Developments affecting large housing asset holders in Catalonia

Developments affecting large housing asset holders in Catalonia Constitutional Court rules partially unconstitutional Catalan Act 1/2022.

Background: Act 1/2022

Act 1/2022, of March 3, amending Act 18/2007, Act 24/2015 and Act 4/2016, addressing the urgent housing situation ("Act 1/2022"), adopted housing measures that significantly affected the following matters:

• The concept of large housing asset holder, introduced under Act 24/2015, of July 29, adopting urgent measures to address the urgent housing and energy poverty situation ("Act 24/2015").
• The compulsory social rent system imposed under Act 24/2015, obliging large housing asset owners (and certain buyers of properties falling into mortgage foreclosure) to put forward a social rent proposal to individuals at risk of housing exclusion before filing a claim for eviction due to non-payment of rent or a mortgage foreclosure claim.
• The causes of noncompliance with the social function of the property, which includes compulsory expropriation of unoccupied housing and protected housing.

 For further details, see our Legal Flash |  Catalan emergency housing act.

Articles declared unconstitutional

The ruling of the Constitutional Court of October 8, 2024 (the “Ruling”) has declared the following articles of Act 1/2022 to be unconstitutional because they violate the reservation of jurisdiction of the State:

• In terms of the compulsory social rent system:
• Article 1.3, establishing that failure to put forward a social rent proposal when compulsory was considered to be a breach of the social function of the housing property.
• Article 11, providing that beneficiaries of social rent were entitled to a single renewal of their rental agreement for the same length of time if, before it expired, they could prove they were still at risk of housing exclusion.
• Partially, article 12, extending the situations where a social rent proposal must be made prior to any enforcement procedure arising from a claim for mortgage debt and the following eviction orders:
•  Expiry of rent due date.
• Lack of legal title enabling occupation if the situation has arisen from a mortgage enforcement proceeding filed by the large property holder.
• In certain cases, large property owners that are an asset management institution, a venture capital fund or an asset-backed securities fund were also obliged to put forward a social rent proposal to occupants without legal title.

Likewise, this article provided that any ongoing proceedings had to be suspended if it was not proven that a rental offer had been made and it established a minimum social rent period (five to seven years, depending on whether the owner was an individual or a legal entity).

• The transitory provision, establishing the retroactive application of the obligation to offer and renew the social rent to judicial proceedings initiated before the entry into force of Act 1/2022 and are still in process.

• Regarding noncompliance with the social function of the housing property, article 7, establishing that if the purchaser of the housing property was a legal entity, it would be forced to answer for any implications arising from the previous owner’s noncompliance, imposing on the purchaser a kind of objective liability attached to the housing property. Thus, the purchaser could be fined for the previous owner’s acts.

Effects of the declaration of unconstitutionality

In general terms, the Ruling will not affect consolidated legal situations and, therefore, nullity of the articles will only have pro futuro effects, meaning that any terms of social rental agreements entered into before the Ruling must be maintained.

Conversely, the Ruling considers that the unconstitutionality of the rule establishing an objective liability for the purchaser attached to the housing property (article 7 Act 1/2022)—has effects on proceedings concluded by a judgment with the force of res judicata.

Finally, it is worth clarifying that, in spite of the partial unconstitutionality of article 12 of Act 1/2022, it is still obligatory to put forward a social rent proposal in the scenarios provided under Act 24/2015. Thus, it is still compulsory to put forward a social rent proposal before filing a mortgage foreclosure claim or a claim for eviction due to non-payment of rent.