Contracts now have a minimum term of 5 years
The Spanish Government have approved the new rental decree, following the failed attempt which was overturned by Congress in December.
The decree went into effect on Wednesday, five days after receiving cabinet approval. At a time when affordable rental properties are becoming scarce, the decree from Pedro Sánchez’s government aims to add protection for tenants and to limit down payments and rent increases.
Furthermore, the new rules extend the default duration of a rental contract from three to five years (in cases when the landlord is a business this is extended to seven years) and ties annual rental increases to the consumer price index (CPI). Although it was previously discussed, there will not be a limit on how much monthly rent a landlord can demand.
The decree was described as an “action plan for an unacceptable situation“, by Deputy Prime Minister Carmen Calvo, who also said it will be especially good for younger people.
As is always the case with new decrees, this one will need to be ratified by congress within a month. However, because an election has been called for April 28th, parliament has been dissolved so the ratification will fall to a permanent congressional committee. It is not likely to suffer the fate of the previous decree having already received support from Podemos and the Catalan nationalist party (PdeCAT) and the Basque Nationalist Party (PNV).
Here is a summary of the main points of the decree:
Contract Length
The minimum length of a new contract has been extended from three to five years. Also, to grant more stability to tenants, the silent renewal has been extended from one to three years. Notice of contract termination has also changed in the tenants’ favour. Landlords must now give four months notice to end a contract while tenants only need to provide two months notice.
Rent Tied to CPI
Previously there was no limit on how much a landlord could increase the rent annually. The new decree will now limit annual increases to the consumer price index (CPI) within the contract period.
Price Benchmark
Although not limiting rental costs, the decree includes the provision of a new rental index. This will be used to follow changes in the market and help advise tenants whether the monthly rental is in line with current rates. This index will show the average price in any part of the country and will be reviewed annually. The first figures are expected to take around eight months to prepare.
Limit on Initial Costs
In addition to a one-month deposit, landlords can only ask the tenant for additional guarantees equivalent to two months rent. The landlord must also now cover all real estate agency expenses. This is a good point and one I have always thought was missing. Why would I pay an agent a months rent just to open a door for me? They work for the landlord, not for me.
Evictions
Evictions will have to go through the social services first to be sure the tenant is not a vulnerable person. If they are found to be, the eviction will be suspended for one month (three months when the landlord is a business) to help the tenant make arrangements for alternative housing. Judges must also now divulge the exact date and time that an eviction is to take place.
Holiday Rentals
Owners of property within a community may now collectively agree to limit the number of units which can be used for tourist rentals with only three fifths of the vote. Previously, votes needed to be unanimous among owners.
ITP Eliminated
The payment of the ITP tax by the tenant has been eliminated. Nobody paid it anyway as very few people had even heard of it!
Rental costs have increased rapidly over the last three years only slowing down in the last 3 to 6 months. Prices were beginning to get a bit silly and many people were simply priced out of the market. The new decree will hopefully bring some sense back into a market on which many hundreds of thousands of people rely being unable to afford to buy a property.
However, Fernadno Encinar, head of studies at idealista, is more cautious saying “the Government’s new attempt to regulate the rental market makes the same basic error as the decree approved in December that was overthrown by Congress a month later. Instead of approving effective measures that seek to moderate prices, it instead regulates what owners have to do. Many of them may now be tempted to take their homes off the market and this is the opposite of what the decree was meant to do. Discrimination of owners can reduce supply and further increase prices.”
