We summarise the key points of this new Housing Act 2023 which, with few exceptions, came into force the day after its publication (26 May 2023) and which has three main objectives:
- Regulating basic conditions and guaranteeing equality in the exercise of constitutional rights and duties and the right to decent, adequate and affordable housing.
- Regulating the basic content of the right to home ownership in relation to its social function.
- Strengthen protection and access to complete, objective, truthful, clear, comprehensible and accessible information in housing rental and purchase transactions.
Housing Act 2023: definition of major housing tenure holders
The definition of major landlords is outlined, a concept already used in previous regulations that has great relevance in this new law. Both natural persons and legal entities can be large holders:
- In general: owner of more than 10 urban properties for residential use or a built surface area of more than 1,500 m² for residential use (excluding garages and storage rooms).
- New: owner of 5 or more urban properties for residential use located in a stressed residential area (see definition below).
Implications for large tenants:
- When the tenant accredits that he/she is in a situation of social and economic vulnerability, they are obliged to accept an extraordinary extension (with the same conditions) for a maximum period of 1 year in the habitual residence lease contracts.
- The rent of the new contracts will be capped at the rental price of the previous contract (in force for the last 5 years) plus the price containment index, which has not yet been defined.
- During 2023, rent increases cannot exceed the result of applying the annual variation of the Competitiveness Guarantee Index. During 2024, the increase may not exceed 3%.
- Admissibility requirement for claims for tenancy eviction, precarious eviction, summary guardianship of possession and protection of registered rights in rem. Only admissible if specified:
-
- property constituting the habitual residence
- occupant in a situation of economic vulnerability
- a claimant who is a major tenant of a dwelling
In addition, claims in which it is not proven that the plaintiff has not submitted to the conciliation or mediation procedure are not admissible either.
What does the Housing Act 2023 mean by a stressed residential area?
The Autonomous Communities are responsible for declaring a stressed residential area when one of the following conditions is met:
- That the average burden of the cost of the mortgage or rent on the personal budget or that of the cohabitation unit, plus basic expenses and supplies, exceeds 30% of the average income or average household income.
- That the rental or purchase price of the dwelling has experienced in the 5 years prior to the declaration as a stressed housing market area, an accumulated growth percentage at least 3 percentage points higher than the accumulated growth percentage of the consumer price index of the corresponding Autonomous Community.
The period of validity of the declaration of a stressed residential market area will be 3 years, and may be extended annually, when the circumstances that led to the declaration persist and the measures adopted to reverse or improve the situation are justified.
Housing Act 2023: Reform of the Urban Leases Act (LAU)
This new law has implications for landlords with relevant changes in rentals, such as the novelties in the extension of housing rental contracts.
The extension period existing to date is maintained, but a series of new features have been established:
- Extraordinary extension for non-stressed areas of a maximum of one year for tenants who can prove a situation of social and economic vulnerability.
- Extraordinary extension for stressed areas for annual periods renewable for a maximum of 3 years.
Landlords may refuse any of these extensions depending on whether or not they are considered to be large tenants or whether certain exceptions determined by law are met. If you are a landlord or tenant and find yourself in this situation, consult our team of lawyers about your specific case.
Housing Law: Changes in the calculation and payment of the rent for rent
The payment will have to be made electronically, another measure with which the tax authorities will be able to control hidden incomes such as unregistered rents paid in cash.
Determination of rent in stressed areas
a) Stressed area and landlord is not a large tenant
The rent agreed in the new contracts cannot be higher than that of the last contract in force in the last 5 years, once the annual rent update clause of the previous contract has been applied, new conditions cannot be established to pass on to the tenant any fees or expenses that were not included in the previous contract.
The Law specifies a limited series of cases in which the rent may be increased beyond the amount resulting from the application of the annual updating clause of the rent of the previous contract, by a maximum of 10% of the last rent of the habitual residence contract that had been in force in the last 5 years in the same dwelling.
b) Stressed area and large tenant lessor
Without prejudice to the provisions of the previous case, in these cases the initial rent agreed at the start of the new contract may not exceed the maximum limit of the price applicable in accordance with the reference price index system, taking into account the conditions and characteristics of the rented dwelling.
This limitation also applies to dwellings in a stressed area where there has been no housing rental contract in force in the last 5 years.
Professional fees
The costs of property management and formalisation of the contract must be paid by the lessor, whether the lessor is a natural person or a legal entity, with no exceptions.
The housing law eliminates the CPI as a reference index
The National Statistics Institute (INE) will define, before 31 December 2024, a specific reference index for the annual updating of housing rental contracts. This will be set as a reference limit for the purposes of Article 18 of the LAU, in order to avoid disproportionate increases in the rent of rental contracts.
Extraordinary limits on rents until the entry into force of the new index
The new law modifies article 46 of Royal Decree-Law 6/2022, of 29 March, and establishes changes to the extraordinary limitation on the annual updating of the rent of residential rental contracts.
LIMIT ON RENT INCREASE FROM 31/03/2023 TO 31/12/2023
Landlord is a large tenant → According to the new agreement between the parties with a maximum of 2%.
Not a large tenant→ According to new agreement between the parties, if there is no agreement, a maximum of 2% will be applied.
LIMIT RENT INCREASE FROM 01/01/2024 TO 31/12/2024
Landlord is a large tenant → According to the new agreement between the parties with a maximum of 3%.
Not a large tenant→ According to the new agreement between the parties, if there is no agreement, a maximum of 3% will be applied.
Tax incentives for housing leases: increase in personal income tax reductions
A series of personal income tax benefits are planned to be applied to home rental contracts entered into after the entry into force of the housing law.
These reductions in net yield will only start to be applied from 1 January 2024, i.e. they will be applied in the income tax return to be filed in June 2025.
Real Estate Tax (IBI) surcharge for unoccupied homes
This IBI surcharge on permanently unoccupied dwellings may be applied to dwellings that have been empty for more than 2 years, with a minimum of 4 dwellings per owner.
The increase of the surcharge, currently set at 50% of the IBI liquid quota, may be increased up to a maximum of 150%, depending on the duration of the unoccupation and the number of unoccupied dwellings also owned by the same owner in the municipality.
Eviction proceedings in situations of vulnerability
There are numerous changes in the LEC that affect:
- The processing of eviction proceedings in situations of vulnerability.
- The prior conciliation or mediation procedure.
- The resumption of suspended proceedings.
- The assessment of the situation of vulnerability.
Conclusions of the new Housing Law
It is essential to be aware of the contents of the 4th and 7th Amendment to the LAU in the event of having rental contracts in force in order to see how they will be affected by this new Housing Act.
In any case, our recommendations:
- Have a registered property administrator to manage your rentals, whether or not you are a large tenant.
- To have a tax advisor when making your tax return.
- If you are a tenant, consult a lawyer in the specific case of your rental contract to know your rights.
Photo by Hernan Lucio on Unsplash
