What is a major landlord with the new housing law? Implications.

The new Housing Act raises many questions, especially regarding what is considered a large property owner. Does the same definition apply in all regions? Which properties are counted? What does it mean to be a large owner? Let's break it down.

What is a large property owner?

According to the law, a major property owner is an individual or company that owns more than 10 urban properties, excluding garages and storerooms, or has a total development of more than 1,500 m2 intended for residential use. However, the number of properties is reduced to five if they are located in areas declared tense by the Autonomous Community concerned.

This means that in a tight housing market, if one is declared, the number of dwellings may be reduced (depending on the competent autonomous community) to five (which is enough to be considered a large owner), or more urban properties, but always within the same tight residential zone. That is, five or more residential properties owned by one person must be within the same zone.

Who is considered a major owner in Catalonia?

In Catalonia, any person who owns five or more dwellings that are located in tense zones will be considered a major owner with the corresponding consequences. Social and private developers engaged in the construction of public housing intended for sale rather than for rent will not be considered major owners.

What properties are included in the large owner category?

Only dwellings that are located in cities or towns and are inhabited (have a certificate of habitability) are included in the large owner (or large owner) category. Properties such as garages, storage rooms and commercial premises are excluded because, although they are urban, they are not intended for residential use.

Is the principal dwelling included in the large owner category?

José Méndez, a partner in the law firm Méndez Lit, points out that there is no distinction in the text of the Housing Law, so the principal dwelling is taken into account for these purposes.

What if I have an inherited or co-owned home?

Although the legislation does not specify how to treat such properties, it is likely that any property we own, whether as co-owners or as a main residence, will be counted.

Article 19 of the new Housing Law states that in high-demand areas, the government may request information from large property owners about their properties and their intended use for the purpose of individual analysis of each situation.

How does being a major owner affect me?

The first consequence for large landlords is the limitation on rent indexing. Since March 2022, landlords have not been able to increase rent by more than 2%, and this will continue until December 31, 2023. Now the law stipulates that during 2024, when renewing residential leases, the increase cannot exceed 3% for large landlords.

Areas of a tight housing market

The law allows competent housing authorities to declare areas of housing market tension if one of the following conditions is met:

• The average expenses for mortgage or rent in a personal budget or shared household, as well as basic expenses and services, exceed 30% of the average household income.
• The price of buying or renting housing in this area has increased over the past 5 years by at least 3 points above the corresponding regional CPI.

However, meeting any of these conditions does not automatically recognize the area as a tense housing market; a formal declaration by the competent authority (autonomous community) is required. The initial declaration is valid for 3 years, with the possibility of annual renewal.

The declaration of a tension zone entails two important points:

• Change in the lease extension regime: after the mandatory term or automatic renewal of the lease expires, the tenant may request an exclusive extension for annual terms with a maximum duration of 3 years, during which the same conditions of the existing lease will be maintained. The landlord is obliged to accept this extension unless other conditions have been agreed upon or if it is legally stated that the property will be occupied by the owner or their family members as their primary residence, or if a new lease is concluded with restrictions on the rent.
• Rental price cap: when entering into new lease agreements, the terms will vary depending on whether the landlord is a large owner or not. It should be noted that autonomous communities can lower the threshold from 10 to 5 properties owned by large owners in areas of tension, whether they are individuals or legal entities.
• Increase in rental prices by 10% when signing new contracts: If the landlord is a large owner, the rent under the new contract must not exceed the maximum price set according to the price index reference system, which will be published in the future. This regulation will apply to contracts signed after the law comes into effect (May 26, 2023), when the index system is approved (taking into account the conditions and characteristics of the rented housing and the building in which it is located). The same limitation according to the price index reference system will apply to rental agreements for housing located in areas with a tight housing market and where there have been no active rental agreements for the past five years.

Who is considered a small owner?

Owners who possess fewer than 10 residential units (or 5 in high-demand areas) are designated as small landlords. There are specific regulations for such landlords:

• Change in the price of existing rental payments: The rent cannot increase by more than the following percentages each year:
  • 2023: the maximum increase is 2%
  • Year 2024: the maximum increase is 3%
  • The year 2025: the increase will be determined by a new index, about which nothing is known yet.
• For new lease agreements:
  • In tense areas: The rental price should not exceed the previous agreement increased by a certain percentage (2% in 2023, 3% in 2024, and an index to be determined from 2025 onwards).
  • Outside of high-demand areas: Owners have the right to set a price that they consider fair.

In addition to this, these owners can receive tax benefits when renting out their property. These incentives include discounts ranging from 60% to 90% on rental income, depending on certain conditions, such as renting to young people or reducing rent in high-demand areas by at least 5% compared to the previous contract.