Finance

How does the rent increase work with the CPI in 2024?

Article 18 of the Urban Leasing Law (LAU) determines, among other things, how the rental price of a house should be updated. Although the LAU establishes that, if an index is not indicated, this will be the Competitiveness Guarantee Index (IGC), the most used to update income is the Consumer Price Index (CPI).

In this article we explain how the CPI is calculated , how it is applied and the impact that the increase in the CPI has had on rents , which in May was 3.6%, in addition to how the rent is updated in 2024 .

What is the CPI and how is it calculated?
The Consumer Price Index (CPI) is an indicator that measures the variation in the price of life and the purchasing power of a country’s citizens. If the CPI is positive, it implies that prices have risen and if it is negative, that they have fallen.

The CPI is calculated by the National Institute of Statistics (INE) taking as a reference the most consumed products, known as the shopping basket, and subsequently comparing it with the prices of previous months.

How is rental income updated with the CPI?
According to article 18 of the LAU , during the term of the contract, the rental price may be updated each year if it has been expressly agreed. If it has been established, but there is no detail on the reference methodology, the annual variation of the IGC on the date of each update will be applied, taking as the reference month the month that corresponds to the last index that was published on the contract renewal date.

On the other hand, if an update has not been agreed upon, this will not occur while the lease contract is valid .

However, the most used indicator in contracts is the CPI and its renewal may be carried out annually. To do this, it will be necessary to apply the value published two months before the income review, since the official data is usually published on the 15th of each month and you must notify one month in advance of the day the new monthly payment must be paid. .

Practical example on updating rental income with the CPI
Forgetting about the Government’s 3% limit, a lease contract that is updated in May 2024 takes as a reference the CPI from two months before, that is, from March, which in 2024 was 3.2%. If the tenant paid 1,200 euros in rent, with the rent review it will be necessary to calculate 3.2% of 1,200 euros (which is 38.4) and add it. Therefore, this tenant would have to pay 1,238.4 euros in rent until the next update.

To update the income, you can do it directly from the INE tool . You will have to enter the amount paid for rent for the apartment and the CPI value two months in advance of the contract annuity. Once calculated, you will have to notify the tenant one month in advance of the day on which they have to pay the new monthly payment.

How is the rent increase calculated with the CPI?
To calculate the increase in the rental price with the CPI you must follow the following steps:

Take the current rent as a reference
Converts the CPI percentage to a decimal form (for example, 3% becomes 0.03)
Multiply this decimal by the current rent to get the increase
Add this increase to the current rent to obtain the new rental income
What will the rent increase be like according to the contract?
Depending on the date on which the contract is updated, the rent increase may vary. However, all lease contracts that are updated between April 1, 2022 and December 31, 2024 are detached from the CPI and will increase by a maximum of 3%, since this is the limit established by the Government in the Provision final 6th of the new Housing Law. Now, if the CPI value is less than 3% of the limit , they will be updated by that value.

For their part, lease contracts for commercial premises will continue to be updated according to the index agreed between the owner and tenant, this indicator being the CPI.

The increase in rental prices from 2025
From 2025, the Government plans to establish a new rental price update index by which all rents will be updated. Although nothing is yet known about the new index, they have stated that it will be more stable and lower than the current CPI.

The evolution of the CPI in 2023 and 2024
According to data from the INE, this is the evolution of the CPI :

MONTH CPI 2023 (%) CPI 2024 (%)
January 5.9% 3.4%
February 6.0% 2.8%
March 3.3% 3.2%
April 4.1% 3.3%
May 3.2% 3.6%
June 1.9%
July 23%
August 2.6%
September 3.5%
October 3.5%
November 3.2%
December 3.1%
The 3% CPI limit on rents
Large holders, that is, those who own more than 10 rental homes, may never exceed the 3% limit. On the other hand, small landlords will be able to negotiate with their tenants for increases above that percentage. However, if an agreement is not reached, the landlord will apply that 3% increase in the rental income.

Does the CPI limitation apply to all rentals?
No, the 3% limit only applies to rental contracts for primary residences . Lease contracts for commercial premises, offices, industrial warehouses, tourist homes, etc. are excluded.

Rental contracts for commercial premises remain updated by the indicator agreed between the owner and tenant. If the CPI is taken as an indicator, we will have to look at the value it has two months before an annuity expires.

For example, for leases of commercial premises that are updated with the CPI for May 2024, 3.6%, which is the value of that month, will have to be added to the rent. If the rent costs 4,000 euros per month, the new figure is 4,144 euros per month in rent until the next update.

The operation would be as follows: 4,000 (euros per month of income) x 1,036 (3.6% variation in the CPI for May 2024) = 4,144 euros per month of updated income

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