Limiting the price of housing rent

23 September, 2020

On Monday 21st September, the Law 11/2020 of 18 September on urgent measures to contain prices in housing leases was published in the DOGC (Official Gazette of the Catalan Government). The Catalan Government already approved in the past the Decree Law 9/2019 of 21st May, on urgent measures in the field of price containment in housing leases, but this Decree Law was not validated by the Parliament.

These measures are applied to the tenant’s permanent housing contracts, located in an area  declared as an area with a ‘tense housing market’ (excluding contracts signed before 1st January 1995, those subject to a system of official protection, housing integrated in public networks of insertion housing or mediation for social renting, or in the Housing Fund for renting destined for social policies, those of a welfare nature and those signed in accordance with the legal provisions applicable to obligatory social renting).

Areas with a tense housing market

Firstly, the areas with a tense housing market must be identified and declared (in order to proceed to price limitation), which are the municipalities or parts of them that are particularly at risk of not having enough rental housing available at an affordable price; this situation can be accredited by one of the following conditions:

– that the average price of housing rentals in this area is growing at a much higher rate than the average in Catalonia,

– that the burden of the cost of renting on the personal or family budget in that area on average exceeds 30% of the usual household income, or that the average price of housing rent exceeds 30% of the average income of people under 35,

– that the price of home rentals has experienced, over the previous 5 years, an accumulated annual growth of at least 3 percentual points above the annual rate of consumer prices in Catalonia.

In this regard, the Second Transitional Provision of the aforesaid law makes a transitional declaration of municipalities as areas with a tense housing market, which are the municipalities in which rental income has increased by more than 20% between 2014/2019 belonging to the Barcelona Metropolitan Area or with a population of more than 20,000 inhabitants. This transitional declaration lasts for one year from the entry into force of this law.

Lease price containment

Lease price containment is concepted by applying the reference index of housing rental prices which is fixed and published by the corresponding Housing Department. The reference price is established in accordance with the aforementioned index, without taking into account the upper and lower price margins, and can deviate by up to 5%, depending on the characteristics of the home.

In the contracts that are concluded in areas declared to have a ‘tense housing market’, the lease price agreed is subjected to two limits:

– the maximum amount of the rent cannot exceed the reference price (with the deviation, if applicable, of more or less 5%) and

– The rent cannot exceed the rent stated in the last rental contract if the property was rented within the last five years. This last requirement will not be applicable in the following cases (i) if in the last lease there was a family relationship between the parties that had formalised the last contract and (ii) if a lease is formalised for a dwelling initially excluded – due to the special regime for determining income that was applicable to it – from the application of this law. The above limits may be waived depending on the income level of the lessor, if he is a natural person or the lessee

The parties can agree to increase or decrease by 5% the value indicated by the reference index if three of the following characteristics are given: lift, parking, furnished housing, heating or cooling system, communal areas of shared use (garden, terrasse at the roof, …), communal swimming pool or similar equipment, concierge service, special views.

Refund of excesses and other measures:

The law also provides for the refund of any amounts paid in excess to the limits set by law, with the accrual of legal interest plus three points. It also provides for the possibility of the parties agreeing that the lessee will assume the payment of general expenses and individual services.

Likewise, in all the offers of housing located in areas with a ‘tense housing market’, it is necessary to inform of the application of the corresponding value of the reference index of housing rental prices and, where appropriate, the amount of the rent of the last current rental contract, updated.

And as a transitional regime, rental contracts for housing located in an area with a ‘tense housing market’ concluded before the entry into force of this law will continue to be governed by the provisions of the previous legislation. In the event of novation of the contract subsequent to the declaration of the area as an area with a ‘tense housing market’, provided that it involves an extension of the duration of the contract or a modification of the rent, the provisions of this regulation will be applied.

As commented by the real estate sector, this law may be appealed against before the Constitutional Court.  The effects of its lodging (a possible suspension of its application) would depend on who lodged it (Government, opposition, etc…)

If you have any questions about this article, you can use the contact area of our website to contact our team of specialist lawyers. We will be glad to answer your query.

David Roca – Lawyer

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