Statutory Rent Caps and Tense Zones in Basque Country Rentals

Annual rent increases in the Basque Country's main cities (Bilbao, San Sebastian, Vitoria-Gasteiz) are no longer governed by the free market or the simple Consumer Price Index (CPI/IPC) for all contracts. Recent amendments to the national Urban Leases Act (LAU), via the Law on the Right to Housing (Law 12/2023), have introduced strict caps and the new IRAV indexing mechanism for newer agreements.

1. Requirement for an Explicit Update Clause

Under Article 18 of the LAU, a landlord can only increase the rent if the lease agreement explicitly includes a clause permitting an annual update.

• Silence means a freeze: If the contract does not mention rent updates, the rent remains frozen at the initial amount for the entire mandatory duration of the lease (5 years for individuals, 7 years for companies).
• Timing: The update can only be performed once a year, on the anniversary of the contract.
• Notice: To legally apply any increase, the landlord must provide the tenant with one month's written notice prior to the date the new rent is to be paid (typically via Burofax).

2. Reference Indices and Statutory Caps

The Spanish government has introduced the IRAV (Índice de Referencia de Actualización de Viviendas) to replace the IPC for newer contracts, while maintaining temporary caps on older ones:

• 2024 Cap: For updates occurring in 2024, the increase was capped at 3%. For non-large landowners, this 3% cap serves as a default limit in the absence of a new agreement between both parties for a different amount.
• IRAV vs. IPC: The new IRAV index applies exclusively to contracts signed on or after May 25, 2023. Contracts signed before that date continue to use the IPC as their reference index (subject to statutory caps like the 3% limit in 2024).
• Large Landowners: If the landlord is a "Large Landowner," the increase is strictly limited to the lower of the contract's agreed index or the statutory cap. In stressed zones, new leases by large landowners are also capped by the State Price Reference Index System.

3. Stressed Market Areas (Zonas Tensionadas) in Euskadi

The Basque Country has formally declared several "Stressed Market Areas," including the three capitals (Bilbao, San Sebastián/Donostia, and Vitoria-Gasteiz) and municipalities such as Errenteria, Barakaldo, and Irun.

• Large Landowner Thresholds: The definition of a large landowner varies by municipality in the Basque Country:
  • In San Sebastián and Vitoria-Gasteiz, a large landowner is an owner of 5 or more residential properties within the stressed zone.
  • In Bilbao, the threshold remains 10 or more residential properties (or more than 1,500 m² of residential floor space).
• New Leases: For properties in these zones rented within the last 5 years, the initial rent in a new contract cannot exceed the previous rent plus the allowed annual update.

To legally apply any increase, the landlord must provide the tenant with written notice one month prior to the date the new rent is to be paid, ensuring the communication is documented via Burofax.

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