Changes in the spanish housing law and how they affect property owners

Limitations on the price of housing rentals:

The CPI has been eliminated as a reference index for updating the rent annually. Since March 2022, property owners cannot update rents beyond 2%, and this will be the case until December 31, 2023. From 2024, the increase cannot exceed 3% in the case of large holders.

Tensioned Areas and Rental Limitations

One of the most outstanding aspects of the new law is the definition of “tensioned areas”. These are areas where the cost of rent or mortgage exceeds 30% of the average income of households, or where the price of rent has grown at least 3% more than the CPI of the Autonomous Community. In these areas, the law imposes additional restrictions on property owners. For example, it limits the increase in rent in new contracts to 10% and prohibits property owners from charging the tenant with new expenses that were not in the previous contract.

Real estate management expenses and contract formalization:
These expenses will be borne by the landlord or property owner.

One of the most significant changes brought by the new Housing Law in Spain is the redistribution of real estate management expenses and contract formalization. Previously, the Urban Leasing Law (LAU) did not specify who should assume the commission of the real estate agency, and most property owners transferred this expense to tenants. However, with the new law, this practice has changed.

The Housing Law clearly states that “real estate management expenses and contract formalization will be borne by the landlord”. This means that property owners must now assume the costs of the real estate agency involved in renting a home. This change frees tenants from one of the initial expenses they used to face when renting a home.

Before the implementation of this law, the initial outlay for the tenant when signing a rental contract could amount to four or five monthly payments: the deposit, the first month’s rent, the commission of the real estate agency (one month or one-tenth of the annual cost of the flat plus 21% VAT) and one or two additional guarantee months.

Let’s suppose you are a property owner and you are renting an apartment with a monthly cost of 700 euros. Before the implementation of the new Housing Law, the initial expenses when signing a rental contract could have been assumed by the tenant, including:

• The deposit: 700 euros.
• The first month’s rent: 700 euros.The commission of the real estate agency: generally equivalent to one month’s rent, that is, 700 euros, plus 21% VAT, which adds up to a total of 847 euros.

  One or two additional guarantee months: let’s suppose it is an additional month, that is, 700 euros.

  In this scenario, as a property owner, you did not have to assume the cost of the real estate agency’s commission, as this expense was transferred to the tenant.

However, with the new law, rental contracts signed must include the commission of the real estate agency as a cost for the property owner. This means that, as a property owner, you must now assume the cost of the real estate agency’s commission, which in this example would be 847 euros.

This can have several implications for you as a property owner. First, it can increase your initial costs when renting out your property. Second, it may influence your decision to work with a real estate agency, as you now have to bear this additional cost. Finally, it may affect your decisions about the rental price, as you may consider these additional costs when setting your rental price.

It’s important to take these changes into account and consider how they can affect your rental strategy. However, it’s also important to remember that there are other ways to rent out your property that may be more beneficial given the new regulations, such as the short-term or monthly rentals offered by companies like Globexs.

In addition, the law also prohibits increasing rental rents through the introduction of new expenses that would force tenants to pay community expenses, garbage fees, or any other expense not attributable to the tenant that were not previously agreed upon. This measure seeks to prevent a possible way for legal fraud and eliminate clauses that allowed the non-application of the measures contained in the law if there is an agreement between the parties.

Extraordinary Obligatory Extension

In addition, the new law introduces the figure of the extraordinary obligatory extension. This means that the tenant can request an extension of the rental contract at the end of the initial term of five or seven years. This extension can be extended up to a maximum of three years.

Tax Incentives and Law Updates

Law 12/2023 also introduces new tax incentives for property owners who rent out their properties. For example, the general reduction of positive net yield will go from 60% to 50%, and it can reach up to 90% if the owner of a property in a tensioned area signs a new rental contract with a rent reduction of more than 5% compared to the previous contract.