Changes in residential rental laws from January 1st will impact tenants and landlords

The annual update of rental contracts for residential properties will be capped at 3% in 2024, and new tax incentives for income tax (IRPF) related to residential property rentals will also come into effect this year. Both measures are part of the new Housing Law approved last May by the Government, a reform included in the Recovery, Transformation, and Resilience Plan and one of the milestones agreed upon with the EU Commission for the disbursement of 'Next Generation EU' funds.

Starting from January 1st to December 31st, 2024, existing rental contracts subject to revision cannot increase by more than 3%, as stipulated by the Government in the Royal Decree of last March to address the economic and social consequences of the conflict in Ukraine. This regulation is outlined in the sixth final provision of the Housing Law.

Thus, tenants with rental contracts for their primary residence, due for an annual update, can negotiate the rent increase with the landlord. However, whether an agreement is reached or not, the annual rent variation cannot exceed 3% in either case.

In the case of landlords classified as "large property owners," the annual rent variation limit cannot exceed 3% as well, regardless of any agreement between the parties.

A large property owner is defined as an individual or legal entity owning more than ten urban residential properties or a built area exceeding 1,500 square metres for residential use, excluding garages and storage units. However, this definition can be adjusted in the declaration of “tense” residential market environments, including those with five or more urban residential properties, as motivated by the respective region in the justification report.

The Housing Law also mandates the National Institute of Statistics (INE) to define a new reference index for the annual update of residential lease contracts before December 31st, 2024.

NEW TAX INCENTIVES

Starting from January 1st, an improvement in the IRPF will be implemented to encourage the rental of primary residences at affordable prices by adjusting the reduction of the net rental income for primary residences. New lease contracts will have a 50% reduction (currently 60% generally), which can be increased based on specific criteria such as tense areas or renovation.

SUSPENSION OF EVICTIONS EXTENDED

Additionally, the Government has extended the suspension of evictions for economically and socially vulnerable households from their primary residence until December 31st, 2024, in cases already foreseen by existing regulations.

The extension applies to vulnerable households facing eviction proceedings from their primary residence, involving coordinated actions by judicial bodies and relevant social services.

This includes households affected by eviction procedures of their primary residence not arising from lease contracts when there are dependents, victims of violence against women, or minors in the household.

In the latter case, the judge, after a weighted and proportional assessment of the specific situation, has the authority to suspend the eviction when the property owners of more than 10 properties are individuals or legal entities. The judge may request a report from the relevant social services to assess the economic vulnerability and identify applicable measures.

Certain situations, where suspension can never be ordered, include when the property is the owner's primary or secondary residence, when the property is owned by an individual or entity leasing it to another person who has it as their primary or secondary residence, duly proven.

Moreover, when entry or residence in the property occurred through intimidation or violence, when there are reasonable indications that the property is being used for illicit activities, or when the property is designated for social housing and has already been assigned or entered after the entry into force of Royal Decree-Law 11/2020.

COMPENSATION FOR LANDLORDS AND OWNERS

In addition to the extension of evictions and launches for vulnerable households without alternative housing, the Royal Decree also allows landlords or owners to request compensation until January 31st, 2025. This provision is outlined in Royal Decree-Law 37/2020, of December 22, on urgent measures to address situations of social and economic vulnerability in housing and transportation.

Furthermore, the deadline for landlords and property owners affected by the current extraordinary suspension of eviction or launch to submit compensation requests, as provided in the same Royal Decree-Law, is extended until January 31st, 2025.