Spanish rental contracts will no longer be updated following the Consumer Price Index (CPI) in 2023 or 2024, as established in the new Spanish Housing Law. From 2025, rental contracts will be updated by a new index which, according to the Official State Gazette, is "more stable and lower than the CPI". In this article, we analyse the new regulations and how the rent price update works.
Updating the rental price in Spain
The rent update refers to a stipulation regulated by the Urban Leases Law (LAU), which allows rent to be adjusted according to the economic conditions after one year of the rental contract (provided that this provision features in the contract). Although the LAU does not specify the most appropriate index to be used as a reference, it does outline that the increase cannot be higher than the CPI (the reference index for measuring inflation).
Calculating the rent increase in Spain in 2023
If we signed a contract in May 2022 for a monthly rent of €1000, the annuity would expire in May 2023, and the landlord would apply the CPI percentage for the previous month (April 2023) to update the price. The CPI in April was 4.1%, so the landlord would increase the rent by €41, and the new monthly rent would be €1041.
How much will rent go up in Spain in 2023?
The government has established a time limit and all housing rental contracts that are updated before 31 December 2023 will not be able to increase their rent by more than 2%, as the Competitiveness Guarantee Index (CGI) is applied. Therefore, if we take the example above and set the cap, the rent would reach €1020.
By no longer using the CPI as a reference and applying the CGI, rent can only be raised by 2%, unless the owner is not a large landlord (10 or more properties) and the tenant agrees. If there is no agreement, rent cannot be increased above this percentage.
For example, a €1000 monthly rent can only be increased by 2%, i.e. €20/month. In other words, the updated rental price will be €1020 per month.
How much will rent go up in Spain in 2024?
As established by the new Housing Law, from 1 January until 31 December 2024, the rent price update will continue to no longer use the CPI as a reference. The increase will be limited to a maximum of 3%.
According to the draft Housing Law, the rent increase will be agreed upon using a new agreement between the parties, with the restriction that the annual rent variation cannot exceed 3%. This provision applies to both large and small property owners and is regardless of whether or not the property is located in an area of high real estate tension.
For example, a rental contract of €1000 per month can only be increased by 3%, i.e. €30/per month. In other words, the updated price will be €1030/month.
How much will rent go up in Spain in 2025?
As of 1 January 2025, a new index will come into force, which will aim to update all rents. This new index is expected to be more stable and to show a lower growth rate than the Consumer Price Index (CPI).
The recently published Housing Law in the Official State Gazette (BOE) includes in its first final provision that, to prevent disproportionate rental increases in the annual housing rental contract updates, a new additional provision will be introduced in the Urban Leases Law. This provision entrusts the National Statistics Institute (INE) with the task of defining, before the end of 2024, a new reference index for reviewing housing rental contracts annually.
Until then, the way this index will work is all speculation, although it is expected that it will work similarly to the current CPI.
How much will the rent go up when the contract is renewed?
Until 31 December 2023, all contracts that are renewed will not be able to increase their price above the 2% limit imposed by the government. In 2024, they will be able to increase by a maximum of 3% and in 2025 a new index will be used, the characteristics of which are still unknown.
For rental contracts that are updated with the CGI, the annual variation of the index at the date of each review shall be applied, taking the month that corresponds to the last index published on the date that the contract is updated as the reference month for the update.
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