Spanish Law 12/2023, of May 24, 2023, in force from May 26, 2023, has introduced very relevant novelties that especially affect the leases of dwellings located in areas that are declared as "stressed residential market" and that affect even more deeply landlords who have the status of large property holders, in relation to tenants who are recognized as vulnerable by the Social Services of the competent administration.
It is particularly new that the definition of "large property holder" has been lowered to the ownership of more than five residential properties in stressed areas (remaining at more than ten for non-stressed areas), or more than 1,500 m2 of residential surface area, excluding parking lots and storage rooms.
MEASURES RELATED TO LENGH OF CONTRACTS.
The Urban Leases Law of 1994 is amended, establishing that:
· In the case of landlords who are large tenants, once the legal extensions have expired, the tenant may extend the lease for one more year if he/she proves vulnerability by means of the corresponding certificate from the Social Services of the Administration.
· In stressed areas, at the end of the legal extensions, the tenant may extend the term of the lease for annual periods of up to three more years (regardless of whether the owner is a large tenant or not).
INCOME MEASURES.
A) RENT SETTING IN NEW CONTRACTS.
· In stressed areas, the new agreed rent may not exceed the updated rent of the last contract that has been in force during the last five years, and it may not contain new repercussions of expenses (IBI, community fees, etc.) that were not contemplated in the previous contract. Exceptionally, an increased rent of up to 10% may be established if during the two previous years the dwelling has been rehabilitated, if actions have been carried out to reduce non-renewable energy consumption by at least 30%, or improvements in accessibility, or when the new contract is signed for a period of ten years or renewable for up to ten years at the unilateral will of the tenant.
· The above limitation affects all owners, but, in addition, in the case of large tenants in stressed areas, the rent may not exceed the reference price index that for each area will be published no later than 2024. This same limit will also apply to homes located in stressed areas that have not been rented during the last 5 years.
Finally, it is mandatory that the real estate management and contract formalization expenses are to be paid by the lessor.
B) LIMITATION ON THE INCREASE IN THE RENT OF CURRENT CONTRACTS.
Contractual rent updates apliccable in 2023:
· Large property holder: the update agreed upon by the parties will apply, which may not exceed the Competitiveness Guarantee Index (in practice, 2%).
· Owner that is not a large property holder: as agreed by the parties, and, if there is no agreement, the Competitiveness Guarantee Index (in practice, 2%).
Contractual rent updates applicable in 2024:
· Large property holder: the update agreed by the parties will be applied, not to exceed 3%.
· Owner that is not a large property holder: the update agreed by the parties will be applied, and, if there is no agreement, 3%.
MEASURES AFFECTING EVICTIONS.
- In the eviction procedure, the landlord will have to prove with a certificate from the Land Registry that he is not a major tenant or, if he is a major tenant, he must then prove with a report from the Social Services the situation of vulnerability or non-vulnerability of his tenant, or by means of a responsible statement that the report has been requested without response from the Administration for more than two months, or a certificate from the Social Services that the tenant has not agreed to be evaluated. In addition, if the landlord is a large tenant and the tenant is vulnerable, the landlord must also prove that he has undergone a conciliation or mediation procedure.
- The Courts will communicate ex officio to the competent Social Services the housing evictions, will give a hearing to the parties and, having received the proposals from the Administration or after ten days have elapsed without obtaining a response from the Administration, the Judge will rule on the suspension of the process for a maximum of two months (if the lessor is an individual) or four (if the lessor is a company) to allow time to implement the measures proposed by the Administration.
TAX MEASURES IN SUPPORT OF PRICE CONTAINMENT.
These measures do not apply to contracts prior to the entry into force of the Law (May 26, 2023), and are:
- In the owner's personal income tax return:
Reduction of 90% of the net yield of real estate capital for the rental of the property if, being located in a stressed area, a new contract is formalized with a decrease or reduction of 5% on the previous updated rent.
Reduction of 70% in stressed areas if it is rented to young people (between 18 and 35 years old), or if it is rented to administrations or non-profit organizations that allocate it to vulnerable people, social renting, etc.
60% Reduction if the property has been rehabilitated during the last 2 years.
In the remaining cases, the reduction drops to 50% (until now the reduction for renting a primary residence was generally 60%).
- The Property Tax establishes a surcharge of up to 50% for dwellings unjustifiably unoccupied for more than two years belonging to owners of at least four dwellings. From the third year onwards, when the property is unoccupied, the surcharge may be 100%. And all of the above may be increased by a further 50% if there are two unoccupied properties in the same municipality.
To find out more about the practical application of these novelties, please contact our office.
Balagué-Sala Abogados
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