In this article we explain how the CPI is calculated, how it is applied and the impact that the rise in the CPI has had on rents, which in September was 1.5%, as well as 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 living and the purchasing power of a country’s citizens. If the CPI is positive, it means that prices have gone up, and if it is negative, it means that prices have gone down.
The CPI is calculated by the National Statistics Institute (INE) taking as a reference the most consumed products, known as the shopping basket, and then compares it with the prices of previous months.
How is the rent updated with the CPI?
According to article 18 of the LAU, during the term of the contract, the rental price can be updated every year if it has been expressly agreed. If it has been established, but there are no details on the reference methodology, the annual variation of the GCR will be applied on the date of each update, taking as the reference month the one that corresponds to the last index that was published on the date of renewal of the contract.
On the other hand, if no update has been agreed, this will not take place while the lease contract is in force.
However, the most widely used indicator in the contracts is the CPI and its renewal may be carried out annually. For this, the value published two months before the rent review will have to be applied, as the official figure is usually published on the 15th of each month and notice must be given one month before the day the new monthly payment is due.
How is the increase in rent calculated with the CPI?
To calculate the increase in the price of the rent with the CPI you should follow the following steps:
1.Take the current rent as a reference
2.Convert the CPI percentage into a decimal form (e.g. 3% becomes 0.03).
3.Multiply this decimal by the current rent to get the rent increase.
4.Add this increase to the current rent to get the new rent.
What will the rent increase be like according to the contract?
Depending on the date on which the lease is updated, the rent increase may vary. However, all rental contracts that are updated between 1 April 2022 and 31 December 2024 are not linked to the CPI and will rise by a maximum of 3%, as this is the limit established by the Government in Final Provision 6 of the new Housing Law. However, if the CPI value is less than 3% of the limit, they will be updated by that value.
The increase in the price of rent from 2025 onwards
From 2025 onwards, the Government plans to establish a new index for updating the rental price 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 3% CPI limit on rents
Large landlords, i.e. those who own more than 10 rental properties, will never be able to exceed the 3% limit. On the other hand, small landlords will be able to negotiate with their tenants increases above that percentage. However, if no agreement is reached, the landlord will apply the 3% increase in rent.
No, the 3% limit only applies to habitual residence rental contracts. Leases of commercial premises, offices, industrial buildings, tourist accommodation, etc. are excluded.