New Spanish Housing Law Key issues for the private sector

1. Introduction

The Spanish Housing Law (Law 12/2023, of 24 May (Ley 12/2023, de 24 de mayo, por el derecho a la Vivienda)) was published in the Spanish Official Gazette on 25 May 2023 and entered into force on 26 May 2023. In the following sections we include an analysis of the measures contained in the Law that may have the greatest impact on the private real estate and leasing sectors.

According to Article 148.3 of the Spanish Constitution, the Autonomous Communities have full competence in housing matters (in fact, many have their own housing laws). In the past, the State has been recognised as having the capacity to influence housing policy on the basis of other State competences, but any central regulation in this area entails the risk of invading regional competences. Thus, some Autonomous Communities have announced that they are considering the possibility of filing appeals of unconstitutionality against the Law, which will not suspend its application.

2. Stressed residential market areas

2.1 What are the "stressed residential market" areas?

The "stressed residential market" zones already existed in some Autonomous Communities such as Catalonia. However, with the new Spanish Housing Law, the regime of stressed markets could be extended throughout the Spanish territory and entail consequences (such as ceilings on lease rents) that until now had not been considered to be in line with the Spanish constitutional scheme of distribution of competences.

The Autonomous Communities will be responsible for declaring an area as a "stressed residential market". In other words, the approval of the Law does not automatically mean that some areas will be considered as stressed, nor does it oblige the Autonomous Communities to make this declaration. In fact, some Autonomous Communities have already announced that they do not intend to make use of this possibility.

The procedure for the declaration of an area as a stressed residential market will be developed at regional level, although the Spanish Housing Law establishes some basic rules. Most importantly, the relevant administration has to prepare a report justifying, with objective data, that in a given area there is a risk of insufficient housing supply due to any of the following circumstances:

(a) the average mortgage or rent burden (including basic supplies) exceeds 30% of the average income or household income; or

(b) in the last five years, the purchase or rental price has experienced a cumulative growth of at least three percentage points higher than the growth of the consumer price index of the relevant Autonomous Community.

These criteria for declaring an area as stressed will be reviewed three years after the entry into force of the Law in order to adjust them to the situation and evolution of the residential market.

The declaration of an area as stressed will be in force for an initial period of three years. Thereafter it may be extended annually for an indefinite period (provided the criteria continue to be met).

On a quarterly basis, the Ministry of Transport, Mobility and Urban Agenda will pass a resolution listing all "stressed residential market" areas in Spain.

2.2 Who are considered large holders under the Law?

A large holder is an individual or legal entity that owns more than ten urban properties for residential use or an aggregate built surface area of more than 1,500 square metres for residential use, excluding in all cases garages and storage rooms. In the declaration of an area as a stressed residential market, this definition may be qualified to include holders who own five or more urban properties for residential use in that area.

It is important to bear in mind that this definition of large holder is established only for the purposes of the Spanish Housing Law and does not prevail, in other areas, over existing definitions or definitions that may be adopted by the Autonomous Communities.

2.3 What does the declaration of a zone as a "stressed residential market" area imply for the rental market?

The Spanish Housing Law amends Law 29/1994 of 24 November 1994 on Urban Leases in order to, among other things, impose caps on rents in "stressed" areas and also specialties in lease duration.

a. Cap on rents

i) General limitation

The rent may not exceed the rent agreed in the last lease in effect in the same residential unit for the last five years, adjusted according to the annual indexation method agreed in this prior lease. In addition, no fees or expenses may be passed on to the tenant if this was not provided for in the previous lease.

Exceptionally, increases of up to 10% may be applied when certain circumstances are justified, for example:

A. the residential unit has undergone certain renovation or improvement works (e.g., energy saving or accessibility improvements) within the previous two years; or

B. where the lease agreement is signed, initially or by means of extensions mandatory for the landlord, for ten years or more.

ii) Large holders

Notwithstanding the above, if the lessor is a large holder, the rent may not exceed the maximum limit of the price applicable under a new system of reference price indices. This system will be designed on a territorial basis but will be approved at State level by ministerial resolution.

This regulation will apply to lease agreements signed from the moment the new index system is approved.

b. Extraordinary term extension

In stressed areas, the tenant may request an extraordinary extension of the lease term with maintenance of the same terms and condition. This extension shall be requested annually up to a maximum of three years.

This requires that the mandatory extension of the lease (up to five years in the case of an individual landlord or seven years in the case of a legal person landlord) or the subsequent tacit extension ends during the term of the declaration of the area as a stressed residential market.

The landlord, whether or not such landlord is a large holder, is obliged to accept the extension, except when such landlord:

A. needs the residential unit for himself/herself, his/her first-degree relatives by blood or adoption or his/her spouse (in cases of final judgment of separation, divorce or marriage annulment) and has communicated this in due time; or

B. reaches another agreement with the tenant (e.g., by signing a new lease with rent caps).

2.4 What does the declaration of an area as a "stressed residential market" imply for property development?

In municipalities in which one or more areas have been declared as stressed residential market areas, the urban development obligations related to urban building and transformation promotion can only be fulfilled by handing over to the Administration the percentage imposed under the compulsory transfer duty, that must be used for the construction and management of social or public housing, unless other needs of social interest can be accredited.

The Spanish Housing Law reject the substitution of this duty by any other alternative form of compliance with the obligation of compulsory transfer of the urban development use in favour of the Administration (such as the monetisation of this use).

2.5 Are there any other implications for large holders?

The Administration may require large holders to provide information on the use and destination of the residential units they own that are located in areas declared as a stressed residential market.

This information shall include, at least:

a. The identification data of the residential unit and the building in which they are located, including the postal address, the year of construction and, if applicable, the year and type of refurbishment, built area, the cadastral reference and the energy rating.

b. The regime of effective use of the residential unit.

c. The justification of the compliance with the duties associated with owning residential units.

The information shall relate to the previous calendar year and shall be submitted no later than three months after it is requested.

Please note that the Conselleria de Territori (Regional Office of Territory of the Catalonian Government) has already started the procedure to declare 140 Catalonian municipalities (including Barcelona and most of its metropolitan area) as "stressed residential market" areas. The final resolution has been already issued and has been submitted to the Spanish Ministry of Transport, Mobility and Urban Agenda which has the authority to definitively approve the declaration.

3. Other amendments to urban leases applicable in general (not only in stressed residential market areas)

3.1 Limitation on rent review

Currently, there is a 2% cap on the rent review of any lease agreement subject to the Spanish Urban Leases Law. This was set out in section 46 of Royal Decree-Law 6/2022, of 29 March, by reference to the Competitiveness Guarantee Index (which, by its very definition, cannot be higher than 2%). This regime is maintained for rents to be reviewed until 31 December 2023.

For rent reviews in 2024, the Spanish Housing Law eliminates the reference to the Competitiveness Guarantee Index and establishes a cap of 3% (by means of an amendment to the aforementioned section 46 of Royal Decree-Law 6/2022).

Moreover, in order to avoid disproportionate increases in subsequent years, the Spanish Housing Law entrusts the National Statistics Institute with defining, before the end of 2024, a new reference index for the annual rent review of housing leases.

3.2 Extraordinary term extension for the benefit of vulnerable tenants (applicable only to large holders)

Tenants who can justify that they are in a situation of vulnerability are entitled to request from their landlords, if they are large holders, an extension of their lease for an additional year. This extension is in addition to those that the tenant is entitled to by law.

The accreditation of the situation of vulnerability must be done by means of a certificate issued by social services which will be valid for one year.

3.3 Other minor changes to the Spanish Urban Leases Law

Under the new Spanish Housing Law, the landlord will in any case be responsible for the formalisation's costs and the fees of real estate intermediaries (previously this was only the case for landlords who were legal entities).

In addition, preference is established for the payment of rent through electronic means, although, if either of the parties does not have access to these means, payment may be made in cash and in the residential unit.

3.4 Regime of leases concluded prior to the entry into force of the Spanish Housing Law

Leases entered into prior to the entry into force of the Spanish Housing Law will continue to be governed by the legal regime that was applicable to them, although the parties may agree otherwise.

This does not affect the limits on rent review referred to in section ‎‎3.1 above, which were already in force.

3.5 Future regulation of seasonal leases

A working group is expected to be set up within six months to prepare a proposal for the regulation of seasonal leases.

4. Amendments to procedural rules to improve the protection of vulnerable groups

a. Extending the possibility of suspending certain eviction proceedings to address situations of vulnerability to other repossession claims

The Spanish Civil Procedure Law already provided for a possible temporary stay of proceedings for the benefit of vulnerable tenants in cases of evictions from their main residence.

This procedure is amended in the Spanish Housing Law:

i) Until now, this suspension only applied to eviction proceedings for non-payment of rent or expiry of the lease. With the Spanish Housing Law, this suspension is now also possible in the case of proceedings seeking the recovery of full possession of a property assigned in precariousness (precario), the summary protection of tenancy or possession by those who have been deprived of them or disturbed in their enjoyment and those brought by the holders of registered real rights who demand their effectiveness against those who oppose them or disturb their exercise, without having a legitimate registered title.

ii) The Spanish Civil Procedure Law required in some cases the consent of the interested parties to report the potential situation of vulnerability to the social services. However, the new Spanish Housing Law removes all such references.

iii) The Spanish Housing Law clarifies that social services must inform the court whether a situation of vulnerability exists within ten days. If vulnerability has been justified when filing the claim, this deadline is for proposing measures for the benefit of the vulnerable defendant.

iv) When social services reported a situation of vulnerability, until now the suspension was automatic. The new Spanish Housing Law leaves it to the assessment of the court, which must hear the parties and take into account:

A. whether among the occupants there are people in a situation of dependency, victims of violence against women or minors.

B. the situation of vulnerability in which the claimant may find himself/herself; and

C. any other circumstances that appear in the file.

In addition, in the event of evictions, it may assess whether the rent and supplies account for more than 30% of the family unit's income and that, in turn, these does not exceed three times the monthly Public Indicator of Multiple Effect Income (with some corrections if there are dependent children, people over 65 years of age, people in a situation of dependency or people with disabilities in the family unit).

v) Finally, the deadlines for the suspension of the procedure to study of protection measures for these groups are extended from one to two months (if the claimant is an individual) and from three to four months (if the claimant is a legal person).

b. New mediation and conciliation procedure prior to certain procedural steps related to residential units

In order to carry out certain procedural steps, the Spanish Housing Law foresees the need to have previously gone through a new mediation and conciliation procedure to be established at regional level:

i) Claims in which large holders seek to recover possession of the main residence of a defendant in a situation of vulnerability (numbers 1, 2, 4 and 7 of section 1 of section 250 of the Spanish Civil Procedure Law):

A. For non-payment of amounts or expiry of the lease.

B. Of a property assigned in precariousness.

C. Summary protection of tenancy or possession by those who have been deprived of them or disturbed in their enjoyment.

D. Holders of registered real rights who demand their effectiveness against those who oppose them or disturb their exercise, without having a legitimate registered title.

ii) Commencement of enforcement proceedings by large holders and housing companies aimed at the auction of properties that are the main residence of the foreclosed party (section 655 bis of the Spanish Civil Procedure Law).

iii) Enforcement claims by a large holder on mortgaged real estate that is the main residence of a vulnerable debtor (section 685.2 of the Spanish Civil Procedure Law).

iv) Resumption by a large holder of eviction proceedings for non-payment of rent or expiry of the term or for the eviction of persons who do not have an authorised title, which were suspended until 30 June 2023 under the Covid-19 regulation (sections 1 and 1bis of Royal Decree-Law 11/2020, of 31 March).

This requirement can be proved in two ways:

a. By a responsible statement from the claimant indicating that he/she has contacted the mediation services in the previous five months and that two months have passed without a response or initiation of procedure (accompanied by supporting documentation).

b. By providing the certificate of the relevant services with the result of the procedure, which shall be valid for three months.

If the claimant is a public housing institution, the requirement to prove that it has previously undergone a mediation procedure can be replaced by accreditation of the actions of the institution's own mediation services.

Furthermore, in order to facilitate the verification of this requirement, some of the aforementioned actions require the submission of additional information to that which was previously required:

a. In claims for recovery of possession provided for in numbers 1, 2, 4 and 7 of paragraph 1 of section 250 of the Spanish Civil Procedure Law, it will be necessary to indicate whether the property is the main residence of the occupant and whether the claimant is a large holder (providing, if not, a certificate from the Land Registry with a list of the properties in his/her name).

If the claimant is a large holder, it will also be necessary to prove whether the defendant is in a situation of vulnerability by means of:

i) A document issued by the relevant Administration with the consent of the occupant or stating that the occupant has not given consent for the study of his/her economic situation. These certificates will be valid for three months.

ii) Responsible statement from the claimant indicating that he/she has contacted the relevant Administration in the previous five months and that two months have passed without a response or initiation of procedure (accompanied by supporting documentation).

b. Before the commencement of the enforcement procedure (section 655 bis of the Spanish Civil Procedure Law) it will be necessary, if it has not been previously accredited, to provide information on the potential vulnerability (document issued by the relevant Administration or responsible statement).

c. In enforceable claims on mortgaged assets (section 685.2 of the Spanish Civil Procedure Law) the following three points must be indicated, whether or not the claimant is a large holder:

i) If the mortgaged property is the debtor's main residence.

ii) Whether the claimant is a large holder (attaching, if not, a certificate from the Land Registry).

iii) Information on potential vulnerability (document issued by the relevant Administration or responsible statement).

d. Date and exact time of the launches

All court decisions ordering an eviction shall state the exact date and time when it is to take place.

5. Tax measures aimed at providing incentives for residential leases and discouraging the holding of unoccupied residential units

5.1 How is the unoccupancy of residential units discourages?

At present, town halls are already allowed to impose surcharges on the Real Estate Tax for the holding of permanently unoccupied residential units (up to 50%). However, the Spanish Housing Law strengthens this instrument by allowing the surcharges to be increased:

a. Up to 100% when residential units remain unoccupied for more than three years.

b. Up to 150% if the property unoccupied for more than three years belongs to an owner who owns two or more unoccupied residential units in the same municipality.

In addition, the Spanish Housing Law includes a definition of permanently unoccupied residential unit (which was previously left to sectoral regulations). An unoccupied residential unit is one that has been empty continuously and without just cause for more than two years, provided that it, in addition, it belongs to owners of four or more residential units. Among others, justified causes for lack of occupation are considered to be that the residential unit:

a. is subject to construction or renovation work.

b. is the subject of litigation that prevents its use; or

c. is offered for sale or lease on market terms, but only for one year in the first case and six months in the second.

In order for the surcharge to be imposed, the residential unit must have been previously declared unoccupied. The surcharges will accrue on 31 December and will be settled annually.

The relevant territorial Administration shall provide annual information in aggregated terms on the number of residential units identified as unoccupied within its territorial scope, as well as the number of properties to which the tax surcharge has been applied.

5.2 How are residential leases promoted?

The measures envisaged, which only affect individual landlords, consist in the application of reductions on the positive net income obtained under the lease.

The applicable reduction percentages range from 60% to 90% in the following cases:

a. if taxpayers sign new contracts on residential leases located in "stressed residential market" areas with a rent reduction of at least 5% compared to the last rent of the previous agreement (90% reduction);

b. if, in the same areas, they lease a residential unit for the first time, provided that they lease to young tenants (70% reduction);

c. in the case of residential units covered by a public housing programme that establishes limitations on rents (70% reduction); or

d. when the residential unit has been the subject of a renovation that was completed within the two years prior to the date of the signing of the lease agreement (60% reduction).

In all other cases, the applicable reduction rate will be 50%, which is therefore reduced by ten points compared to the current reduction rate of 60%.

These reductions will enter into force on 1 January 2024 and will only apply to rents derived from leases signed after the new Spanish Housing Law enters into force.

6. Measures in relation to social housing

6.1 Incentivised affordable housing

A new category of "incentivised affordable housing" is created. These are privately owned residential units intended, on a rental basis or any other form to temporary tenancy, to serve as a main residence of people whose income level does not allow them to access housing at market prices. These residential units may not be subject to the formal qualification procedure and may enjoy urban planning, tax or any other type of benefits.

6.2 Reinforcement of the qualification regime for public social housing

Social housing that is developed in compliance with the obligation of the Administration to reserve land for this purpose will be subject to a permanent public protection regime.

In all other cases, the regional regulations may provide for the disqualification of dwellings for justified reasons or establish a limited qualification period that may not be less than 30 years.

6.3 Reservation of land for social housing

The percentage of land set aside for social housing is increased (from 30% to 40% in new urban development and from 10% to 20% in renovation or refurbishment).

In addition, with some exceptions, at least 50% of the land set aside for public housing must be allocated to housing under a public rental protection scheme.

6.4 Limitations on the transfer of assets forming part of the public housing stock

The assets making up the public housing stock may only be sold to other public Administrations, their instrumental entities or to non-profit organisations.

7. Information for home buyers and tenants

The Spanish Housing Law systematizes and includes the information rights of homebuyers and tenants, without prejudice to the provisions of regional regulations.

Potential buyers or tenants have the right to request all information that may be relevant to them including, at a minimum:

a. Identification of the seller or landlord and the intermediary.

b. All economic and payment terms, including financial conditions if established.

c. Essential characteristics of the residential unit and the building, including:

i) Certificate of habitability (cédula de habitabilidad).

ii) Accreditation of the usable and built surface area of the residential unit.

iii) Building's date of construction and, where applicable, the main alterations or actions carried out on it.

iv) Services and facilities, both individual and communal.

v) Energy efficiency certificate of the residential unit.

vi) Accessibility conditions.

vii) State of occupancy or availability.

d. Legal information on the property (registry identification, charges, encumbrances, and quota of expenses).

e. In the case of social housing, the applicable legal protection regime.

f. In buildings with architectural protection, degree of protection and limitations.

g. Information on the detection of asbestos or other hazardous substances.

h. Regarding leases in areas with a stressed residential market, the last rent in force in the last five years and the value that may correspond to the unit according to the price reference index.

8. Other measures

The new Spanish Housing Law includes many other measures that will have an impact on the Spanish housing market but do not directly affect the private sector, such as the definition of homelessness (sinhogarismo) or the regime of the administrators of real estate assets.

It also includes a detailed description of the aims of public housing policies and the guiding principles of their action. This regulation will serve as an interpretative criterion when assessing the measures adopted at regional and municipal level within the scope of their respective competences.

9. Our services

This note is based on a legal draft (still pending approval) and cannot be considered legal advice.

However, Ashurst Madrid is an expert in the legal regulation of the housing sector. We will be happy to review any particular situation or portfolio of assets and the implications that the new Housing Law may have for it, and to recommend the most appropriate course of action in each case.

The intellectual property rights of this note belong to Ashurst Madrid and its reproduction, distribution, transfer or any other type of use without prior consent is prohibited.