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Limitations to rent a house in Spain – Frequently Asked Questions 🇪🇸🏠

Are there any limitations when renting a house in Spain?🇪🇸🏠

In this post, we make you a compilation of the most frequently asked questions we find regarding rentals in Spain.

Limitations to renting a house in 2022 🔑

– What profitability could I get from renting a property? 💸💸

Lately, there has been a lot of talk about limiting rental prices in Spain. With inflation skyrocketing, as a landlord, you may have doubts about whether you can apply the CPI (Consumer’s Price Index, “índice de precios al consumo”) increase to the tenant. As a tenant, you may wonder if you have to assume the CPI increase when you rent a house.

The purpose of this post is also to update you on the current state of rent capping. Before we talk about this, you need to know what obligations you have to rent a house.

– I am a landlord, what are my obligations when I rent a house?

As a landlord, you have the following obligations:

  • You must have an energy efficiency certificate: since the entry into force of Royal Decree 235/2013 and with the aim of promoting energy efficiency, it is necessary to provide the tenant with an energy efficiency certificate that allows them to assess and compare the performance of the building.
  • You must have a certificate of occupancy or certificate of the first occupation: The certificate of occupancy accredits or certifies that a given property complies with the necessary conditions to be habitable.
  • You have to maintain the tenant in the useful and peaceful possession of the property. It is the owner’s responsibility to defend the tenant’s possession against any legal disturbances that may arise.
  • You have to carry out all the repairs that are necessary to preserve the dwelling in habitable conditions to serve the agreed use. Repair refers to the damage already caused. Conservation refers to damage that will occur if the work is not carried out.
  • You have to deposit the bond with the competent municipal body: The bond is the guarantee that the tenant gives to the landlord to guarantee the fulfillment of the rental contract for the dwelling. The deposit of deposit for leases of housing and other urban properties is obligatory for the lessor and free of charge (without accrual of interest).

In Madrid, for example, the deposit for the rental of a property is deposited at IVIMA and in Barcelona at INCASOL. It is a way of declaring the rent of a house.

  • In addition, if your house is mortgaged, you must have fire insurance coverage. If it is not mortgaged, it is advisable, but not obligatory, to have home insurance. In addition, we also recommend you have insurance for non-payment of rent. At Luxton we have a network of professionals who can offer you a customized insurance policy.

– And if I am a tenant, what obligations do I have?🤷‍♂️

As a lessee your main obligations, among others, are:

  • The payment of the rent;
  • Paying a deposit and its updates;
  • Communicating to the lessor the need to carry out the necessary repairs to preserve the dwelling;
  • Minor repairs required by the wear and tear of the dwelling are the tenant’s responsibility.
  • To respect the rules of the community of owners;
  • To return the property in the conditions in which you receive it.
  • It is not obligatory to contract civil liability insurance, but it is advisable.

– In addition, you may ask yourself, what taxes do you have to pay for renting a house?

Well, the tenant is obliged to pay the ITP. The rent of a house (urban properties) is subject to transfer tax. The taxable base is made up of the total amount of the rent or lease of the urban property, on which the current tax rate must be applied.

Notwithstanding the above, as of March 6, 2019, the rental of a dwelling for stable and permanent use referred to in the Urban Lease Law, is exempt, even if the tax results are exempt it is mandatory to be filed.

The rent of a house is exempt from VAT. The VAT exemption includes garages and accessory annexes (storage rooms) as well as jointly leased furniture.

With regard to tourist apartments, the activity consisting of the lease for periods of time of housing or part of the same ones, without providing any service of the hotel industry and limiting itself to making available the housing to the lessee, who destines it for his exclusive use as housing, is exempt from VAT, the reason why the tax will not be passed on.

If hospitality services are provided, the rental will be taxed at 10%. 

– Are there any limitations to renting a house in Spain? 🛑

On February 1, 2022, the Council of Ministers agreed on what is known as the “new Housing Law”. 

This project aims to regulate, among other things, the price of renting a house.

This bill has not yet been approved by the Spanish Parliament and could be delayed until 2023. Therefore, bear in mind that it is not in force and it is not at all clear if it will end up being approved.

Among the measures proposed, we would like to highlight two points:

1.- Limitation on rentals for large landlords

Large landlords (those with more than 10 properties) will have to adapt the price of their rents to the reference index of the area where it is located. This is applicable for those dwellings located in the so-called “stressed areas”. In these cases, the rental price will be limited to the price of the previous contract. This price reduction would only apply to large owners who are legal entities.

2.- Regulation of the rental price of housing in stressed areas

If the cost of renting a house or the mortgage exceeds 30% of the average household income, or the rent has risen by 5% above the CPI in the last five years, it will be considered a stressed area.

Whether an area is declared a ‘stressed area’ will depend on the Autonomous Communities and City Councils. In stressed areas, the price cap would be established for three years (renewable).

The calculation of the limitation of rents in stressed areas would be based on a price index that has not yet been developed.

In Catalonia, for example, there is already a Law (Law 11/2020) for the regulation of rental prices.

However, on March 10, 2022, the Plenary of the Constitutional Court partially upheld an appeal of unconstitutionality filed against this law.

Consequently, it affects the entire content of the Law regarding rent containment, leaving in force only the parts referring to the declaration of areas with a tense housing market and the reference index of housing rental prices.

Let’s take a practical example of how the rent limitation would work in Catalonia:

For example, housing within the dense area in Barcelona, the calculation of the rent, according to what would establish the Law 11/2020 would be:

Value 1: If the useful area of the dwelling is 136.50m2 and the rental price index would be 12.36€/m2. The result would be 1,687.14 euros.

Value 2: If the rent of the previous contract was 1.575,27 euros.

According to what Llei 11/2020 establishes, the lowest value, 1,575.27 euros, would have to be taken as a reference.

The rent will be that of the previous contract 1.575,27 euros + 5% (if it fulfills 4 characteristics of the declared null article 7.5 Law 11/2020) = 1.654,00 euros.

Other limitations to rent a house

Limitations on CPI increase

As you may know, the reference index by which most rental contracts are governed, the CPI, is skyrocketing. 

In March 2022, the Government approved Royal Decree-Law 6/2022 of March 29, where measures were agreed upon for the limitation of the increase of the rent in the annual updates of the contracts.

With this limit, rents will not be able to increase by more than 2%. 

This measure will be in force until December 31. Thus, tenants who have their rent reviewed will not have to face a large increase in their rents.

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