Recently, the Spanish government approved a shock plan in response to the impact of the war in Ukraine and the increasing inflation. This plan included a significant measure: it limits the rents increase. It is a measure, however, of an extraordinary and temporary nature.
The decision implies that part of the Urban Leasing Law gets suspended. This regulation states that the maximum legal limit for the annual renewal of rental income is the Consumer Price Index (CPI). As an exceptional measure, this update gets now unlinked from the CPI. Instead, the increase is subject to the so-called Competitiveness Guarantee Index (IGC), whose reference value is 2%.
The purpose of the decision is to avoid applying the current IPC, being exceptionally high, in rentals updates. The Consumer Price Index stood at 9.8% in March 2022.
Who is affected by the limit on rent increases?
This measure will affect all the contracts that have to update the rent in the period established by the Royal Decree, regardless of whether the lessor is an individual or a large holder (one who has more than ten rental homes). However, its application depends on a few key issues:
• In the case of individual owners, it will apply if there is an agreement in the contract to update the rent each year. If so, both parties may agree to implement a different percentage to that 2%, and the update will be valid. But, if discrepancies arise when updating income, it will be that percentage the one applied in a mandatory way.
• If the landlord owns more than ten rental homes, they must negotiate an agreement on the rent updating. However, in this case, the increase may not exceed the 2% indicated by the IGC.
• The 2% limit on rent increases affects only housing contracts, not the rental of commercial premises, warehouses or garages.
How long will the measure be in force?
The limit on rent increases is an extraordinary measure and, as such, has an established term: it will remain in force until the 30th of June, 2022. Therefore, only those contracts renewed between the date of publication of the Decree-Law in the Bolentín Oficial del Estado, the 31st of March, and the last day of June will be affected. The rise in prices it's expected to have moderated by then.
Another essential aspect is that, although the CPI has already been unusually high for a few months, this measure does not have retroactive effects.
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