Limits on housing rents and application of Law 24/2015 of 29 July on urgent measures to address the housing emergency and energy poverty

Limits on the rent of housing leases

On May 21, 2019 the Government of the Generalitat de Catalunya approved Decree Law 9/2019, of 21 May on urgent measures in the area of rent containment in housing leases agreements, which was published in the Official Journal of the Generalitat de Catalunya on 23 May 2019. The entry into force of the decree will take place on May 24, 2019, while the Parliament of Catalonia must ratify the Decree Law 9/2019 within one month.

In order to apply the rules on rent containment, the following requirements must be met:

(i) The housing is intended to constitute the permanent residence of the lessee;

(ii) The agreement is not subject to an official protection regime;

(iii) The housing is located in a declared area with a strained housing market.

a) With regard to the city of Barcelona, Barcelona City Council may declare an area with a strained housing market and review it;

b) For the rest of the municipalities, the competence lies with the Generalitat de Catalunya

Limits on the rent:

(i) In general, the initial rent of the lease may not be more than 10% above the reference index for the lease of housing of similar characteristics in the same urban environment.

(ii) For those aspects excluded from the indexation system but which give more value to the housing (gardens, swimming pools, etc.), an additional increase of 5% is envisaged, which will have to be justified in the contract.

(iii) Housing that has been newly built or that has been completely renovated may be leased at a rate of 20% above the reference index during the five years following the completion of the works

(iv) In addition to the rent, the lessee may assume the payment of general expenses and individual services of the housing.

(v) With regard to the revision of the rent, it can only be revised if it has been expressly agreed in the contract and the revision must be made with reference to the annual variation of the competitiveness guarantee index at the date of each revision.

(vi) If the housing was previously leased and the rent was higher at the time of the termination of the contract than would result from applying the rule of Article 6 (limit of 10% above the reference index), the same rent as that of the previous contract may be set as the initial rent of the new contract. The same rule applies in the event of a renewal of a prior lease between the same parties.

(vii) If the property owner charges a rent exceeding the limits established by the law, the lessee is entitled to claim the payment of the difference between the legal limit and the rent paid. 

Application of Law 24/2015 of 29 July on urgent measures to address the housing emergency and energy poverty

On January 31, 2019 (Official State Gazette no. 46, February 22, 2019) the Constitutional Court issued Judgement 13/2019, resolving the appeal of unconstitutionality filed by the Spanish Government against Law 24/2015 of  July 29 of the Parliament of Catalunya on urgent measures to address the emergency in the field of housing and energy poverty. Among the measures adopted by Law 24/2015 were those aimed at preventing evictions that could lead to homelessness (Article 5), those aimed at guaranteeing the social function of the property and increasing the amount of affordable housing (Article 7), and the application of Law 24/2015 to foreclosure or eviction procedures for non-payment that were initiated on the date of entry into force of the law (Second Transitional Provision of the Law).

The Constitutional Court had suspended this law, which dates back to 2015, while the government's appeal on unconstitutionality was pending. Since the government withdrew the appeal against the aforementioned articles, the suspension was lifted when the Constitutional Court issued Sentence 13/2019, making these articles fully applicable today.

Let us recall, briefly, the main measures regarding evictions from housing for failure to pay and the consequences of non-compliance with Law 24/2015.

(i) It applies to legal persons having the status of large owners of housing, which are the following legal persons:

a) Financial entities, real estate subsidiaries of these entities, investment funds and asset management entities, including those resulting from bank restructuring;

b) Legal persons who, by themselves or through a group of companies, own a living area of more than 1,250 sq. m, with the exception of developers of social housing and legal persons who own more than 15% of the living area of the property qualified as social housing under official protection intended for rent. 

(ii) It also applies if the plaintiff is a legal person who has acquired, as of April 30, 2008, housing which arises, in the first or subsequent transfers, from foreclosures, debt settlement agreements or agreements to transfer in payment, or sales caused by the  impossibility of repaying the mortgage loan.

(iii) Before initiating a process of foreclosure or eviction for non-payment of rent, the plaintiff must offer to those affected a proposal for social rent if the procedure affects persons or family units that do not have a housing alternative and that are within the risk parameters of residential exclusion defined by this law, something which must be verified by the plaintiff himself.

(iv) If the affected parties reject the social rental offer, the plaintiff may initiate the legal proceedings.

(v) The completion of the compulsory social rental offer must be communicated to the city council of the municipality in which the dwelling is located.

(vi) In order for the offer to be considered social renting it must meet the following requirements:

a) It must set rents that guarantee that the rent does not exceed 10% of the weighted income of the family unit, if it is below 0.89 of the Catalonia Adequate Income Indicator ( in Spanish "indicador de renta de suficiencia de Catalunya" - IRSC), or 12% of the weighted income of the family unit, if it is below 0.95 of the IRSC, or 18% of the weighted income of the family unit, if it is equal to or above 0.95 of the IRSC.

b) It must preferably offer the dwelling affected by the procedure or, alternatively, a dwelling located within the same municipal district, unless there is a report from the municipal social services agreeing that the transfer to another municipal district will not negatively affect the risk of residential exclusion of the family unit.

c) It must be for a period of at least three years.

(vii) With regard to the IRSC, currently the one established in the Budget Law of the Generalitat for 2017 is applied: €569.12 per month and €7,967.73 per year. 

(viii) Persons or family units taking advantage of a social rent must apply for registration in the Register of Applicants for Housing. The denial of registration in the register by the administration or deregistration caused by having rejected proposals made by the administration exempts the owner from the obligation to maintain the contract. However, the law does not establish whether the property owner has the right to know the status of the registration of tenants who have applied for registration.

(ix) The measures provided for in the law also apply to foreclosure or eviction proceedings for non-payment of rent that were initiated by the time the law entered into force. The moment to offer social rent will be "before acquiring the domain of the dwelling". Because the landlord already has ownership of the dwelling before launching the eviction procedure, the Housing Agency of Catalunya issued interpretative criteria indicating that in the cases of eviction for non-payment of rent that were initiated before the entry into force of Law 24/2015, the social rental offer must be made before the eviction proceedings start (in Spanish "fecha del lanzamiento").  

If the landlord does not provide a social rental offer before the launch of eviction proceedings, that  should not prevent the eviction, because the social rental offer is a public administrative measure, though the landlord might then be liable for an administrative sanction. However, some courts in the city of Barcelona are asking the property owner, before admitting the claim, to clarify whether Law 24/2015 applies to the eviction.

(x) Non-compliance with the obligation to make a social rental offer has been classified as a serious infringement in terms of protection of consumers and users of housing in the property market, and the sanction may reach €90,000 (art. 118 and 124.2 of the Law 18/2007).

(xi) The law does not clarify what happens to the pre-existing debt deriving from the non-payment of rent. We understand that a legal claim may be filed, but then the eviction action could not be exercised as well (it is not established as a requirement for social rent that the lessee repay all the previous debt.).

(xii) The law does not regulate what happens if the lessee fails to pay the social rent;

(xiii) Since the social rental offer is for a minimum period of three years, the law does not clarify what happens if the remaining duration of the contract is less than the aforementioned three years. 

(xiv) The law does not apply to evictions due to the expiry  of the lease term (here the unpaid rent can also be claimed for, although for this the landlord have to wait until the contract expires due to the expiry of the term). Therefore, if the remaining duration of the agreement is short, for practical purposes it will be preferable to wait until the date of expiry of the contract in order to take legal action (recovery of possession due to expiry of the term and claim for the amount).

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.