COVID-19: Portuguese Government draft bill establishes an exceptional regime for deferral of rental payments
Real Estate Portugal Alert
On March 26, 2020, the Government approved and submitted to Parliament a proposal for exceptional legislation (Draft Bill nº 21/XIV) that will allow for the deferral of the payment of rents due under lease agreements, during the emergency period of the epidemic caused by the SARSCoV-2 coronavirus and the COVID-19 infectious disease.
The exceptional regime applies to residential and non-residential leases, and also to other forms of real estate occupational agreements (notably to agreements for the use of retail units in shopping centres and other similar atypical agreements).
The measures proposed by the Government cover the following:
1. Residential leases
Any rents accruing between April 1, 2020 and the first month following the end of the state of emergency declared in the country can be deferred, without being subject to penalties or interest for default otherwise applicable under the law (article 1041/1 of the Portuguese Civil Code) or by contract, by residential tenants who, cumulatively:
- Have had a shortfall of more than 20% in their household income as compared to the previous month or similar period in the previous year; and, cumulatively,
- The effort rate calculated as a percentage of the household income of all family unit members used for the payment of rent is equal to or higher than 35%.
Evidence of the shortfall in revenue is to be provided in the terms of the ordinance to be approved by the member of the Government responsible for the residential sector.
In the foregoing cases, those lessees who defer the payment of rents in respect of the period indicated must pay those rents in full within a period of 12 months as from the conclusion of the first month following the end of the state of emergency, in monthly repayments of no less than one twelfth of the total amount, paid along with the rent for each month. In this case, the lessor will not be entitled to terminate the lease agreement based on a lack of payment of any rents accrued.
During the time this law applies, those lessees meeting the conditions and intending to benefit from this exceptional regime must inform the lessor in writing that they are not able to pay the rent, no later than 5 days before the first rent for which they intend to defer falls due, attaching the documentation verifying the situation of a shortfall in revenue of more than 20% and a more severe effort rate in the terms indicated above. In the case of those rents falling due on April 1, 2020, the notification to the lessor may be made up to 10 days after the entry into force of the law.
2. Financial support for rental housing
Those residential tenants and, in the case of students who do not have any revenue from employment, their respective guarantors, who have proven they have a shortfall of more than 20% in the revenue of the family unit, and are unable to pay the rent of the rooms comprising their permanent residence, may ask the Portuguese National Housing Institute (Instituto da Habitação e da Reabilitação Urbana, I.P.) (IHRU) for the grant of an interest-free loan to cover the difference between the amount of the monthly rent due and the amount of rent they can cover in accordance with their revenue and residential unit, in the terms regulated by the IHRU. It should be noted that those lessees making use of these loans will not benefit from the right to defer payment of the rent during the state of emergency, and will therefore still be obliged to make the respective prompt payment to the lessor.
The Draft Bill also establishes that the IHRU may also provide financial support to those residential lessors who (i) have verified a shortfall in revenue of more than 20% of the revenue of their family unit compared to the revenue of the previous months or a similar period from the previous year, provided that (ii) this percentage of a shortfall in revenue is caused by the non-payment of rents of lessees under the provisions of this law. Unless the respective lessees have themselves resorted to a loan from the IHRU in the terms described above (in which case the obligation to promptly pay the rent will continue), any lessors in that situation may ask the IHRU for the grant of an interest-free loan to offset the amount of the monthly rent, outstanding but unpaid, providing that, because of this, the remaining disposable income of their unit falls below the social benefit index rate (indexante de apoios sociais) (IAS).
3. Lease for non-residential purposes and other forms of commercial agreements for the occupation of real estate
Those lessees holding the properties below may also defer the payment of rents falling due between April 1 and the first month following the end of the state of emergency declared in the country, without being subject to the payment of default interest or any other penalty of a contractual nature for this reason:
a) Establishments open to the public for retail activities and the provision of services which are closed or have had their respective activities suspended under Decree nº 2-A/2020, dated March 20, or under any legislative or administrative order aimed at implementing the state of emergency, including those cases in which they continue to carry out activities online, or provide services remotely or through electronic platforms; and
b) Restaurants and similar establishments, including cases in which they continue their activity for the sole purpose of takeaway service or home deliveries, in the terms established under Decree nº 2 A/2020, dated March 20 or any other provisions allowing for this.
Those lessees who defer the payment of rents corresponding to the period indicated must pay these rents in full within a period of 12 months as from the conclusion of the first month following the end of the state of emergency, in monthly repayments of no less than one twelfth of the total amount, paid along with the rent for each month.
Any failure to pay rents falling due up to the first month following the end of the state of emergency cannot be invoked as grounds for termination or any other form for the extinction of agreements, nor as a basis for eviction from the properties they cover.
The approval of this draft bill, and of the regulatory ordinance, is expected very soon, which we will report along with any potential amendments to the content of the former.