What Spain’s new Housing Law means for large property owners

House and law concept.

The recently passed Ley de Vivienda housing law (Law 12/2023, of 24 May, on the right to housing in Spain) has raised many questions, especially with regard to what is considered to be a large property owner.

According to the law, a large property owner is any individual or company that owns more than ten urban properties (not including garages and storage rooms) or a built surface area of more than 1,500 m2 for residential use.

However, this number drops to five if all of them are located in areas declared to be in a stressed residential market by the corresponding autonomous community (Spanish region).

What is a stressed residential market area?

According to Law, housing authorities are allowed to declare an area a “stressed residential market” if either of these two conditions is met:

  • 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 the average household income
  • The purchase or rental price of properties has increased by at least three points above the corresponding Consumer Price Index (CPI) in that area in the last five years.

That said, compliance with any of these conditions will not automatically lead to the affected area being considered a stressed residential market area.

If granted, the initial period of validity of the status is three years and may be extended annually.

Does the owner’s main residence count?

The wording of the Housing Law makes no distinction over whether the owner’s primary residence counts towards the total number of properties of a large landlord.

This means that anyone who owns five homes, even if one of them is their habitual residence, will be considered a large property owner if they’re located in areas declared to be under stress by the corresponding Autonomous Region (otherwise ten).

What impact does the new Housing Law have on large property owners?

The new Ley de Vivienda housing law will affect large property owners in several key areas.

1. Rental caps

The new Housing Law’s biggest impact on large property owners is on controls over rental prices.

Since March 2022, landlords have been unable to increase rents by more than 2%; this will remain the case until 31 December 2023.

During 2024, the Law currently establishes that in housing rental contracts in which the rent must be updated, the increase may not exceed 3% in the case of large property owners.

However, there are certain exceptions where it can be increased by a maximum of 10% (e.g., if energy-efficient renovations were carried out in the past two years resulting in primary non-renewable energy savings if accessibility improvements were made in the past two years, or if the agreed duration of the contract is ten years or more). Additionally, the tenant cannot be charged fees or expenses that were not specified in the previous contract.

If the property is located in an area designated a stressed residential market area, once the mandatory or tacit extension period has ended, the tenant may request an extraordinary extension for annual periods, up to a maximum of three, during which the same conditions of the contract in force will continue to apply.

The landlord is obliged to accept this extension unless other terms have been agreed or they have legally communicated that they need the property for themself or a family member to use as a habitual residence. Alternatively, a new contract with rent limitations can be signed.

If the landlord is considered a large property owner, the rent in the new contract cannot exceed the maximum limit set by the future system of reference price indices.

This regulation will apply to contracts signed after the law came into effect (26 May 2023) once the index system is approved (which will consider the conditions and characteristics of the rented property and the building it is located in). The same limit based on the reference price index system will apply to rental contracts for properties in high-demand residential markets that have not had active lease contracts in the past five years.

2. Evictions, foreclosures and property auctions

Overall, Spain’s new Housing Law makes it more difficult to evict tenants who are “economically vulnerable”.

To evict a tenant, regardless of cause (including foreclosure of mortgaged assets and property auctions), the relevant public administrations must be notified so that they can arbitrate and encourage agreements between landlords and tenants and, importantly, set a time and date for the eviction.

During this process, the landlord must indicate whether the property constitutes the habitual residence of the occupant and whether they are a major property owner by means of a certificate from the Land Registry with a list of their properties.

The onus is also on them to prove whether or not the occupant of the property is in a situation of economic vulnerability.

If the occupant of the dwelling is in a situation of economic vulnerability, the enforcement procedure may not be initiated unless the enforcing party has submitted to the conciliation or mediation procedure between the parties established for this purpose by the competent Public Administrations.

In the event that these are not reached, time will be granted to facilitate the provision of housing solutions by social services.

Costaluz Lawyers, experts in Spanish property law

If you own multiple properties in Spain and don’t know what the new Ley de Vivienda means for you, don’t hesitate to contact us at Costaluz Lawyers.

For a free, no-obligation consultation, get in touch now!

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