Do you want to review the rent of your rented property? One of the most widely used indexes for rent review is the Competitiveness Guarantee Index. We tell you what it consists of, where it is published and how it is applied.
Over the last few years we have experienced events such as the health crisis resulting from COVID-19 or the war in Ukraine, which have led to a general increase in prices and, therefore, in the Consumer Price Index (CPI), which used to be one of the indices used for rent reviews. In order to avoid a very high increase in rents in 2022, the need to apply the Competitiveness Guarantee Index was established and limited to downward and upward.
Competitiveness Guarantee Index: what is it?
The GCI is an indicator published by the National Statistics Institute (INE) and is used to review rental incomes. Currently, its minimum value is limited (it cannot be lower than 0%) and its maximum value (it cannot be higher than 2%). The INE considers two values to calculate the GCI:
– The European Union CPI.
– The loss of competitiveness that Spain has accumulated since 1999.
The updating of rent in accordance with the GCI is regulated in Article 18 of the Urban Leases Law, which establishes the following in section 1:
1. During the term of the contract, the rent may only be updated by the lessor or the lessee on the date on which each year of the contract expires, under the terms agreed by the parties. In the absence of an express agreement, no rent update shall be applied to the contracts.
In the event of an express agreement between the parties on a mechanism for updating monetary values that does not specify the reference index or methodology, the rent will be updated for each annual period by reference to the annual variation of the Competitiveness Guarantee Index on the date of each update, taking as the reference month for the update that which corresponds to the last index published on the date the contract is updated.
In any case, the increase produced as a consequence of the annual update of the rent may not exceed the result of applying the percentage variation experienced by the Consumer Price Index on the date of each update, taking as the reference month for the update that which corresponds to the last index that was published on the date of updating the contract.
How is the Competitiveness Assurance Index calculated?
The CCI takes into account the recovery of competitiveness vis-à-vis the euro area. It is a rate equal to the Harmonised Index of Consumer Prices (HICP) of the EMU minus a part of the loss of competitiveness accumulated by Spain since 1999.
To better understand the mechanism, let us consider an example:
We have a housing lease contract that was signed on 15 October 2022 and in which no specific rent review mechanism has been agreed, although it has been agreed that the rent will be reviewed annually. The agreed rent is 1,500 euros per month. As a consequence of the above, the rent review is applied in October 2023 and is carried out in accordance with the GCR. The latest index published by the INE is that of September, which corresponds to the variation from July 2022 to July 2023, which was 3.04%.
Since there is a 2% limitation in the GCR to revise the rent, 2% (and not 3.04%) would be applied to the rent of 1,500 euros per month, so the new revised rent would be 1,530 euros per month.
Frequently asked questions about the rent update
To make it clear to you how the rent update is carried out, we answer some frequently asked questions:
My contract does not specify that the rent is updated. Should it be updated?
One of the things that can happen is that the rental contract does not specify that the rent must be updated annually. In this case, it is necessary to consider the regulation of the Urban Leases Law that we have seen and which establishes that: In the absence of an express agreement, no rent update will be applied to the contracts.
If it is specified that the rent is updated annually, but the method of updating is not regulated, the GCR is applied.
Is CPI or GCR better for the tenant?
Rent review according to the GCR may be more beneficial for the tenant, especially when the CPI is very high, as is currently the case, as it cannot go up by more than 2%. However, applying the CPI, at present, would be beneficial for the landlord of the property as no limitation applies.
Where is the GCR published?
The GCR is published every month on the INE website. Here is the link: competitiveness guarantee index.
Can the landlord apply the CPI and not the GCR in 2023?
No, the landlord, if he has to update the rent, cannot apply the CPI, even if this is established in the contract, but the GCR. This is due to the regulation contained in the Law on the Right to Housing which, in its sixth final provision, amends article 46 of Royal Decree-Law 6/2022, of 29 March, which adopts urgent measures within the framework of the National Plan of response to the economic and social consequences of the war in Ukraine, and extends the extraordinary annual limitation of the rent in housing rental contracts, so that contracts whose rent must be revised until 31 December 2023, must apply the GCR with the limit of 2%.
In which cases does the GCR apply to residential rental contracts?
As we have seen above, the GST applies:
– When the parties have expressly agreed in the rental contract that the Competitiveness Guarantee Index applies.
– When it has been agreed in the contract that the rent is updated annually, but no specific index has been established.
Does the landlord have to communicate the rent update to the tenant?
Yes, the landlord must communicate the new updated rent in writing to the tenant and must include in the communication the percentage applied for the rent review and the INE certification, if the tenant requests it.
What will happen to the rent review cap in 2024?
In 2024, by virtue of the sixth additional provision of the Law on the right to housing, a limitation of 3% will be applied.
As a consequence of the above, if you are a landlord of rental properties and you have to update your rent in the remainder of 2023 or in 2024, you will have to apply the limitations we have detailed in this article. If you need help, contact us and we will analyse your case so that you can comply with the law and revise your rent.
What are the rights and obligations of the landlord and tenant?
