The Spanish Council of Ministers has approved new legislation with a royal decree law reforming the rental market. The new text includes practically all the measures of the previous decree, such as the increase in the duration of lease contracts, plus the fact that the increase in annual income is anchored to the Consumer Price Index (CPI) and the creation of a new housing price index.
The new royal decree law about renting in Spain will enter into force as soon as it is published in the Spanish Official State Gazette (Boletín Oficial del Estado or BOE) and will need, once again, to be validated by the Congress of Deputies. This time this will happen through the Permanent Deputation, since the Cortes will be dissolved on 5th March before the call for General Elections in Spain on 28th April. The deputation will have 30 working days to vote on that validation.
Below, we summarise the proposals of the new Royal Decree-Law on measures for rental housing in Spain and those that the Government has recovered from the previous decree (RD-Ley 21/2018 of 14th December), but which was rejected in January by the Congress of Deputies:
For the part of the reform of the Law on Urban Leases (Ley de Arrendamientos Urbanos or LAU) that affects contracts:
- The mandatory extension period for rental contracts is being extended from three (3) to five (5) years, and the tacit renewal is extended from one (1) to three (3) years for natural persons, as long as neither the landlord nor the tenant express the will not to renew it.
- If the lessor is a legal entity, the compulsory contract shall be seven (7) years and the tacit renewal period of the contract three (3) years.
- Annual rental increases will be linked to the CPI for the duration of the contract (5 years).
- Additional down payments apart from the deposit (which is equal to one month’s rent) will be limited to two (2) months of rent, except in the case of long-term contracts.
- If the landlord or tenant expresses their will not to renew the contract, the landlord must notify the tenant four (4) months in advance. If it is the tenant who wants to leave, they must give two (2) months' notice.
- The right of the landlord to recover the property and terminate the contract in advance – such as if they need it for their own residence, their children's or spouse's, or if family circumstances change – must be expressly included in the contract.
- The buyer of a property that is currently being rented must respect the lease contract, whether it is registered in the Land Registry or not.
- If there is an agreement between the owner and the tenant, renovation work can be carried out on the property without the need to sign a new contract.
- The landlord is responsible for the costs of estate agency management and formalisation of the contract, provided that they are a legal person.
Also new is the creation of a State Reference Index for rented housing which, according to a source from the Ministry of Development, will serve as an informative document so that the Autonomous Regions can each define their own indices for the price of renting a home in Spain and apply them for their housing policies, focused on tax incentives.
This index will be established within the next eight months and will be published by the Ministry of Development. It will compile information from various sources: the Spanish Tax Agency, registrars, notaries, registered bonds and real estate portals. It will be updated every year and contain detailed rental prices organised by cities, districts and neighbourhoods.
These same sources have ruled out that the implementation of this price index is the first step to limit the price of rents, since only a new law could modify state interference in such a fundamental right as private property.
The tax benefits affected by this new rental reform are as follows:
- City councils are being given the possibility to establish a tax deduction of up to 95% on the annual IBI property tax for rented homes at a limited price. That is to say, it is a tax break for anyone who has a government-subsidised home and decides to rent it, but at a price limited by the local council or the corresponding Autonomous Community.
- Exemption from the ITP Transfer Tax and Stamp Duty for the signing of leases for permanent use. That is to say, tenants in all Autonomous Communities are freed from the requirement to pay the ITP.
Short-term lets for tourist purposes are not included in the regulation of the LAU as it is an economic activity subject to the law that governs communal living spaces (Ley de propiedad horizontal):
- If agreed upon by a qualified majority of three fifths of the property owners in the homeowner’s association (comunidad de vecinos), the residents of your building or local estate can choose to limit or condition the exercise of the activity of the tourist rent of housing. They can either vote to prohibit properties being rented out for tourist lets or can establish that they have to contribute a larger percentage to the community expenses (up to 20% more).
In terms of evictions of tenants in Spain, there is to be a related reform of the Civil Procedure Law (Ley de Enjuiciamiento Civil):
- Once a judge has ordered the eviction of a tenant, social services must be notified so that they can act if the tenant is in a vulnerable position until alternative housing is found. The eviction will be delayed for a period of one (1) month if the owner is a private individual and will be paralysed for a period of three (3) months if they are a legal entity.
- Once the judge orders the eviction petition, they must communicate it to the social services ex officio with the exact date and time of the procedure.
- If a home is being rented to people in an economically vulnerable situation, people with disabilities, minors and people over 65 years of age, and the main signatory on the lease contract passes away, the rest of the tenants in the property will not be evicted and the rent will be subrogated to them.
For Fernando Encinar, Head of Research at idealista, "the Government’s new attempt to regulate rentals falls into the same basic error as the Royal Decree approved in December, which was voted down by the Congress of Deputies: instead of approving effective measures that seek to significantly increase supply to moderate prices, it regulates what owners have to do. Many of them, with this law, may be tempted to take their homes off the rental market and this is just the opposite of what the Decree aims to achieve. This discrimination against landlords may reduce supply and increase prices.”