New Housing Law in Spain May 26, 2023. How Will it Affect?
After several months of intense debate, a new Housing Law came into effect in Spain on May 26, 2023, that has stirred considerable controversy, especially among rental property owners. This law aims to bring more properties to the rental market and limit their pricing, introducing a series of significant changes to current housing regulations.
Explore the measures of the new Housing Law in this 5-minute video by Jaume Domingo, CEO and Founder of LIVING SITGES INMOBILIARIA:
The law establishes a new index to regulate rent updates, which will replace the CPI for rents. Autonomous Communities may request the declaration of “tense areas” in their municipalities, if they meet the requirements established in the law, with the aim of limiting rental prices and facilitating access to rental homes at more affordable prices.
Moreover, the law sets stricter regulations for evictions, making them more difficult to process.
The new measures, which are already in force, include changes in transparency and information, expense management, definitions of primary residence and secondary residence, rules for large holders, and principles of equality and non-discrimination. They also modify the terms for extending contracts, eviction procedures, the annual update of rents, tax incentives, and urban issues.
Autonomous Communities can also introduce new measures, such as declaring tense areas, changes in the definition of large holders, and new transparency and information standards. In addition, they can implement annual updates of rents, modify contract extension conditions, and set rents in new contracts for homes located in tense areas.
Jaume Domingo summarizes the measures for autonomous implementation:
This regulatory framework aims to reform the housing rental market in Spain, seeking a balance between protecting the rights of tenants and the interests of property owners. The measures aim to facilitate access to affordable housing, promote transparency, and protect tenants from unfair or discriminatory practices.
However, not everyone agrees with these measures. Many property owners have expressed their concern about the effectiveness of these measures, arguing that they may discourage rental offerings and cause adverse effects on the housing market. Furthermore, there is uncertainty about how these measures will be implemented in practice and what their real impact will be on the housing rental market.
Measures in effect since May 26, 2023:
- New transparency and information measures
The owner or intermediary must provide information in a complete, objective, clear, understandable manner as provided in this Law. Any advertising act with insufficient or misleading information by omitting essential data, inducing errors or causing economic or legal damage is prohibited.
The owner may be required the following information before formalizing a purchase or rental:
Identification of the seller or lessor and, where appropriate, of the natural or legal person involved. Economic conditions of the operation: total price and concepts included in this, as well as payment conditions. Essential characteristics of the house and building, such as the certificate of occupancy, m2 of the house, age of the building, individual or common services and facilities, energy efficiency, accessibility, architectural protection, existence of potentially harmful or dangerous elements or substances, and any other information relevant to the interested client.
- Real estate management costs and contract formalization costs will be charged to the lessor
- Expenses and supplies
It is established that the expenses and basic supplies of the primary residence will be the result of the cost of electricity, gas or diesel, running water, telecommunication services, and the community of owners.
- Primary residence
A primary residence is understood as the house that constitutes the permanent home of the person who occupies it and can be accredited through the data available in the municipal register or other valid means in law.
- Second residence
A second residence is understood as any house used by its owner for temporary or intermittent stays, and that does not constitute their primary residence.
- Large holders
Following the approval of the new Housing Law, a large holder is understood as a natural or legal person who holds more than ten urban properties for residential use, of more than 1,500 m2, excluding garages and storage rooms.
- Principle of equality and non-discrimination in housing
Direct discrimination: No person or group of people can be discriminated against in relation to the housing offered unless there is a legitimate cause that justifies any difference in treatment. Indirect discrimination: No normative provisions, plans, conventional clauses or contracts, individual agreements, unilateral decisions, criteria or practices that cause a particular disadvantage to a person or group of people in the exercise of the right to housing can be adopted. Real estate harassment: No actions or omissions that disturb any person in the peaceful use of their home can be carried out, which can create a hostile environment and force the person to make an unwanted decision about their right to use and enjoy the housing. Operations of sale, rental or assignment: No operation of sale, rental or total or partial assignment of an under-housing, an overcrowded house and any form of illegal accommodation, or without title, can be carried out.
- Changes in Contract Extensions
Extraordinary extension of one year: If the landlord is a large housing holder, the tenant, after the obligatory or tacit extensions have ended, has the right, if requested, to an extraordinary extension of one year when a situation of social and economic vulnerability is proven by a social services report issued in the last year. Extraordinary extension of three years: In tense areas.
- Significant Changes in the Eviction of Defaulting Tenants or Squatters
Eviction lawsuits will not be admitted until:
It is clarified if the property constitutes the habitual dwelling of the occupant. The owner declares whether they are a large holder or demonstrates that they are a small holder. In the case of being a large holder, they must prove that the person residing in their home is not a vulnerable person and, if they are, whether a mediation process has been carried out prior to filing the lawsuit.
- Annual Update of Rents
During 2023, the already established limit of 2% is maintained, for both large holders and small owners, except for the agreement between the parties. This cap will increase by one point to all contracts throughout 2024, up to a 3% increase. From 2025, a new Rent Index will be applied, which will have to be prepared by the MITMA together with the INE.
- Tax Incentives for Contracts Entered Into After the Entry Into Force of the Law
Effective for residential lease contracts entered into after the entry into force of the Law, the following reductions of the positive net yield applicable in the Income Tax to leases of properties intended for habitual residence are introduced:
90% in tense area, if the new contract reduces the rental income by more than 5% compared to the last rent of the previous contract. 70% when it is the first lease in a tense area and the tenant is between 18 and 35 years old, or when the tenant is a public administration or a non-profit entity. 60% when the home has been the subject of a rehabilitation action in the two years prior to the lease contract. 50% in the rest of the cases.
- Main Urban Planning Issues
The minimum reservation percentages are modified, setting them at 40% (previously 30%) in developable lands and 30% in non-consolidated urban lands. There is no transitional provision on the matter.
The permanent qualification is established from the entry into force of the Law for officially protected housing and can only be limited to a minimum of 30 years in extraordinary circumstances. These qualifications are not applicable when the land is not reserved for official protection and the promotion does not have subsidies. In this case, the temporary provisions established by the Autonomous Communities will prevail.
Regarding tense areas, as a result of the publication of the law in the BOE, the deadline opens for the Competent Administrations in housing matters to initiate the procedure to declare areas of tense residential market.
Measures decided by the Autonomous Communities:
- Declaration of Tense Areas
In order for a population to be declared a tense area, we still have a few months as the processing and validation will be a bit laborious.
For the autonomous communities and municipalities to declare themselves as tense areas, they will have to prove that they meet the conditions established by the law.
To apply for tense area status, it is necessary to accredit the motivation of the declaration, a justifying report and a specific plan with measures to correct the detected imbalances.
Once the tense area has been declared by the Competent Administration, it will not be effective until the Ministry of Transport, Mobility and Urban Agenda publishes a resolution that will update the tense areas quarterly.
- Large Holder
The Autonomous Communities may, in declared tense residential market environments, reduce from more than 10 properties to just 5 or more residential use properties to be considered a large holder. These five properties must be located within the same tense area.
- Use and Destination of the Homes
In tense market areas, large holders must provide information about the use and destination of the homes.
- New Transparency and Information Measures in Tense Areas
The owner or real estate agent must inform the person interested in renting the following:
That the house is located in a tense area, before formalizing the lease and in the contract document. The amount of the last rent of the lease of the habitual dwelling that has been in force in the last five years. The value that may correspond to it according to the reference index of rental prices of homes that is applicable.
- Annual Update of Rents
During 2024, the increase limit is set at 3%. From 2025, the update will be according to the revision index to be developed by the National Institute of Statistics (INE).
- Changes in Contract Extensions
Extraordinary extension of three years: In the tense residential market areas, regardless of the type of landlord, the tenant may request an extraordinary extension of up to three years on the same terms and conditions of the current contract. This extension must be mandatorily accepted by the landlord, unless a new contract has been signed or the need to occupy the rented house has been communicated.
- Rents in the New Contracts of Homes Located in Tense Areas
Until the first resolution is published by the MITMA, detailing the declared tense areas, the fixing of the rent of a new lease is the one freely set by the landlord and tenant. From the publication of the resolution, which will be promulgated quarterly, the possible scenarios are the following:
SCENARIO 1
When the house is not located in a declared tense area, the rent of the new lease continues to be freely set by the landlord and tenant.
SCENARIO 2
If the house is located in a declared tense area and the landlord does not have the status of a large holder. In new contracts, the rental income may not exceed the last rent of the lease of a habitual dwelling that has been in force in the last five years. Once the annual rent update clause of the previous contract is applied, new conditions that establish the repercussion to the tenant of fees or expenses not included in the previous contract cannot be established.
SCENARIO 3
When the house is located in a tense area and the landlord does have the status of a large holder. From the moment the reference index to be approved by the MITMA is approved and comes into force, rental prices will be:
Having calculated the value of the rent, in the contracts that large holders sign, it must be taken into account that the resulting rental calculated according to the previous parameters cannot exceed the maximum limit of the price applicable according to the system of reference price indices published.
Therefore, in the case of large holders and homes that have been rented in the last five years, the lesser of the amounts calculated between scenarios 2 and 3 must be applied to the contract.
SCENARIO 4
When the house is in a declared tense area and has not been rented in the last five years, the MITMA rental reference index will be applied to new leases in tense areas in homes that have not been under a lease in the last five years. This will happen regardless of whether the properties are from a small holder or a large holder, and as long as the situation is included in the MITMA resolution on tense areas.
In this new scenario of changes and so much controversy, we want to be by your side, please do not hesitate to contact Living Sitges if you need to clarify any doubts about it, we will be delighted to accompany you.
Article by Living Sitges Real Estate