Spain bans rent increases of more than 2%

by Lorraine Williamson
rent increase

MADRID – Until June 30, the Spanish government will disconnect the rent increase from the consumer price index (CPI). This is regulated by royal decree. However, experts expect that the disconnection will be extended indefinitely after that period. 

The new rule distinguishes between large rental companies and smaller homeowners. Large rental companies are allowed to increase their rents by a maximum of 2%. However, the latter are allowed to negotiate a price increase with their tenants that exceeds 2%. But, if they cannot agree, the maximum rent increase of 2% will apply. 

Large rental company 

A large rental company is understood to mean any natural or legal person who owns more than 10 urban residential properties or a built-up area of ​​more than 1,500 m2 for habitation, except garages and storage rooms. 

Extraordinary limitation on rental income update 

The rule is part of the package of measures of the National Response Plan for the impact of the war. Furthermore, the plan is worth €16 billion. This extraordinary limitation on the updating of rental income is taken for the first time in the current Spanish democracy. 

“The restriction responds to the need not to pass on the evolution experienced by the CPI, in the context of the economic and social consequences of the war in Ukraine, to the price of rental housing,” the Ministry of Transport clarified, Mobility and Urban Agenda. 

“The government of Spain, with this regulation, protects people who rent in our country, who need a fundamental right such as housing, people for whom paying their rent is now an obstacle and sometimes impossible,” emphasised Yolanda Díaz, the second deputy president, at the press conference after the Council of Ministers. 

Measure takes effect on March 31 

The measure has an impact on habitual residence leases for which the rent must be updated annually. The measure came into effect on March 31 and will be valid until June 30, 2022. The government estimates that of the more than 3.5 million rental properties in Spain, a quarter will benefit from the measure. This concerns approximately 875,000 leases. 

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National Response plan 

The Official Gazette (BOE) has published Royal Legislative Decree 6/2022 of March 29, with urgent measures under the National Response Plan on the economic and social consequences of the war in Ukraine, including an extraordinary limitation of the annual rent update of leases (Article 46). 

‘Negative result’ 

Not everyone is happy with the measure. Paloma Martín, the Minister of Housing of the Madrid region said, “all measures that intervene in the market have a negative result. The owners have to repeatedly accept an increase in living costs because they can only ask for a limited rent”. 

According to ANA’s general manager, José Ramón Zurdo, there is no doubt that the measure will have to be extended beyond June 30. That could “lead to a different way of intervening in the rent.” 

Landlords have been taking measures for months 

He adds that interventionist measures of this kind only create legal uncertainty. “Private owners have been taking measures for months. Some by charging lower rents or temporarily cutting rents before the government intervened,” Zurdo emphasises in Idealista News. 

Rules change in the middle of the match 

According to Idealista spokesman Francisco Iñareta, it represents another setback for landlords. Moreover, they see again how the rules change in the middle of the match. In many cases, he says, this leads them to withdraw their homes from the market because of the obvious legal uncertainty that this entails. 

Legal uncertainty due to limitation of rents 

The Association of Owners for Rent (Asval) states that the rent increase is determined by the underlying inflation. “Again, a restriction on rents will create legal uncertainty,” and Asval asks the government to set the restriction for a limited period with no possibility of extension. 

Every intervention means price increases in new contracts 

The Association of Real Estate Companies in Madrid (AMADEI) believes that this measure affects on the one hand the property right and that, as a result, the government should compensate the owners. Moreover, any intervention in the rental market translates into future rent increases in new contracts, they say. 

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