On 9th September 2020, the Catalan Parliament passed a law that restricts the increase of rents of permanent dwelling in some areas of Catalonia.
The law was enacted despite the fact that the Parliament’s Advisory Council ruled last August that the regulation of rent income is not among the powers of the Catalan Parliament -because it is a competence of the State- and, therefore, several of the articles of the law would not comply with the framework of the Spanish Constitution and the Catalan Statute.
The lease contracts affected by this law are only those that relate to the tenant’s permanent housing that is located within an area declared “area with a tense residential market” (ATRM), which, according to the norm, are those municipalities or areas within municipalities, at risk of not having sufficient rental housing at an affordable price. Seasonal rentals, tourist rentals and all housing that is not located in an ATRM are outside the scope of the law.
The faculty to define these areas lies with the Catalan Government, except for the municipality of Barcelona, which corresponds to its City Council, and for the Metropolitan Area of Barcelona, which corresponds to the Metropolitan Council. The declaration of an ATRM will be valid for 5 years.
The law sets forth 3 criteria for the identification of the ATRM by the competent authorities, being those areas in which:
i) the average rent has suffered sustained growth, clearly above the average in Catalonia; or
ii) the cost of renting accounts for more than 30% of households’ usual income, or the average price exceeds 30% of the income of those under 35; or
iii) during the last 5 years the rent has increased by an accumulated 3 percentage points over the annual rate of the consumer price index in Catalonia.
On a transitional basis and for 1 year until the administrations have completed the ATRM declarations in accordance with the above criteria, the law declares 60 municipalities as ATRM in which the law is, therefore, directly applicable (Barcelona, Sitges, etc.).
In the ATRM, the parties to the contract must take into account two limitations since the rent agreed cannot exceed any of them:
i) the reference income rent of a property with similar characteristics in the same area (the so-called “Reference Price”); and
ii) in the event that the housing has been rented during the previous 5 years, the rent of the new contract cannot be higher than the rent stated in the last lease, updated according to the variation of the guarantee index of competitiveness between the date of execution of the precedent contract and the date of the new lease.
The Reference Price is calculated taking into account the Residential Rent Reference Index published by the Generalitat’s housing department. This Index takes into account the data from the Registry of lease bonds (compulsory according to the urban rental law) and reports the average price per square metre for rentals in a given location and with a given surface area. By virtue of this law, the Reference Price is calculated in accordance with the aforementioned Index, allowing exceptionally deviations up to 5%, in view of the specific characteristics of the house or of the works carried out during the year prior to the rental. The document generated by the rental price indexation system shall be attached to the lease contract signed and shall be included, as well, in the rental offer.
Individual owners with an income equal to or less than 2.5 times the indicator of sufficient income in Catalonia (ISIC) (about 1,500 euros per month) shall not be bound by the first limit of the rental income, the Reference Price. However, if the house has been rented during the last 5 years prior to the new contract, the second limit described under ii) shall apply. There is also an exception to this and therefore none of this shall apply if the tenant has a family income that is equal or less than 3.5 times the ISIC (around 2,000 euros per month).
The law stipulates that any amount collected by the landlord exceeding these limits, may be claimed by the tenant adding to any excess paid the legal interest plus 3 percentage points.
The rental contention regime is more flexible in lease contracts for newly constructed dwellings and in dwelling resulting from a major renovation process during the first 5 years following completion. In addition, a 3-year standstill is established on the application of the law for these dwellings.
Furthermore, the law allows municipalities to establish other exceptions.
In view of the above, the correct application of the law will definitely require understanding of the rules and enquiries about some information that despite being of public access, is not necessarily easy to follow for all parties, all of which will probably oblige owners to seek professional services to rent out their homes. For example, the law refers to concepts such as useful surface area (which is not normally found in the property deed, but does appear in the dwelling certification), or references such as the index of guaranteed competitiveness which, despite having been introduced in previous regulations, has not been used in the practice to update rents.
Victoria González and Antonio Marín