The Minister for Transport, Mobility and the Urban Agenda, José Luis Ábalos, has announced the Executive's intention to regulate in a future Housing Law at state level, which is expected to be approved by the Council of Ministers in February 2021. 

Through this new rental law, the autonomous communities will be able to regulate the price of private rentals. The aim of the rental law is to lower prices, both in new contracts and in those already in force. Both the autonomous communities and the city councils will be able to establish a reference index for rental prices, in order to ensure that they are not abusive.

This regulation of rental housing will mean the adoption of a State Housing Law in Spain, with the highest degree of public intervention in the rental market in Europe. This could be a turning point in terms of the rights and duties of landlords and tenants, as well as a substantial change in the area of civil law. 

The new law will extend the measures that have already been adopted by Royal Decree-Law 7/2019, of 1 March, on urgent measures regarding the rental contract law.

New features of Decree-Law 7/2019, rental contract law

Decree-Law 7/2019 modifies the rental housing law in the following aspects:

Regarding the rental extension, the duration of the rental contract is modified in the sense of granting in favour of the tenant a mandatory extension of up to 5 years when the owner or landlord is a natural person. This rental extension period is extended in cases where the owner is a company or society, being established at 7 years.

Another of the new features of this rental law consists of establishing new actions in the event of eviction, in coordination with the social services of each community or municipality to protect vulnerable tenants and those at risk of social exclusion. In this regard, evictions may be halted for a period of one month, provided that the tenant is a natural person.

In the event that the holder of the rental contract is a natural person and that person dies, the lease will be compulsorily subrogated to the rest of the tenants, provided that they are vulnerable persons. Vulnerable persons are understood to be persons included in the following groups: minors, disabled persons, or persons over 65 years of age.

As for tourist rentals, these are outside the scope of this state housing rental law and their regulation is delegated to each of the Autonomous Communities. In the specific case of tourist rentals, the communities of owners may limit, by qualified majority, the uses of this type of housing and establish a quota for the payment of common expenses increased by up to a percentage of up to 20% more.

During the term of the contracts, the increase in the rental price may not exceed the CPI (Consumer Price Index) under any circumstances.

The deposit that the tenant has to pay to the landlord may not exceed the amount of two months, with the exception of long-term rental contracts.

Even if the rental contract has not been registered in the Land Registry, the buyer of a property who has the burden of a rental contract is obliged to respect the contract established with the tenant.

In the event that the landlord is a legal entity (a company or firm), the costs of formalising the rental contract, consultancy or property management will always be borne by the landlord.

Local councils may establish a rebate of up to 95% of the Real Estate Tax quota in favour of those dwellings subject to a rent with a limited price.

Novelties to be introduced by the New Housing Law that José Luis Ábalos' Ministry of Transport is working on

In order for the Autonomous Communities to incentivise their housing rental policies, a state reference index for housing rental will be created.

Through the elaboration of this reference index, the Autonomous Communities will be able to declare that a specific urban area is within what is considered to be a "stressed market". This term refers to areas where the rental price is objectively abusive compared to those established by the index. This declaration will be based on technical criteria only and will always be temporary and exceptional.

When an area is identified and included within the concept of a "stressed market", mechanisms for containing or eventually lowering rental prices may be established in that area. This measure will be applicable both to new contracts formalised in this area and to those previously signed.

In order to avoid abusive increases in housing rental prices, both the Autonomous Communities and the local councils will have the power to take the rental price of the previous rental contract as a reference and to limit the rental price of the dwelling accordingly.

This new regulation is expected to be approved by the Congress of Deputies within four months, which means that it is expected to be approved in February 2021.

Opinions of real estate market experts on the new rental law

Professionals and experts in the real estate market have expressed their rejection of the Government's new housing law and the capping of rental prices. The main argument of the sector is based on the fact that rental prices regulate themselves within the market. Moreover, the pandemic has led to an increase in the supply of rental flats, with a consequent reduction in prices, so there is no sense in government intervention to regulate the market now.

On the other hand, it is foreseeable that such drastic measures will lead to a considerable reduction in the supply of rental housing, as no owner will want to be subject to the amount of rent being set by the government, the Autonomous Communities or the City Council, without having any power of disposal or decision over his or her own home.

Finally, it is foreseeable that the new housing regulations will end up generating a black market of undeclared rental contracts, or even undeclared rental contracts with overpricing. This would put tenants at a disadvantage as a result of the new regulations that aim to regulate rental prices and which, in doing so, may have the opposite effect to the desired one, i.e. put tenants in a situation of even greater vulnerability than they are currently in.

In any case, the exact content of the New Housing Law will have to be carefully examined when it is approved in February and the rights and obligations it establishes in favour of landlords and tenants will have to be assessed, as well as its possible consequences.