Developments in the rental housing market: limitation of the rent update and declaration of unconstitutionality of the Catalan law

The government has decreed a rent freeze in the wake of the crisis generated by the war in Ukraine, while the Constitutional Court has annulled a large part of the content of the Catalan Housing Law.

In the last month, two events have taken place that directly affect the rental housing market, both nationally and in Catalonia.

Firstly, the declaration of unconstitutionality of Law 11/2020, of 18 September, on urgent measures to contain rents in housing rental contracts, following the ruling of the Constitutional Court on 10 March; and, secondly, Royal Decree-Law 6/2022, of 29 March, adopting urgent measures within the framework of the National Plan in response to the economic and social consequences of the war in Ukraine, approved by the government and published in the BOE on 30 March, which provides for an extraordinary limitation of the annual rent update.

With regard to the first of these issues, the Constitutional Court declared null and void a series of articles contained in the Catalan regional law regulating rent containment in rental housing, leaving it almost entirely void of content.

The main mechanism used in that law to achieve rent containment consisted, roughly speaking, of imposing on the owner of the dwelling who signed a new rental contract the obligation to rent it at a rent that had to be the lower of the following: the updated rent of the previous contract; and the reference index per square metre, calculated taking into account the rent of flats with similar characteristics. It is worth mentioning that these limitations were only applicable in declared stressed residential areas.

The unconstitutionality of the regulation was motivated by an issue of competence, but not of content, as the Constitutional Court considered that the autonomous community of Catalonia had entered into legislating the criteria for the general organisation of private contracting, a matter reserved exclusively to the State in violation of Article 149.1.8 of the Spanish Constitution.

In order to guarantee legal certainty, the TC has also ruled that the ruling will not have retroactive effects, but pro futuro, maintaining the full validity of those lease contracts that were executed from the entry into force of the rule until its repeal.

With regard to RDL 6/2022 approved by the Government, article 46 of the same provides, in an extraordinary manner, for the limitation of the annual updating of the rent of the housing rental contracts whose updating must be carried out in the months of April, May and June of this year.

This measure aims to counteract the effect of soaring inflation, largely due to the increase in the cost of energy supplies and accentuated by the recent war in Ukraine, to the extent that the CPI in March reached a year-on-year variation of 9.8%, the index that is most frequently included in rental contracts to update the rent on an annual basis.

In accordance with the aforementioned article 46, the mechanisms for updating the rent will depend on whether the lessor is a large tenant or not, such consideration being given to the natural or legal person who owns more than 10 urban properties for residential use or a built surface area of more than 1,500 square metres for residential use.

For large tenants, the new updated rent will be the one agreed by the parties, without the agreed increase exceeding the annual percentage variation of the last published Competitiveness Guarantee Index (IGC) (2.02% in January 2022).

In the case of lessors that are not large holders, the parties are free to agree on the increase, and in the absence of an agreement, the increase may not exceed the annual variation of the last published Competitiveness Guarantee Index. In other words, for practical purposes, the difference between large tenant or not will depend on the tenant’s willingness to accept an update higher than the GCI.

It is also worth mentioning that this extraordinary limitation of the rent update does not have retroactive effects, so it will not be applicable for those tenants who have had their rent updated in accordance with the CPI in March or previous months. Likewise, although it is expected to be in force until 30 June this year, the Government does not rule out the possibility that its effects may be extended.

Finally, 8 April was the deadline for legal entities that are large holders to register in the Register of Large Housing Holders. This obligation is imposed by Catalan law 1/2022 of 3 March to address the housing emergency, and AddVANTE echoed the repercussions of this by means of the AddFLASH sent on 7 April. Failure to register before that date could lead to fines of between €9,001 and €90,000. However, the Generalitat de Catalunya has recently communicated that the means to make such registration possible have not yet been made available and, therefore, the sanctioning regime for the non-registration of those considered large holders cannot be applied for the time being.

AddVANTE will keep you informed of updates and new developments, not only with respect to the aforementioned regulations, but also with respect to many others affecting the real estate sector.