The Supreme Court of Spain has put an end to a high-profile dispute between landlords and the state, denying a major company compensation for rent cap measures. The ruling came as an unexpected blow to property owners who had counted on substantial payouts. The judges determined that the government-imposed limits on rent increases do not violate owners’ rights and serve the public interest.
At the center of the case was Societat de Arrendaments 2007 S.L.U., which sought €631,000 from the state. The claim stemmed from a measure that capped annual rent hikes at 2% in 2022 and 2023, and at 3% in 2024. The company argued that these restrictions effectively deprived it of revenue and violated constitutional property guarantees.
Arguments of both sides
The landlord insisted the state had interfered in private contracts by imposing strict rules on how rates could be updated. In their view, this led to significant financial losses, since previously, indexation was tied freely to the consumer price index (IPC) agreed with tenants. The new system, based on the Competitiveness Guarantee Index, proved far less profitable.
Constitutional arguments were also brought into play. Company representatives invoked Article 33.3 of the Constitution, which prohibits depriving citizens of property without proper compensation. They argued the rent cap amounted to concealed expropriation and demanded compensation for losses.
Supreme Court’s position
The judges, however, did not agree with these arguments. In the decision authored by judge Francisco Javier Pueyo, it is emphasized that the state has the right to impose reasonable restrictions on rent increases if necessary to protect socially vulnerable groups and to stabilize the housing market. According to the court, such measures do not deprive owners of their rights, but only temporarily limit them in the public interest.
The Supreme Court reminded that for an interference with property to be deemed unlawful, there must be a complete deprivation of rights or a significant restriction. In this case, the measure is temporary and does not affect the substance of property rights. The judges also noted that the restrictions were introduced in response to unprecedented inflation driven by external factors, including the war in Ukraine and economic turmoil on the island of La Palma.
Context and consequences
Limits on rent increases were set out in emergency government decrees introduced in March 2022 and extended twice. Authorities explained that with inflation reaching 7.6%—a 35-year high—and even surpassing 10% in July 2022, free rent indexation to the IPC became unacceptable. The new rules were intended to protect tenants from a sudden surge in housing costs.
The court emphasized that such measures are in line with the social function of property established in the Constitution. The temporary restriction of landlords’ rights is justified by the need to support the most vulnerable citizens and stabilize the rental market. The judges separately noted that the state is not obligated to compensate for hypothetical losses or lost profits unless direct and actual damage is proven.
Second attempt, same outcome
This is not the first time the Supreme Court has sided with tenants. In September last year, a similar decision was made regarding a lawsuit filed by a private property owner who demanded 425.52 euros in compensation from the state. His apartment was rented out for 958.50 euros per month, and he expected an increase to 1,013.13 euros if indexation had continued under the old rules. However, due to the cap, the growth was more modest, and the owner tried to recover the difference.
In this case as well, the court found no grounds for compensation. It was noted that the state’s liability for legislative restrictions arises only in exceptional circumstances when direct damage is proven. Expected profits or hypothetical losses cannot serve as a basis for compensation.
Rental market under control
Decisions of the Supreme Court have effectively established a new framework for regulating Spain’s rental market. Landlords can no longer expect compensation for rent cap restrictions unless they prove actual loss. For tenants, this brings greater predictability and protection from sudden price hikes, especially during times of economic instability.
At the same time, property owners must accept temporary restrictions that, according to the court, do not violate their fundamental rights. Judges emphasize that maintaining a balance between owners’ interests and the need for social protection is crucial, particularly during crises.
If you weren’t aware, Societat de Arrendaments 2007 S.L.U. is one of the major companies specializing in residential property management in Spain. The organization is actively involved in renting and servicing residential properties, and is frequently a party to legal disputes over rental market regulations. The company is known for its tough stance on defending landlords’ interests and has repeatedly challenged government measures to limit rent increases.
