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Limits on rents

November 26, 2021

Today, 21 September 2020, the anticipated Law 11/2020, of 18 September (esp., cat.), on urgent measures regarding rent containment in housing rental contracts and amending Law 18/2007, Law 24/2015 and Law 4/2016, on the protection of the right to housing, has been published in the Diari Oficial de la Generalitat de Catalunya (Official Gazette of the Catalan Government). This rent containment law limits rents and their rent setting in housing in certain areas of the Catalan territory.

Note: this law introduces the concept of “areas with a tense housing market”, throughout this text we will use the acronym AMVT to refer to this concept.

Too short?

It limits, by law, the maximum rent to be received for the rental of permanent housing in certain areas of the Catalan territory. Penalties can range from €3,000 to €90,000.

Does the rent containment law affect me NOW?

Yes.

As we shall see, the administrations must carry out certain procedures so that the rent containment regime applies in parts of the territory. But, at the same time, the Law declares a number of municipalities as areas with a tight housing market from the very entry into force of the Law.

These municipalities are declared as AMVT for a period of one year, which is the time that the competent administrations have to follow the procedures for the correct declaration as AMVT or to withdraw from it.

At the end of this note we reproduce the list of municipalities that, from tomorrow (22/09/2020), are AMVT.

Unless your property manager is Bgestió, we recommend that before signing any new rental contract you make sure that you have taken into account this Law (11/2020).

To whom does it apply?

Leases of usual residence (“permanent residence”)
Housing located in areas with a tight housing market (AMVT).

It will not apply to contracts subject to special regimes such as: contracts prior to 1 January 1995, official protection, welfare or compulsory social renting.

We include a diagram to find out whether or not the Law applies to you.

Tense housing market?

Those municipalities, or parts thereof, at risk of “not having sufficient rental housing at an affordable price to enable the entire population to have access to it”.

Article 2 of the Law indicates the conditions that may give rise to the declaration of areas with a tight housing market, as well as the entities empowered to proceed with such a declaration, or to request it, and the procedure to be followed. These details are omitted for the sake of brevity (only the public administration can initiate the procedure).

The declaration as an AMVT will have a maximum duration of 5 years, extendable ad infinitum.

What happens if my property is in an AMVT?

That the rent is limited by law. On the one hand, the initial rent is fixed, and then the system for updating it is limited.

The initial rent agreed is limited by two concepts:

“the reference price for the rent of a dwelling of similar characteristics in the same urban environment”.
“The rent stated in the last rental contract”, updated in accordance with the competitiveness guarantee index.

Both limitations have exceptions which are detailed in the attached diagrams.

In addition, in the event that several leases are entered into simultaneously on different specific parts, the sum of their rents must comply with the above limitations.

What is the reference price?

Note that the agreed initial rent is based on a new concept: the rental reference price.

This value has a complex calculation based on a price index, area restrictions, property characteristics and/or improvement works.

To simplify the understanding, we have attached a new diagram.

Individual costs and services

In addition to the agreed initial rent, it may be agreed that the tenant will pay for general expenses and individual services, in accordance with the regulations on urban leases.

In this case, the amount of the rent and the amount of the expenses assumed by the lessee must be stated separately for each payment.

In addition, the lessor must provide the lessee each January with a statement of the expenses actually paid for the rented dwelling during the previous year and, if they are lower than those agreed, he must return the corresponding difference.

Updating of income

“In contracts subject to the rent containment regime regulated by this law, the rent established by the contract can only be updated in accordance with the regulations governing housing rental contracts.

What if I don’t comply?

The law contemplates a sanctioning regime for the case of non-compliance by the affected owners, but for its development it refers us to Law 18/2007, on the right to housing.

The penalties can range from €3,000 to €90,000 and are always applicable in accordance with the principle of proportionality, taking into account different factors such as intentionality, the importance of the damage caused or recidivism in the commission of the infringement.

Overcharges to the tenant must also be refunded.

New requirements in contracts

The contracts affected by this Law must comply with a series of formal requirements. Principally, all relevant information for the determination of the limited rent must be included in the contract.

A document generated by the rental price indexation system, referring to the date of formalisation of the contract, must be attached.
The amount of the rent resulting from applying to the useful surface area of the rented dwelling the reference index of rental prices for dwellings, expressed in euros per square metre, without taking into account the upper and lower price margins, shall be indicated.
The upper and lower margins shall be reported when the parties agree to modify the index in view of the special characteristics.
The special characteristics that enable the rent to be increased shall be stated in the contract together with the elements that enable them to be accredited.
The relevant information of the last rental contract for the purposes of this Law (start and end date, initial rent) or the irrelevance of the same (due to kinship, validity, …) shall be stated.

Be careful! If the reference price is not stated, the raw index will be used as the price.

Relevant concepts

This Act requires understanding:

The housing rental price reference index (IRPAV): This is a reference framework for tenants to know whether their rental income is in line with the market price, taking into account the conditions of the dwelling (geographical area, value, etc.).
The Catalonia Sufficiency Rent Indicator (IRSC): This is an indicator set by the Generalitat’s Budget Law that is used to assess each tenant’s need to access or be entitled to certain benefits. For 2020, its value is set at 569.12€/month (7,967.73€/year).
The competitiveness guarantee index: Reference used in some rental contracts to update the rent (instead of applying the CPI). It is calculated on the basis of the average CPI of all the countries that have the euro as their official currency, with a small correction to take into account the special situation of Spain’s loss of competitiveness.

What about existing contracts?

The first transitory provision establishes that they will continue to be governed by the previous legislation, but the new Law will be applied when a novation takes place that entails an extension of the duration of the contract or a modification of the rent.

The rent updates foreseen in the contract and the tacit extensions would in principle not imply the application of the new Law, since essential elements of the contract would be modified and such provisions would be emptied of their content. In any case, this interpretation is not a peaceful one. Always consult a registered property administrator.