On 20 April 2023, the Committee on Transport, Mobility, and the Urban Agenda approved the opinion on the Right to Housing Bill. This legislative initiative had been on hold since May 2022, but now that it has been approved by a Plenary Session of the Congress of Deputies, it awaits the decision of the Senate.

Below, we set out the key aspects contained in this Bill.

 

A. Elimination of the Consumer Price Index (“CPI”) as a reference index for the annual rent update

In order to prevent inflation from having an excessive impact on housing lease agreements, it has been stipulated that in those cases in which a rent update is required, the rent will not be updated as agreed between the parties (generally with reference to the CPI), but updates will instead be made based on the Guarantee and Competitiveness Index which, by law, cannot exceed 2% (a measure that has been extended until 31 December 2023).

As from 2024, it has been stipulated that the increase may not exceed 3% in the event that the landlords have the status of large property owners (individuals or legal entities owning more than 10 residential properties or a built area of more than 1,500 m2 for residential use).

In cases in which the landlord is not a large property owner, the increase shall be made in the amount agreed between the parties and, in the absence of an agreement, may not exceed 3%.

Likewise, the National Institute of Statistics is authorized to define, before 31 December 2024, a new updating system that is not linked to the CPI.

 

B. Property management and contract formalisation costs

Real estate management and contract formalisation costs shall be borne by the landlord.

 

C. Real Estate Tax surcharges and Personal Income Tax reductions

The new regulation will allow municipalities to impose a 50% surcharge on the Real Estate Tax on unoccupied dwellings, allowing this surcharge to be increased to 100% in the case of dwellings unoccupied for a period of more than 3 years.

The Law also allows the surcharge to be increased by a further 50% when the properties belong to owners of two or more unoccupied dwellings in the same municipality.

The Draft Bill provides for a series of personal income tax reductions for individuals receiving income. The reductions applicable to the net yield obtained from the lease would be as follows:

  • Reduction of 90% when a new lease agreement had been formalized by the same landlord on a dwelling located in a stressed residential market area, in which the initial rent had been reduced by more than 5% in relation to the last rent paid under the previous lease contract.
  • Reduction of 70% when (i) the landlord rents the dwelling for the first time, provided that it is located in a stressed residential market area and the tenant is between 18 and 35 years of age or (ii) the dwelling is rented to the Administration or non-profit organisations.
  • Reduction of 60%for cases in which rehabilitation works have been carried out in the 2 years prior to the conclusion of the lease contract.

 

D. Declaration of stressed residential market areas

The Draft Bill will enable the competent Administration to declare an area to be a “stressed residential market area” when:

  • the average mortgage or rental cost accounts for more than 30% of the personal budget, or
  • the purchase or rental price of housing has increased by at least 3 points above the regional CPI in the last 5 years.

In any case, a declaration of a stressed residential market area will make it possible to modify the rules governing contract extensions and to cap rental prices. The Draft Bill introduces an amendment to the rules governing extensions of housing lease contracts by establishing that, once the period of mandatory extension (or tacit extension) has ended, the tenant may request an extraordinary extension for annual periods, up to a maximum of 3 years, with all other contractual conditions remaining unchanged.