Extension of the 2% rent-increase cap
The shortage of raw materials arising from the drop in activity as a result of the COVID-19 health crisis, rising energy prices and the Ukraine war have led to an unstoppable surge in prices in Europe and, consequently, Spain. In March 2022, the Consumer Price Index (CPI) reached 9.8%, the highest figure recorded in Spain since 1985. From June to August, it even exceeded 10%.
Traditionally, rents could be increased in line with the rise in the CPI, but the exorbitant rise in this rate led the Government to decide to temporarily cut the link between rent increases and the CPI to prevent families losing access to housing.
Below, we explain more about this measure and how the cap imposed on landlords is applied.
Rent-increase cap will remain throughout 2023
This measure was passed in March 2022 as part of the National Plan in response to the economic and social consequences of the Ukraine war, establishing the rent-increase cap at 2%.
Later, in June, this measure was extended until December 2022, at which point it was extended again – meaning that the 2% rent-increase cap will remain in place throughout 2023.
Changes to rent adjustments
- Before the rent-increase cap was established, the Spanish Law on Urban Leases linked rent increases to the CPI (Consumer Price Index). This is an index drawn up on the basis of the price of a shopping basket for an average Spanish home. The CPI measures the changes in prices for goods and services used by families, enabling us to analyse the cost of living and the impact of inflation on consumers. It is calculated and published annually by the Spanish National Statistics Institute (INE).
Until March 2022, the Spanish Law on Urban Leases determined that rents could only increase in line with the CPI.
- After the establishment of the rent-increase cap. Among the measures included in Royal Decree 6/2022, passed in March, was a change in the index used to set rent increases from the CPI to the Competitivity Guarantee Index (IGC).
The IGC is also calculated by Spain’s INE, but it must always be applied within the 0% to 2% band. Therefore, it cannot record values under 0 nor above 2%.
How does rent adjustment work?
The Government’s measure only applies to housing tenancy agreements. As such, commercial properties, industrial units and offices, etc. are excluded. The measure also refers to two different cases based on the owner of the rental property:
- If the landlord is a portfolio landlord, the rent increase will be agreed by both parties, although the rent increase cannot, under any circumstances, exceed the 2% cap. Portfolio landlords are individuals or legal entities who have over ten urban properties for residential use or a surface area for residential use of over 1,500 m2.
- If the landlord is not a portfolio landlord, the rent increase will be agreed by both parties. If no agreement is reached, the maximum cap of 2% shall apply.
This rent increase cap will remain in force throughout 2023 and is compatible with the Young Rent Voucher approved in 2022 to facilitate access to housing for citizens aged between 18 and 35.
Example of a rent adjustment before and after the approval of the rent-increase cap
- Example 1: calculation of the rent increase in January 2023 if the rent increase cap had not been extended in 2023.
In this case, you would need to take the CPI from two months before the increase as a reference point, i.e., November 2022, which is 6.8%. If, for example, you pay a rent of €1,200, you will need to calculate 6.8% of 1,200 (which is 81.8) and add it to 1,200 to get the rent adjustment. The new rent, therefore, would be €1,281.60 every month, which would be a rent increase of €979.20 for that year.
- Example 2: calculation of the rent increase in January 2023 after the Government extension.
The rent-increase cap in 2023 is set at 2%, meaning that you need to calculate 2% of 1,200 (which is 24) and add the two. The adjusted rent will be €1,224 every month. In other words, a total of €288 per year. Therefore, for a rent of €1,200, the new measure will allow you to save €57.60 each month.
We should also highlight that the new update from the Government incorporates an extraordinary six-month extension to the rental period from the date of its termination, during which time the conditions established for the contract in force will continue to apply. This extension will apply to contracts ending between 28 December and 30 June 2023. You will need to ask your landlord about this, and they must accept it. During that period, your rent can be adjusted by a maximum of 2%.