Highlights of the New Spanish Housing Law

On 25 May, the Official State Gazette (BOE) published Law 12/2023, of 24 May, regarding the right to housing in Spain. The new Spanish Housing Law brings significant advancements within the sector in Spain. Notably, it addresses essential aspects, including:

• The removal of the Consumer Price Index (CPI) as the annual rent adjustment mechanism
• The regulation of rents in strained areas
• The modification of eviction, foreclosure and auction processes for households facing vulnerability.

Additionally, the law encompasses regulations concerning evictions, assistance for housing access, the creation of a public inventory of affordable housing, management of vacant properties, and the imposition of rental price caps, among other critical issues.

Here are some of the key highlights of the new Housing Law.

Extraordinary cap on annual rent increases in residential leases

Until December 31, 2023, the renewal of rental contracts cannot surpass a 2% increase, according to Royal Decree-Law 6/2022. The Housing Law states the following provisions:

• Throughout 2023: In agreements subject to the LAU (‘Urban Rental Act’), the lessor and lessee may negotiate annual rent adjustments. If there is no agreement, the maximum increase will be the yearly variation of the Competitiveness Guarantee Index as of the rent review date, with a limit of 2%.
• During 2024: The maximum rent increase will be 3% for large holders (individuals or legal entities with over ten properties or a constructed area exceeding 1,500 m2, excluding garages and storage rooms).

Furthermore, the National Statistics Institute (INE) will define a new reference index by December 31, 2024, to replace the CPI as the guideline for rental agreements.

These measures will apply to all rent adjustments in residential leasing contracts, relating or not to an area with stressed or non-stressed residential market conditions.

Identifying stressed renting areas

A market area is considered stressed if it meets one of the following two conditions:

• The average expenditure on housing exceeds 30% of the average household income
• The purchase or rental price has increased by at least 3 points above the regional CPI in the last five years.

Declaring an area as a ‘stressed’ residential market implies the ability to amend housing lease extensions and establish extraordinary extensions.

If these conditions are met, the administration must formally declare the area as a stressed residential market. This declaration is initially valid for three years and may be extended annually. Within this area, leases may be extended for up to three years after the mandatory or tacit extension period expires. Landlords, regardless of whether or not they are major property holders, are obliged to accept the extension unless other conditions have been mutually agreed upon or they have communicated the need to occupy the property for their use, the use of a blood relative or by adoption, or by a spouse in the case of a final judgment of separation, divorce or marriage annulment. Alternatively, if a new contract with rent limitations has been signed.

According to state law, a large holder is an individual or legal entity with more than ten residential properties or a built area of more than 1,500 m2 for residential use, excluding garages and storage rooms. The Autonomous Communities may reduce this threshold to 5 or more properties in stressed areas.

The owner covers property management and contract costs

The new law establishes that the landlord or owner of the property will be responsible for the costs of property management and contract preparation.

Minimum information on housing purchase and rental agreements

Those interested in buying or renting a property may request, before the formalisation of the transaction, information on, among others:

• Identification of the seller or landlord
• Economic conditions of the transaction
• Key characteristics of the property and building
• Legal information on the property, among other aspects

Evictions and foreclosures

The Spanish Housing Law enhances the process of evicting vulnerable households to ensure better communication between the judicial authorities and social services. Social services are now responsible for offering housing solutions to those affected before proceeding with the eviction. It establishes specific deadlines for suspending evictions in situations of vulnerability and introduces objective criteria to define such circumstances.

Starting from 30 June 2023, eviction proceedings suspended due to COVID-19 may be resumed upon the explicit request of the claimant. If the plaintiffs are large property holders, they must demonstrate that they have undergone the conciliation or mediation procedure mandated by the relevant Public Administration.

If you need additional information regarding the New Spanish Housing Law,