How much can you legally increase rent according to the “IPC” in Spain?

With the “IPC” Consumer Price Index (CPI) skyrocketing in recent months, the increase in prices have caused a great deal of concern among the population. The cost of food and gas has negatively affected the financial situation in many families, reducing the purchasing power of those who live here.

One of the biggest concerns is the price of housing. Owners of rental homes wonder, can I raise the rent for my tenants to deal with inflation? And the tenants wonder, can my landlord really raise my rent that much?

The answer to these questions will depend fundamentally on the date on which the lease was signed and the clauses which were agreed to.

Legal regulation of rent increases for different periods.

Although rent increases are regulated in article 18 of the Urban Leasing Law (LAU), they have been and continue to be modified on different occasions from 1994 onwards, which means that each rental contract will have a different regulation depending on the date in which the contract was signed.

In this article, we are going to explain the basic and fundamental regulations in relation to contracts signed as of March 6, 2019, between April 1, 2015 and March 5, 2019 and, finally, before April 1, 2015.

When analyzing the legislative evolution over recent years, we can see a trend increasingly focused on protecting  the tenant, leaving the owners more and more unprotected.

1) Leases signed as of March 6, 2019

Each party has the freedom to agree on a rent increase scheme in the contract, however the price can only be revised after one year as elapsed from the start date of the contract and only once a year.

If a rent increase clause was agreed to in the contract, but there was no reference to an index of by how much, the “Índice de Garantía de Competitividad” Competitiveness Guarantee Index would apply.

The increase may not exceed the “IPC” or CPI on the date of each update.

If a clause was never stipulated and agreed to in the contract regarding rent increases, the owner would not have the right to enforce one.

The landlord must notify the tenant of any rent increase, indicating the amount to be paid at least one month prior. While the landlord does not notify the tenant, no rent increase is legally enforcing. In addition, the owner will not be able to claim any rent passed as retroactive payments.

2) Leases signed between April 1, 2015 and March 5, 2019

The fundamental difference between leases signed during this period in comparison with the previous ones mentioned above, is that the increase may exceed the “IPC” or CPI if it was what was agreed to in the rental contract.

3) Leases signed before April 1, 2015

Here, the legal protection of the tenant is far less than in the previous cases. The main difference is that, if the contract was signed before April 1, 2015, the owner has the ability to increase the rent, even if it has not been expressly agreed to in the contract.

In the event that there is no clauses pertaining to the rent increase, the “IPC” or CPI will be used as a reference.

In the event that there was a clause in place regarding the rent increase, whatever was agreed upon will prevail, even if it is higher than the “IPC” or CPI.

Lastly, it is important to note that all leases signed before June 5, 2013, the rent increase clause at a higher rate than the “IPC” or CPI can only apply starting from the sixth year of the contract.

Extraordinary limitation to the update of the rent in the rents in the year 2022.

As a result of the disproportionate rise in the “IPC” or CPI this year, the Government has approved a Royal Decree establishing that the annual rent increase for 2022 cannot exceed 2 percent.

Meaning until December 31, 2022, the owner will not be able to increase your rent for the year, no matter when the contract was signed and what was agreed to, beyond the Competitiveness Guarantee Index, which is currently set at 2%.

** This Royal Decree does not apply to leases for business/professional establishments.

Our advice

a) If you are a landlord

Ensure the lease is correctly drafted and make sure to include a rent updated based on the “IPC” or CPI. Get legal advice from a lawyer specialising in real estate law to ensure you are protected.

Be sure to set a reminder in your calendar for each year on the date of the signed lease in order to properly notify the tenant of the rent increase in writing, in a reliable and timely manner.

b) If you are a tenant

Keep in mind that the rent increase will not take effect until the landlord notifies you in writing. In addition, if the increase is communicated after the lease signature date, no retroactive payments for previous months can be claimed.

Check in with a legal expert that the rental increase the owner intends to apply to you is in accordance with your contract and complies with the corresponding legislation. There are many cases in which tenants are subject to a rent increase in which they have absolutely no legal obligation to bear.

Nieto Jones is your real estate attorney.

Contact us by phone 610632963 or email contact@nietojones.com. We will be happy to offer you the best advice, assessment and assist you with drafting your leases.