Limitation of the price of rent in Catalonia, Law 11/2020, of 18 September, on urgent measures for containing rent in housing leases

On 22 September 2020, Law (Cat) 11/2020, of 18 September, on urgent measures to contain rents in housing leases and to amend Law 18/2007, Law 24/2015 and Law 4/2016, on the protection of the right to housing, came into force inCatalonia.

Implementation of the regulations

The aim of the aforementioned Law is to limit the rise in the price of rents agreed in housing leases when the property is being used as the tenant’s permanent residence and is located in an area declared as a tense housing market (currently 60 municipalities).

The imposition of the restrictions has a maximum duration of five years, which can be extended, one or more times, if the situation justifies it and this need is proven, for a maximum period not exceeding its initial duration.

The rule excludes from its scope of application:

1. 1. Rental contracts for housing subject to special arrangements for determining income
2. 2. Those signed before 1 January 1995
3. 3. Those which concern housing subject to official protection
4. 4. Those concerning housing integrated in public networks of social housing or mediation for social renting or in the Rental Housing Fund for social policies
5. 5. Those of a welfare nature and those that are subscribed in accordance with the legal provisions applicable to compulsory social renting.
6. 6. Housing of more than 150 square meters may be excluded from the containment regime if it is reasonably justified.

Nor does it apply until 22 September 2023 to newly built housing or housing resulting from a major renovation process.

This Law affects rents in two ways:

1. 1. To rental offers, establishing the obligation to report on the containment of rent in rental offers in the affected areas, the application of the corresponding price reference index and, where appropriate, the amount of rent in the last rental contract in force.
2. 2.To the contracting of rental housing included in the affected areas, which may undergo modifications, as analysed below:

Determination of the initial rental income (Article 6)

In housing rental contracts concluded in an area declared as a tense housing market, the rent agreed at the beginning of the contract cannot exceed:

1. 1. The reference renting price for housing of similar characteristics in the same urban environment.
2. 2. The rent stated in the last rental contract, updated in any case in accordance with the competitiveness guarantee index, applied cumulatively in the period between the date of conclusion of the previous rental contract and the date of conclusion of the new contract, if the affected housing has been rented in the five years prior to the entry into force of this Law.

The Law provides special regulations for those contracts that have as their object housing that has been rented out within the five years prior to 22 September 2020 by landlords who are individuals and have, alone or together with their cohabitation unit, an income, including rental income, equal to or less than 2.5 times the Catalan Sufficiency Income Indicator (IRSC). In this case, if these lessors are going to sign a new contract to which the regime provided for in the reference Law is applicable, they may continue to apply the same rent as in the previous contract, unless this is lower than that calculated on the basis of the reference price (limit previously indicated under section a)), in which case they may reach this limit, as long as the lessee’s income is not equal to or lower than 3.5 times the IRSC.

Determination of the reference price (Article 7)

In order to limit the rise in rents, the Law establishes a price reference index (or «IRP»), drawn up by the Generalitat de Catalunya (Catalan Government) and, more specifically, by the Agència de l’Habitatge (Catalan Housing Agency), which indicates the price limit per square meter, without taking into account the higher or lower price margins.

The IRP can be consulted, once the descriptive and location data of housing to be rented have been entered, through the Generalitat de Catalunya’s website, the link to which follows: http://agenciahabitatge.gencat.cat/indexdelloguer/.

When the rental contract is formalised, the price index document obtained through the link above must be attached. In cases where the rent is determined by a previous rental contract, the date and amount of the previous rent must be indicated, and the new rent must be justified.

The Law allows rent increases above the index, with a limit of 5% in the following cases:

1. 1. In cases where, in the year prior to the increase, actions are taken to improve habitability, safety, comfort and energy efficiency.
2. 2. In cases where housing have three of the following characteristics: lift, car park, furnished home, heating or air conditioning, communal areas for shared use such as garden or rooftop, communal swimming pool or similar, concierge service or relevant views.

Both cases may not be applied concurrently.

The parties may agree that, apart from the rent, the tenant shall assume the payment of general expenses and individual services without this being subject to the limit of the reference index. If this is agreed, the lessor must provide the lessee with an annual statement of the charges actually paid and, if they are lower than those agreed, refund the excess.

Leasing of new or renovated housing (Article 10)

In the case of contracts for newly built housing or housing resulting from a major renovation process, and for five years after the end of the work certification, the agreed rent may not exceed the upper margin of the rental price reference index, unless public subsidies have been obtained for the execution of the work, and shall then be subject to the normal limitations of this Law, without prejudice to the agreements that may be adopted with the competent administrations.

It should be taken into account that, as we pointed out at the beginning, the application of the rent containment regime in the case of newly built housing or housing resulting from a process of major rehabilitation will come into force within three years of the entry into force of this Law, that is, on 22 September 2023.

Improvement works (Article 11)

The landlord who carries out improvement work on the property may, once the minimum legal period for the obligatory duration of the contract has elapsed, increase the rent, under the terms provided by Law (referring to the Law on Urban Rentals), without being subject to the limit of Article 6.

Consequences of non-compliance with this Act

Non-application of this Law is sanctioned with new types of offenders as follows:

1. Minor infringements, punishable by a fine of 3,000 to 9,000 euros. The following are considered minor infringements:

1. – Failure to state the reference price index, or if applicable, the amount of the rent from the previous rental contract, in the advertising of housing to be rented, in offers of urban housing rentals or in urban housing rental contracts.
2. – Exceeding the rent limit by less than 20%.
3. – Not attaching to the contract or not providing the rental price index document or information on the date or amount of the previous rental contract if this is necessary to determine the new rent.

2. Serious infringements, punishable by a fine of 9,001 to 90,000 euros. The following are considered serious infringements:

1. – Failure to comply with the essential rules relating to the determination of the rent.
2. – Exceeding the rent limit by more than 20%.
3. – Concealing the fact that the housing is subject to the rent containment regime or, information regarding the reference index of housing rental prices or the amount of rent from the previous rental contract necessary to determine the reference price.

If rents are collected that exceed the limits established by the Law, the tenant may obtain the return of the amounts paid in excess, with the legal interest on the money accruing, increased by 3 points.

Current rental contract or novations

Leases in force before 22 September 2020 will continue to be governed by the provisions of the previous legislation.

Nevertheless, novations that involve an extension of the duration of the contract or a modification of the rent will entail the application of these regulations.

Affected municipalities

It indicates the 60 municipalities that, for the time being, have been integrated into the area declared as a tense housing market:

«The sole purpose of this document is the disclosure of its contents. It does not constitute advice of any kind and should not be relied upon as such, nor should it be relied upon as a basis for decision making».