Raising rents through property tax (IBI), a legal loophole to circumvent the price cap

BarcelonaSant Cugat is one of the 271 Catalan municipalities that are part of the stressed residential market zone. This means that new rental contracts cannot exceed the price of the last contract in force in the last five years, beyond updating it with the corresponding CPI. But once the law is made, the trap is set. And sometimes the trap is legal. Some tenants whose contracts were about to expire have seen landlords pass on a portion of the IBI (property tax) in the new contract, thus allowing them to avoid the rent control set by the state housing law in the new price payable.

This is the case of María (not her real name). She paid around €1,000 for an apartment of just over 50 square meters in the center of the Vallès municipality. The contract was signed in 2020 for 900 euros, and little by little, with the annual CPI revisions, the price rose to almost four figures. A few months before the five-year anniversary of Maria and her partner's move into the apartment, the property manager informed them that the owner didn't want to extend the contract, but rather sign a new one. And then the surprises came: instead of raising the price by 2.5%, corresponding to inflation, the increase they were offered was almost triple that, close to 7%. This rent increase they were offered corresponds to the inclusion of two taxes: the Property Tax (IBI) and the metropolitan tax (for the Barcelona Metropolitan Area). Thus, if they accept the terms of the new contract, they will end up paying more than 600 euros more each year.

"The landlords have the upper hand. If you don't agree with what they're asking for, they won't renew your contract, and you'll be out on the street. It's coercion," complains one of the couple's relatives. But what does the law say about this practice? Is it legal to pass on the property tax (IBI) in the new contract? The answer isn't simple. Section 6 of Article 17 of the Urban Leasing Law (LAU) states that in rental contracts in stressed areas, the rent agreed at the start of the new contract "may not exceed" the rent of the contract that has been in force for the last five years for that same home. It also states that, beyond the annual rent update, new conditions cannot be set that establish the passing on to the tenant "of fees or expenses" that were not included in the previous contract.

Taxes, in a legal vacuum

"When a new contract references the previous contract (mandatory in high-stress areas), the law states that you can only increase it with the annual CPI update, and that you cannot include nine fees and expenses in the contract that weren't included in the previous contract," explains the expert lawyer. "But the IBI (Property Tax) is neither a fee nor an expense; it's a tax," he adds. When the law refers to expenses, it refers to those of the homeowners' association, therefore, "this rule does not prohibit the IBI from being included in the new contract even if it wasn't included in the previous one," he adds.

Along the same lines, real estate lawyer Helena Gallardo explains that the law is imprecise, leaving this impact at the discretion of the professional. "Many professionals believe that, by not mentioning taxes, the property tax is excluded from this text and, therefore, leaves the door open for it to be incorporated as a tax," she asserts. It should also be noted that for this new generic clause to be valid, it must be written and quantified in the new contract.

"There is no case law yet. We are waiting to see what happens. It is an error in legislative technique, that is why the courts exist," Gallardo adds. But Fuentes-Lojo goes further: "If the legislator has not foreseen it, it is the legislator's fault; the owner is entitled to pass it on. It is one of the loopholes, so it is legitimate."