New limits on rental prices for residential leases in Catalonia from last Saturday

The Spanish Official State Gazette (BOE) published on Friday 15 March the new system of reference price indices for residential leases, together with the list of stressed residential market areas in Catalonia

What is the Reference Index?

The Spanish Housing Law (Law 12/2023, of 24 May, analysed in detail in New Spanish Housing Law Key issues for the private sector) included, as one of its main measures, the possibility for the autonomous communities to impose caps on residential rents in areas officially declared as "stressed" (rent caps).

The application of this measure was conditional upon the previous approval of a new system of reference price indices, which would consider the indices developed by the different autonomous communities, but which would be approved by the Government (the Reference Index). This new Reference Index was finally approved on Thursday 14 March by a decision of the Spanish Secretary of State for Housing, which was published the following day in the BOE (here) and came into force on Saturday 16 March.

The new Reference Index is available on the website of the Ministry of Housing and Urban Agenda at the following link. It has been developed according to a methodology published on the same website (here), using data provided by the Tax Agency, the General Directorate of Cadastre and graphical information on territorial entities provided by the Spanish Statistics Institute.

As the index is based on the tax sources of the common territories, it does not include data from the Basque Country or Navarre. In addition, it only shows data for residential units located in collective residential buildings that are more than five years old and have a built surface area of at least 30 square metres and not more than 150 square metres. This raises questions about new buildings, as discussed in more detail below.

Consultation of the Reference Index requires the input of the address or cadastral reference of the unit, as well as certain characteristics of the property. Once these data have been entered, the new application determines a range consisting of a lower and an upper value. The latter is used as the reference for the rent caps.

If the Reference Index is approved at national level, why have the rent caps only come into force in Catalonia?

The publication of the Reference Index is not enough to start applying the rent caps. The autonomous communities interested in applying the rent caps must carry out an administrative procedure to declare as stressed the areas that they consider appropriate (and that meet the criteria established in the Spanish Housing Law).

To date, only the Autonomous Community of Catalonia has made use of the regulatory option and requested the declaration of 140 municipalities as stressed residential market areas. It did so by Resolution TER/2940/2023 of 11 August, as amended by Resolution TER/800/2024 of 13 March (Catalonian Resolution TER/800/2024), published in the Official Journal of Catalonia on Thursday 14 March (here).

The regional approval of the list of stressed residential market areas has to be validated by the Ministry of Housing and the Urban Agenda. This validation took place on 14 March by means of another decision of the Secretary of State for Housing and the Urban Agenda (the Stressed Areas Resolution), which was published the following day in the BOE (here) and also entered into force on Saturday 16 March.

Apart from Catalonia, no other autonomous community has announced a firm intention to cap rents in the short term in their respective territories. There are some rumours in the press that Navarre, Asturias and the Basque Country may be working on it. However, the autonomous communities governed by the Partido Popular and some others, such as Castilla la Mancha, have explicitly refused to implement the measure, at least for the time being.

Finally, it is worth bearing in mind that the declaration as a stressed residential market area has other implications beyond rent caps such as: (i) additional reporting obligations for large holders; (ii) potential extraordinary extensions of up to three years; (iii) specialities in relation to compulsory urban development transfers; and (iv) the programmes to be developed by the Autonomous Communities to remedy the situation. For more details see New Spanish Housing Law Key issues for the private sector.

How does the Spanish Housing Law regulate rent caps?

According to the Spanish Housing Law, in stressed residential market areas the rent is not free, but certain limitations are imposed which may be different depending on whether the lessor is a large holder or not.

General regime

In stressed residential market areas, new tenants are entitled to a rent that is no higher than the rent of the last lease agreement in force at the residential unit for the previous five years (adjusted according to the annual indexation method agreed in this prior lease). In addition, the lessor cannot pass on to the tenant any common expenses not provided for in the previous lease agreement.

If no lease agreement has been in force in the last five years, the rent cap will be calculated in accordance with the Reference Index (as expressly provided for in the Stressed Areas Resolution validating Catalonian Resolution TER/800/2024 – which could have opted to exclude this rule-).

Exceptionally, increases of up to 10% may be applied when certain circumstances are justified. These exceptional circumstances are:

(a) That the residential unit has been the object of a rehabilitation project under the terms provided for in section 41.1 of the Spanish Personal Income Tax Regulation in the two years prior to the signing of the new agreement.

These rehabilitation actions can be of two types:

(i) Subsidised actions in accordance with Royal Decree 233/2013, of 5 April, regulating the State Plan for the Promotion of Housing Rental, Building Rehabilitation, and Urban Regeneration and Renovation, 2013-2016.

(ii) Actions whose main objective is the reconstruction of the property through the treatment of structures, facades or roofs, or other similar actions, and whose total cost exceeds 25% of the purchase price (excluding the proportional part corresponding to the land).

(b) That the residential unit has been the object of renovation or improvement works completed in the two previous years and for which a non-renewable primary energy saving of 30% is accredited by means of energy efficiency certificates (one before and one after the work).

(c) That the residential unit has been the object of duly accredited measures to improve its accessibility during the two previous years.

(d) When the new lease agreement is signed for a period of ten years or more, or when a renewal right is established in favour of the tenant, allowing to extend the agreement up to a minimum of ten years under the terms and conditions initially agreed.

Specialities for large holders

Notwithstanding the foregoing, if the lessor is a large holder, the new tenant is entitled to have the rent not exceed the new Reference Index.

For general purposes under the Spanish Housing Law, large holders are individuals or legal entities that own more than ten urban properties for residential use or an aggregate built-up area of more than 1,500 square metres for residential use, excluding in all cases garages and storage rooms. In the specific case of Catalonia, and as allowed by the Spanish Housing Law, large holders are also individuals or legal entities that own five or more urban properties for residential use located within the stressed residential market area in Catalonia.

Common aspects and interpretative doubts

In order to provide tenants with information on the applicable limitations, lessors, whether or not they are large holders, or their intermediaries, are obliged to inform tenants that the property is located in a stressed residential market area, the amount of the last prevailing rent for that unit in the last five years and the applicable benchmark value according to the Reference Index.

On the other hand, leases signed in stressed residential market areas are subject to the general regime regarding rent updates as set out in the Spanish Urban Leases Law. Annual updates are currently limited to 3%. From 2025, they will be subject to the new reference index for the annual update of residential leases that is being designed by the Spanish Statistics Institute.

The wording of the Spanish Housing Law on rent caps raises many interpretative doubts, especially in relation to large holders.

• First, if the lessor is a large holder, does only the Reference Index apply as limit, or if there was a lease agreement in the previous five years, does that rent also have to be taken into account?

In our opinion, the interpretation that is most in line with the Spanish Housing Law is the one that effectively establishes a double limit for large holders (that of the Reference Index and that of the previous lease agreement), with the lower amount to be chosen.

• Second, it is our understanding that the rent limits for stressed residential market areas are not applicable in relation to those residential units that are subject to a rent regime that, due to their special nature, must prevail, such as, for example, residential units subject to a subsidised housing regime, those integrated in public social rental networks and others in similar situations.
• Third, what if the residential unit meets the exceptional circumstances allowing a rent increase of up to 10%, but the lessor is a large holder?

To incentivise housing rehabilitation and long-term leases, large holders should also be able to increase the rent by up to 10%, although it is not clear whether this applies only when reference rent is that of the last lease agreement or also when the Reference Index is used.

• Finally, since the Reference Index only includes data on residential units located in residential buildings that are more than five years old (as mentioned above), what is the impact of the Reference Index on new construction?

In our view, as long as the Reference Index does not publish data in respect of a particular residential unit, which is currently the case for buildings less than five years old, and provided there is no prior lease agreement, the rent caps cannot be applied to that unit. However, doubts on this and other aspects are inevitable due to the lack of proper legislative technique. For example, what happens to lease agreements signed in new buildings when there is no Reference Index if, afterwards, these data become available?

Which municipalities have been declared as stressed so far and under what conditions?

The only municipalities that have so far been declared stressed areas under the Spanish Housing Law are those listed in the Stressed Areas Resolution validating Catalonian Resolution TER/800/2024.

These municipalities are Abrera, Alella, Amposta, Arenys de Mar, Arenys de Munt, Argentona, Badalona, Badia del Vallès, Balaguer, Banyoles, Barberà del Vallès, Barcelona, Berga, la Bisbal d'Empordà, Blanes, Cabrera de Mar, Cabrils, Caldes de Montbui, Caldes d'Estrac, Calella, Calldetenes, Cambrils, Canet de Mar, la Canonja, Canovelles, Cardedeu, Castellar del Vallès, Castellbisbal, Castelldefels, Cerdanyola del Vallès, Cervelló, Cervera, Corbera de Llobregat, Cornellà de Llobregat, Cubelles, Esparreguera, Esplugues de Llobregat, Falset, Figueres, les Franqueses del Vallès, la Garriga, Gavà, Girona, Granollers, Guissona, l'Hospitalet de Llobregat, Igualada, la Llagosta, Lleida, Llinars del Vallès, Lloret de Mar, Malgrat de Mar, Manlleu, Manresa el Masnou, Matadepera, Mataró, Molins de Rei, Mollerussa, Mollet del Vallès, Montcada i Reixac, Montgat, Montmeló, Montornès del Vallès, Móra la Nova, Olesa de Montserrat, Olot, Palafolls, Palafrugell, Palamós, Palau-solità i Plegamans, el Papiol, Parets del Vallès, Pineda de Mar, Polinyà, Porqueres, el Prat de Llobregat, Premià de Dalt, Premià de Mar, Puigcerdà, Reus, Ripoll, Ripollet, la Roca del Vallès, Roquetes, Rubí, Sabadell, Salou, Salt, Sant Adrià de Besòs, Sant Andreu de Llavaneres, Sant Boi de Llobregat, Sant Celoni, Sant Climent de Llobregat, Sant Cugat del Vallès, Sant Esteve Sesrovires, Sant Feliu de Guíxols, Sant Feliu de Llobregat, Sant Fost de Campsentelles, Sant Fruitós de Bages, Sant Joan Despí, Sant Just Desvern, Sant Pere de Ribes, Sant Pol de Mar, Sant Quirze del Vallès, Sant Sadurní d'Anoia, Sant Vicenç de Montalt, Sant Vicenç dels Horts, Santa Coloma de Cervelló, Santa Coloma de Farners, Santa Coloma de Gramenet, Santa Margarida de Montbui, Santa Perpètua de Mogoda, Santa Susanna, Sarrià de Ter, la Seu d'Urgell, Sitges, Solsona, Sort, Tarragona, Tàrrega, Teià, Terrassa, Tiana, Tona, Torelló, Torredembarra, Torrelles de Llobregat, Tortosa, Tremp, Vallirana, Valls, el Vendrell, Vic, Viladecans, Vilafranca del Penedès, Vilanova del Camí, Vilanova i la Geltrú, Vilassar de Dalt, i Vilassar de Mar. According to the latest explanatory memorandum supporting Catalonian Resolution TER/800/2024, these 140 municipalities are declared as a single stressed residential market area.

The rent caps began to apply in these areas last Saturday and will be in force for three years (from 16 March 2024 to 16 March 2027), although the declaration of stressed areas may be extended annually thereafter indefinitely as long as the circumstances that led to their declaration persist (and always subject to the justification of the public measures and actions taken to reverse or improve the situation).

As mentioned above, the Reference Index will be applied in the stressed residential market areas of Catalonia in relation to: (i) new residential lease agreements of large holders and (ii) new leases in residential units that have not had any lease agreement in force during the five years prior to 16 March 2024.

Although, initially, the Secretariat for Housing of the Generalitat de Catalunya had initially included in the explanatory memorandum supporting Catalonian Resolution TER/2940/2023 additional clarifications regarding the properties to which the rent limits should apply, these clarifications were removed in the explanatory memorandum supporting the final Catalonian Resolution TER/800/2024. These clarifications, which have now been removed, included: (i) the exclusion of the application of the rent caps to newly built residential units or residential units resulting from a major renovation process and (ii) the exclusion of the limit of the price of the previous lease when these agreements, among others, had a monthly rent that was 25% lower than the Reference Index or were subject in the past to other state subsidised scheme.

What do other autonomous communities have to do if they want to declare part of their territory as a stressed market area? How long can this process take?

To be able to declare an area as a stressed residential market, the autonomous community concerned must carry out a procedure based on the provisions of the Spanish Housing Law, which will involve several phases including:

(a) Collection of information. The autonomous communities must collect information on rental prices and average incomes in the region.

(b) Drawing up an explanatory memorandum. This memorandum shall justify, based on objective data, the existence of one of the following circumstances in the regions to be declared as stressed residential markets:

(i) The average burden of the cost of the mortgage or rent on the personal or household budget, plus basic expenses and supplies, exceeds 30% of average income or average household income.

(ii) The purchase or rental price of the residential unit experienced in the previous five years a cumulative growth rate at least three percentage points higher than the cumulative growth rate of the consumer price index of the corresponding autonomous community.

These criteria for declaring an area as stressed, will be reviewed three years after the entry into force of the Spanish Housing Law (which occurred on 26 May 2023) to adapt them to the reality and evolution of the residential market.

(c) Public information phase.

(d) Analysis of the allegations submitted and, if necessary, preparation of an updated explanatory memorandum.

(e) Adoption and publication of the resolution containing the list of stressed residential market areas.

(f) Submission of the resolution to the Ministry of Housing and Urban Agenda for inclusion and publication in the quarterly centralised list of stressed areas.

In Catalonia, the whole process was quick (just over two months). However, it should be noted that this was not a new procedure for this autonomous community. Law 11/2020 of September, which was passed in this autonomous community to establish rental caps, and which was annulled by the Constitutional Court for invading the exclusive competences of the State, provided for a very similar procedure. This has facilitated the process. In other autonomous communities, the process for declaring stressed areas is likely to be slower.

Our services

This note is based on recently published legislation, does not consider specificities of individual cases and cannot be considered as legal advice.

However, Ashurst Madrid has a team of lawyers who are experts in advising on the real estate market, as well as a knowledge management team that analyses the developments affecting this market daily, both at a national and regional level. We will be happy to review any situation or portfolio of assets and the impact that the recently published Reference Index or the Stressed Areas Resolution may have on it, and to recommend the most appropriate course of action in each case.

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