Inflation in Spain hit 7.6% Year-Over-Year during February. This is the highest figure in over 33 years and is a major source of concern.
There are several factors behind this sharp rise. The Covid pandemic (that disrupted the global supply chain impacting on prices), the quantitative easing policy followed by Monetary Authorities to mitigate the pernicious financial aftermath of the pandemic, and now the outbreak of war in Europe are all to blame for the severe spike in inflation.
If this trend continues unchecked before we reach this summer, we will have a two-digit inflation in our hands. This will have severe repercussions, most of which escape the object of this article. The one I am going to focus on today is how inflation affects landlords and tenants on renewing a rental contract.
By law, a landlord may not increase a rental unless they expressly worded such a rental update clause into a rental contract. Also, by law, the rental increase in Spain must be indexed to the IPC (Spain’s Price Consumer Index). Spain’s Government enacted a law last year that forced all landlords to index their contracts only to the IPC. Although at the time this law was enacted with best intentions in mind to protect tenants (read Nanny State), the fact is that in a high inflationary context, this has backfired spectacularly, and landlords cannot lawfully use any other index which forces a steep increase in rental contracts across the board on renewing them.
For example, a long-term rental contract that ran from the 1st of February 2021 to the 31st of January 2022, and had a monthly rental of 1,000 euros, upon renewal would be updated by 76 euros a month, making a grand total of 1,076 euros/month. This sharp increase may prove as an unpleasant surprise to unwary tenants who were not expecting such a strong rise, catching them off guard. It also implies tenants will now have less disposable income available every month, which may lead some to struggle to make ends meet.
Further reading from idealista:
- Termination of long-term lease agreements and ‘silent renewal’ – 10th April 2019
- Renting in Spain? Five clauses you should be mindful of – 7th May 2019
- Rental deposit scheme: how to get your deposit back – 16th May 2019
- Buy-to-let in Spain: landlord tax reliefs – 23rd May 2019
- How to formally end long-term lease agreements in Spain – 6th June 2019
- How to return the keys to your landlord – 2nd July 2019
- Top 10 mistakes on renting in Spain – 7th July 2020
- Top 8 illegal rental clauses in Spain – 21st July 2020
- Renting: be wary of signing ‘reservation’ contracts – 12th August 2020
- 8 tips to rent like a pro in Spain (Buy-to-Let) – 3rd February 2021
- Rental deposits in Spain: 1 or 2 months? – 29th March 2021
- Rental update in long term lets in Spain – 25th May 2021
- Are you renting? Do not forget to add a clause forbidding sublets! – 29th September 2021
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