Indefinitely qualification of subsidized housing

A permanent classification of “subsidized housing” is established for those dwellings developed over land that is intended for housing subject to a public protection regime.

In case of dwellings developed over land whose urban planning classification does not impose such destination and which does not receive public aid for its development, or in those cases exceptionally justified in accordance with regional regulations, the qualification period may not be less than 30 years.

New concept of “incentivized affordable housing”

The concept of “incentivized affordable housing” (vivienda asequible incentivada), added now to the concept of “subsidized housing”, has been created to strengthen the supply of affordable housing for people in a vulnerable economic situation.

It involves privately-owned housing that is rented at reduced prices for people whose income level does not allow them to access to housing at market price. The competent public authority will “encourage” private owners to join this regime with a series of tax and urban planning benefits, among others. However, the details of these incentives are not established.

Stressed residential market areas

The regulation of the so-called “stressed residential market areas” is introduced in areas with a special risk of insufficient housing supply to regulate and moderate rental prices. The declaration of an area as a stressed residential market area will have a validity period of 3 years and may be extended for annual periods.

An area may be declared as a stressed residential market when the following circumstances take place:

• The average mortgage or rental cost burden, plus basic expenses and supplies, exceeds 30% of the average income or average household income.
• The relevant area’s purchase or rental price of dwellings within the previous 5 years has experienced a growth of, at least, 5 percentage points higher than the CPI.

This rent-control measure in stressed market areas was initially implemented in the Autonomous Region of Catalonia through Act 11/2020, of 18 September, on Urgent Measures for Rent Containment in Housing Leases, by virtue of which the reference price of rents in these stressed market areas should have been indicated by (i) the rent of the previous contract or (ii) by the relevant reference index set for the rents of the specific area.

In this regard, the Partido Popular Parliamentary Group filed a constitutional appeal (recurso de inconstitucionalidad) against certain articles of this act and of some of its additional and transitional provisions, which has been partially upheld by the Plenary session of the Constitutional Court. The Spanish Constitutional Court considered that certain provisions of the Catalonian law invade the exclusive competences attributed to the State.

The Housing Act includes a general definition of “large property holder” as a natural or legal person that owns more than 10 residential urban properties or a built-up surface area of more than 1,500 sq. m. for residential uses, excluding parking spaces and storage rooms.

However, the Housing Act provides that, based on this definition of “large property holder”, when a stressed residential market area is declared as such, specific criteria for the consideration of a “large property holder” in the concerned area could be defined. The wording of the Housing Act is not entirely clear on this point, so that it is not clear if, with respect to an area declared as stressed residential market, a more restrictive definition than the general definition described above for large property holder may be issued, so that those individuals or legal entities that own less than 10 urban residential properties or have a built-up surface area of less than the aforementioned 1,500 sq. m. may also be considered as large property holders.

The Housing Act also sets a potential obligation for large property holders in stressed residential market areas to collaborate and provide information on the use and destination of the dwellings owned by them in these areas, indicating the minimum information to be contained in the communication that they may be obliged to submit. However, the description given in the regulation is quite imprecise, so it does not clearly define the content of this obligation.

The Spanish Urban Leases Act 29/1994, of 24 November (“LAU”), is modified to include the following measures, which will be applicable in those areas that have been previously declared as a stressed residential market area:

• Leased dwellings: the tenant may request at the end of the agreement an extraordinary annual extension (additional to those extensions already provided for in articles 9.1 or 10.1 of the LAU), and for a maximum period of 3 years, under the same terms and conditions of the lease agreement in force.

To date, the landlord was allowed to terminate the relevant lease agreement by giving a, at least, 4 months' termination notice prior to the termination of the term of the agreement or any of its extensions, and provided that the minimum 5-year term (in the event that the landlord is a natural person) or 7-year term (in the vent that the landlord is a legal entity) had elapsed.

Notwithstanding the above, with the proposed modification of the LAU, once the minimum contract term of 5/7 years provided for in the LAU has elapsed, the landlord will not be able to terminate the lease agreement if the tenant requests an extension. Therefore, a 5/7-year lease agreement in accordance with the minimum terms of duration set forth in the LAU, may be extended for 3 additional years at the tenant´s discretion.

On the other hand, Article 10.1 of the LAU already provided for the possibility to extend the lease agreement for annual periods up to a maximum of 3 additional years if, at the termination date of the lease agreement or any of its extensions (and once the minimum term of 5/7 years had elapsed), neither party had notified the other party of its intention not to renew the lease agreement. However, according to the proposed amendment of the LAU set forth in the Housing Act, if the lease agreement has been already extended in accordance with article 10.1 of the LAU, at the end of this extension the tenant will also be allowed to extend the lease agreement for another 3 additional years, so that the relevant lease agreement could have a mandatory term for the landlord that could reach up to 11/13 years, depending on whether the landlord is an individual or a legal entity. In any case, the Housing Act establishes that the parties may agree on different terms or conditions, so it could be argued the possibility of contractually excluding the application of this extension.

• New lease agreements of dwellings that have been previously leased: in general terms, the rent will be limited in these cases to the latest rent in force according to the previous lease agreement, increased in accordance with the application of the annual rent update scheme set forth in such lease agreement. Exceptionally, the rent of the new lease agreement may be increased up to a maximum of 10% of the latest rent in force of the previous lease agreement:

• When the dwelling has undergone rehabilitation, improvement or accessibility improvement actions under the terms and conditions provided for in the Housing Act.
• When the new lease agreement has a duration of 10 years or longer.

• Owner legal person large property holder: in accordance with the Housing Act, when the owner is a legal person with the condition of large property holder, the rent of the new lease agreements signed in these stressed market areas will be limited by the maximum limit of the price applicable according to a reference price index system. Within 18 months of the approval of the Housing Act, the government should implement a system to apply these price limitations according to a reference price index.

However, it should be noted that there is an inconsistency in the Housing Act, since its explanatory memorandum establishes that, in these cases, the rent of the new lease agreements will be limited by (i) the one foreseen in the previous contract or (ii) by the above-mentioned maximum limit of the price applicable according to the reference price index system, without clarifying which of these two criteria should prevail.

Measures limiting rental prices have already been implemented in order jurisdictions, for example in the city of Berlin, obtaining a result which has been very different from what was initially expected.

In general terms, the reduction of residential rental prices should be sought through measures aimed at increasing the housing supply. However, these rental prices limitation has led to a decrease in the supply of housing, while the demand has increased due to the more attractive prices. Therefore, the effect produced in these foreign jurisdictions has been a shortage of housing in price-controlled areas, and a significant increase of the rental conditions of the adjacent areas with uncapped prices.

The Housing Act regulates the application of surcharges on Property Tax that may be applied to those dwellings that remain vacant for a period of more than 2 years, provided that the owner has a minimum of 4 dwellings.

All the above applies except in cases of justified reasons for temporary vacancy. The surcharge adjustment, which is currently at 50% of the net amount of Property tax, is increased up to a maximum of 150% depending on the number of dwellings owned by the same owner.

The following measures have been included in the Housing Act:

• At least 50% of the land reserved for residential uses subject to some degree of public protection should be devoted to subsidized rental housing.
• Amendment of article 20 of the Land and Urban Rehabilitation Act (the “Land Act”).

The Land Act already states that the zoning regulations should include a reserve for residential uses subject to a public protection regime, which should be developed in accordance with the principle of social cohesion. This reserve should reach, at least, the land necessary to realize 30% of the residential buildability foreseen by the relevant zoning instrument in case of rural land included in new zoning developments. This percentage will be lowered down to 10% in case of urban land subject to any zoning development transformation or renovation actions.

Notwithstanding the above, the Housing Act amends article 20 of the Land Act to introduce the possibility of requesting the inclusion of a reserve for residential uses subject to a public protection regime in urban land not subject to any zoning development transformation or renovation actions. To this end, the Housing Act leaves the development of the relevant compensation mechanisms in the hands of the competent authorities. In addition, due to its imprecise wording, it is not clearly established whether the percentage of subsidized housing buildability should be 30% or 10% as in the cases contemplated above, although it seems reasonable to understand that it should be 10%.