The reference index most used to update rental income each year is the CPI, although the latest version of the Urban Leasing Law (LAU) indicates that, if a specific method has not been specified in the contract, then The Competitiveness Guarantee Index (IGC) will be used.
The IGC, also published by the National Institute of Statistics (INE), is a price revision rate consistent with the recovery of competitiveness compared to the euro zone. Its main characteristic is that it has two limits: below, at 0%, which means that if it is negative, the no-review rule applies. Above, if the rate exceeds 2% (medium-term annual inflation objective of the European Central Bank), that value is taken as a reference.
Hence, the Government approved a Royal Decree-Law in which, exceptionally, all updates to the Competitiveness Guarantee Index were limited during 2023. Because it is capped at 2%.
For its part, the CPI in the last 10 years has gone through several phases, but nothing like in the last five years: from marking negative values ??in 2020 to reaching 10.8% in mid-2022, in the midst of an inflationary outbreak in Europe.
When the CPI value is negative, of course, the tenant has the right to request a proportional reduction in rent at the time of the update. When the value is positive, rent increases are possible, as long as it is done every year of the contract and one month’s notice is given.
Lately, this index has begun to neutralize. In fact, in June 2023, for the first time since 2021, this rate had fallen below the 2% threshold. With 1.9%, the debate opened on whether to use the CPI to increase the rent or apply the current cap.
Now, after eight intermittent months of declines, the CPI is rising again: in September 2023, it registers a 3.5% general rate.
For this reason, the new Housing Law, already in force, contemplates delinking rent updates from the CPI or the IGC and creating for the future a public and objective reference price index, with state registry data.
For the moment, however, and while this index is not configured, the cap rises to 3% during 2024: the months in which the CPI is higher this limit will apply, while the months in which the CPI is lower than the cap will be applied. What was agreed in the rental contract will apply.
