The Government Extends the Limit on Rental Price Increases until December 30, 2022

2 de September de 2022

We recently discussed the measure that promotes housing rentals. This measure aims to protect tenants by limiting the maximum increase of 2% in the rental price. This limit was approved on March 29 in the Council of Ministers and, in principle, lasted until June 30, 2022.

Given the rise in the CPI, the Government of Spain has decided to extend the application date of this regulation until December 31, 2022.

We must clarify that this measure applies to owners with more than 10 rented properties. Those landlords with fewer than ten homes are also obliged to comply if they have not established any other type of rental revaluation with their tenant at the time of signing the lease.

Contenido

1 Why this extension of the 2% limit?
2 The owners are not happy
3 Why has the increase in the rental price been limited?
4 Counterpart: the losses of the landlords are estimated at close to 1,000 million euros
5 Can an increase greater than 2% be applied to the rent?
6 How many homes does it affect?
7 The owners warn of a danger

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Why this extension of the 2% limit?

The Government of Spain approved this measure at the beginning of the year as a way to incentivize the rental market and with the purpose of protecting the most vulnerable sectors of society in the face of the enormous rise in prices.

The fact that the increase in the rental price was at most 2% gives a break to the battered economy of many families. In fact, this implies a much smaller increase in rent than the CPI of our country, which is around 10%.

To that, we must add the current energy crisis caused by political instability between Russia and Ukraine. These two reasons are what have encouraged the executive branch to extend this relief for the economy of many families, which will mean substantial savings, especially for those who have their rental contract reviewed before December 31.

It is not yet known if this measure will be extended again after this date, but if inflation continues to hover around 10%, everything indicates that the limitation on rent increases will last a few more months.

The owners are not happy

The owners of rented homes have no reason to be happy. It is clear that any landlord will see this measure as a problem and a reduction in their income.

Inflation also affects landlords who have a rented home. If the rental contract they have signed with their tenant must be renewed and updated before December 31, they will not be able to apply an increase of more than 2% of the rental price.

Inflation quintuples that figure and therefore whoever has a rented home will see their purchasing power reduced.

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Why has the increase in the rental price been limited?

The Government of Spain approved this measure as part of the National Plan to Respond to the consequences of the War in Ukraine. What is intended is to alleviate the economic consequences caused by said military conflict (which began in February 2022).

A series of measures that seek to curb the effects that the energy crisis and rising prices are causing in Spanish families. Among other measures specified in this Plan is the subsidy for fuels of €0.20/liter.

Counterpart: the losses of the landlords are estimated at close to 1,000 million euros

This measure was justified as a way to protect homeowners and promote the rental market.

The reality is that renting a house today has become a ruinous business for many owners. Inflation has skyrocketed the price of life and in most cases it is the landlords who will have to assume the cost of the increase in taxes, fees, replacements, repairs...

The Government maintains that this measure will encourage an increase in the number of people who decide to rent instead of buy. In practice, this is not the case.

Therefore, the group of landlords are outraged by these measures. These have caused their income to decrease and nobody likes that.

Let's take an example: a home whose monthly rent amounts to €1000 can only apply a maximum increase of 20 euros per month. In the case of applying a rent increase close to the current CPI, the increase would be around €100 per month.

In this example we can see that the loss of purchasing power of the owner will be close to €1000 per year.

Can an increase greater than 2% be applied to the rent?

It should be pointed out that there is the possibility of applying an increase greater than 2% to the original price of the rent. This can only occur if the contract established a clause that specifies that a higher increase contractually agreed between landlord and tenant will be assigned.

It is understood that in this case both parties already agreed to said increase prior to the entry into force of the measure and therefore it is assumed by the tenant.

In the case of landlords who own and rent fewer than 10 homes, they are also not legally bound by this limitation. In this type of rental, the revaluation must be agreed between both parties.

How many homes does it affect?

It is estimated that this measure has affected one in four rented homes in Spain. A figure close to 900,000 homes and benefiting approximately 2 million Spaniards.

This figure corresponds to rented homes whose owners own more than ten rented homes. That is, to the large holders of rental homes who did not have contractually agreed the amount of the rent renewal.

We must point out that the 2% limitation is established for homes for particular use. That is, the measure does not apply to the rental of garages, warehouses, industrial buildings or commercial premises. This type of property does not have a limit on the updating of the amount of the rent.

The owners warn of a danger

There are many who believe that this measure, if prolonged over time, may generate the opposite effect to what is sought.

That is, it could hinder and harm the rental market. Homeowners are obliged not to apply increases above 2%, well below the current inflation figure.

If this situation continues for a long time, many of the owners may decide to stop renting their homes and put them up for sale.

This could lead to a considerable reduction in the stock of rented homes and in the long run a considerable increase in the price of properties leased in the market.

For the good of all, let's hope that everything returns to normal.