The announcement of the new measures of the Housing Law 2023 has announced that it will say goodbye to the CPI to update rents. The Urban Leases Law contemplates the updating of the rental price as a clause that is activated every year, and the vast majority of contracts were updated through the CPI. However, the new regulation contemplates the creation of a new rent update index, which will be more stable and lower than the CPI.

How did the CPI work until now?

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The update of the rental price is done every year to adapt the rental price to the current economy. Although the LAU did not specify which index to use to update the rent, it did indicate that it could never be a price increase higher than the CPI. For example, if a contract was signed in March 2020 for a monthly rent of 1,000 euros, in March 2021 the annuity would expire and the landlord would use the CPI percentage of the previous month (February 2021) to increase the monthly rent.

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From April 2022 until December 31, 2023, the price of leases will be updated with the Competitiveness Guarantee Index (GCR), limited to a maximum of 2% to mitigate the effects of high inflation on tenants.

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In 2023, contracts that fulfill an annuity will be updated by 2%, but landlords who are individuals will be able to reach a joint agreement with the tenant to raise the price further. If there is no mutual agreement, the maximum of 2% will apply. For a rent of 1,000 euros per month, the maximum that can be raised will be 2%, which is equivalent to 20 euros per month, leaving a rent of 1,020 euros per month.

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The next change is that, from January 1, 2024 until December 31 of the same year, the CPI will no longer be linked to the update of the rental price. Instead, a maximum cap of 3% has been established, which will be mandatory for both small and large landlords.

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This measure has been designed to prevent tenants from being affected by excessive increases in rental prices. In addition, the regulation also includes an interesting clause that establishes that the clauses that allowed the non-application of the measures contained in the Law in the event of an agreement between the parties are eliminated. This means that small landlords will not be able to reach an agreement with tenants to raise the rental price beyond the maximum 3% established.

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In the coming years...

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As of January 1, 2025, a new rent price update index will come into effect that will be more stable and lower than the CPI. A working group is working on this index, which is expected to be lower than the CPI and with a smaller variation to avoid the impact on tenants of the price increases that occurred during late 2021 and late 2022.

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The decision to decouple the CPI from the rent update was made because, although it has always been considered a reliable index for updating rent prices, the end of 2021 and the beginning of 2022 saw an unprecedented rise in the CPI, reaching 10.8% in July 2022 due to the rise in electricity prices, the rise in prices due to the pandemic and the war in Ukraine, among other factors.

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To protect tenants from disproportionate rent increases, the government included a 2% cap on rent updates in the package of measures called the "War Response Shock Plan". The European Union and Spain maintain an average inflation rate of 2% to 3% per year, which makes the CPI a stable index, but such a drastic rise during the pandemic led to the search for a more reliable alternative to update rent prices.

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