject of rehabilitation or improvement actions completed in the past two years and for which a non-renewable primary energy saving of 30% is accredited through energy efficiency certificates (one before and one after).
(c) That the home has been subject to duly accredited accessibility improvement actions in the past two years.
(d) When the new rental agreement is signed for a period of ten or more years or a right of extension is established in favour of the lessee that allows them to optionally extend the contract up to a minimum of ten years in the terms and conditions initially agreed.
Housing Law queries
The Ashurst lawyers explain that rental agreements signed in stressed residential market areas are subject to the general rent update regime foreseen in the Urban Lease Law, which is currently limited to 3%. From 2025, the new reference index for the annual update of housing rental agreements, which is being designed by the National Statistics Institute, will be applicable.
The main queries that Ashurst addresses are:
- If the landlord is a large holder, does only the Reference Index apply as a limit, or if there was a lease in the previous five years, does that rent also have to be taken into account? They believe that the interpretation that is most in keeping with the housing law's spirit and text is to understand that, effectively, a double limit is set for large holders (the Reference Index and the previous rental agreement), and that the lower limit should be chosen.
- Ashurst understand that the rent caps for stressed residential market areas do not apply to those homes subject to a rent regime that, due to their special nature, should prevail, such as homes with a social housing regime, part of public social rental networks and others in similar situations.
- Thirdly, what if the property meets the exceptional circumstances that allow the rent to be increased by up to 10% but the landlord is a large holder? To incentivise housing rehabilitation and long-term rental agreements, large holders should also be able to raise the rent by up to 10%, but it is not clear whether this is only when the reference rent happens to be that of the last lease in force in the property, or whether the Reference Index also applies.
- Lastly, and as we have mentioned above, the Reference Index only includes data for homes located in collective residential buildings over five years old. So what happens with new builds? According to Ashurst, as long as the Reference Index does not publish the data for a particular residential building, which is currently the case for buildings under five years old, and as long as there is no prior rental agreement in place, rent caps cannot be applied to that particular property.
Which towns and cities have been declared as stressed areas so far?
The only towns and cities that have been declared stressed areas under the Housing Law are those referred to in the ZMRT Resolution that validates Resolution TER/800/2024.
These towns and cities are Abrera, Alella, Amposta, Arenys de Mar, Arenys de Munt, Argentona, Badalona, Badia del Vallès, Balaguer, Banyoles, Barberà del Vallès, Barcelona, Berga, la Bisbal d'Empordà, Blanes, Cabrera de Mar , Cabrils, Caldes de Montbui, Caldes d'Estrac, Calella, Calldetenes, Cambrils, Canet de Mar, la Canonja, Canovelles, Cardedeu, Castellar del Vallès, Castellbisbal, Castelldefels, Cerdanyola del Vallès, Cervelló, Cervera, Corbera de Llobregat, Cornellà de Llobregat, Cubelles, Esparreguera, Esplugues de Llobregat, Falset, Figueres, les Franqueses del Vallès, la Garriga, Gavà, Girona, Granollers, Guissona, l'Hospitalet de Llobregat, Igualada, la Llagosta, Lleida, Llinars del Vallès, Lloret de Mar, Malgrat de Mar, Manlleu, Manresa el Masnou, Matadepera, Mataró, Molins de Rei, Mollerussa, Mollet del Vallès, Montcada i Reixac, Montgat, Montmeló, Montornès del Vallès, Móra la Nova, Olesa de Montserrat, Olot, Palafolls, Palafrugell, Palamós, Palau-solità i Plegamans, el Papiol, Parets del Vallès, Pineda de Mar, Polinyà, Porqueres, el Prat de Llobregat, Premià de Dalt, Premià de Mar, Puigcerdà, Reus, Ripoll, Ripollet, la Roca del Vallès , Roquetes, Rubí, Sabadell, Salou, Salt, Sant Adrià de Besòs, Sant Andreu de Llavaneres, Sant Boi de Llobregat, Sant Celoni, Sant Climent de Llobregat, Sant Cugat del Vallès, Sant Esteve Sesrovires, Sant Feliu de Guíxols, Sant Feliu de Llobregat, Sant Fost de Campsentelles, Sant Fruitós de Bages, Sant Joan Despí, Sant Just Desvern, Sant Pere de Ribes, Sant Pol de Mar, Sant Quirze del Vallès, Sant Sadurní d'Anoia, Sant Vicenç de Montalt, Sant Vicenç dels Horts, Santa Coloma de Cervelló, Santa Coloma de Farners, Santa Coloma de Gramenet, Santa Margarida de Montbui, Santa Perpètua de Mogoda, Santa Susanna, Sarrià de Ter, la Seu d'Urgell, Sitges, Solsona, Sort, Tarragona, Tàrrega, Teià, Terrassa, Tiana, Tona, Torelló, Torredembarra, Torrelles de Llobregat, Tortosa, Tremp, Vallirana, Valls, el Vendrell, Vic, Viladecans, Vilafranca del Penedès, Vilanova del Camí, Vilanova i la Geltrú, Vilassar de Dalt, i Vilassar of Mar. In accordance with the latest report published to accompany Resolution TER/800/2024, these 140 towns and cities are declared together as one single stressed residential market area.
The rent caps came into force in these towns and cities lo 16 March and will be valid for three years (from 16 March 2024 to 16 March 2027). However, the stressed area declaration may later be extended annually indefinitely as long as the circumstances that motivated their declaration remain (and always after justifying the measures and public actions adopted to reverse or improve the situation).
The Reference Index will apply in Catalonia's stressed residential market areas concerning: (i) new residential rental agreements that have not had any rental agreement in force during the five years before 16 March 2024.