Blog

EXTRAORDINARY REGIME FOR DELAY ON RENTAL PAYMENT DUE ON HOUSE AND NON-HOUSE LEASING CONTRACTS IN THE CONTEXT OF COVID-19 PANDEMIC

As in the case of other areas, the Government has now come to establish exceptional measures applicable to lease contracts, which are in force during the state of emergency and in the first month following its expiry.

Thus, Law No. 4-C/2020, of 6 April, was published, which came into force on 7 April and which establishes an exceptional system of late payment of rent or, alternatively, the possibility of appeal to a loan to be granted by the Institute of Housing and Urban Rehabilitation, IP (IHRU, IP).

For the analysis of the lease regime during the state of emergency, it is also necessary to take into account Law no. 4-A/2020, of 6 April, Decree no. 2-B/2020, of 2 of April, Decree-Law no. 10-A/2020, of 13 March and Ordinance no. 91/2020, of 14 April.

Pursuant to Law No. 4-A/2020, for the duration of the measures for the prevention, containment, mitigation and treatment of the epidemiological infection by SARS-CoV-2 and the disease COVID-19, as determined by the public health authority and up to 60 days after the cessation of such measures, it`s suspended:

a) The expiry of housing and non-housing lease agreements, unless the tenant does not object to termination;

b) The effects of the revocation, of the opposition to the renewal of housing and non-housing lease contracts carried out by the landlord;

c) The deadline for demanding the return of the building indicated in article 1053 of the Civil Code, if the expiration of that period occurs during the period of time in which the said measures are in force;

d) Foreclosure on property that constitutes own and permanent housing for the executed.

During this phase, eviction actions, special eviction procedures and processes for the delivery of leased mobile assets are also suspended, when the tenant, due to the final court decision to be handed down, may be placed in a situation of fragility due to lack housing or for other compelling social reasons.

With regard to Law no. 4-C/2020, of April 6, this applies to the entire national territory, not only to housing and non-housing leasing, but also to other contractual forms of real estate exploitation.

HOUSING LEASE

TENANTS

Law no. 4-C/2020, of 6 April applies when the following requirements are met:

• Drop of more than 20% of the tenant’s household income compared to the income of the previous month or the same period of the previous year; and
• Rate of effort of the tenant’s household, calculated as a percentage of the income of all members of that household destined to the payment of the rent, is or become greater than 35%;

OR

LANDLORDS

• Drop of more than 20% of the landlord’s household income compared to the income of the previous month or the same period of the previous year; and
• This percentage of the loss of income is caused by the non-payment of rents by the tenants under the provisions of this law.

Two alternative schemes are instituted: default on rent payments and financial support through the use of a loan.

DEFAULT ON RENT PAYMENTS

• Possibility of paying rents due during the state of emergency and in the first month thereafter, within 12 months from the end of that period;
• Payment is made in monthly instalments of not less than a twelfth of the total amount due, paid together with each month’s rental;
• During this period the landlord is not entitled to compensation for late payment in the amount of 20% of the amount due, pursuant to paragraph 1 of article 1041º of the Civil Code;
• The right to refuse to receive the following rents is not applicable under the terms provided for in paragraph 3 of article 1041º of the Civil Code;
• The landlord will only be able to terminate the contract on the basis of non-payment of rent due during the state of emergency and in the first month thereafter, if the tenant does not fulfil the payment within the next 12 months;
• Arrears may apply to secondary housing.

FINANCIAL SUPPORT

• Concession by the IRHU, I.P. of an interest-free loan to support the difference between the amount of monthly rent due and the amount resulting from applying a maximum effort rate of 35% to household income, in order to allow the payment of the rent due, and the remaining disposable income of the household cannot be lower than the social support index (IAS) (€ 438,81);
• Applies only to the rental of permanent housing;
• Housing tenants and guarantors may be beneficiaries, in the case of students who do not earn income from work, who, having proven the breach referred to in A) above, are unable to pay the rent for their permanent housing or, in the case of students, which constitute residence by frequency of educational establishments located at a distance superior than 50 km from the permanent residence of the household;
• Does not apply to tenants whose drop in income determines the reduction in the value of the rent, within the scope of special rental or income regimes, such as the supported lease, the supported rent and the social rent;
• Property owners who are proven to have the income drop referred to in B) above may also be beneficiaries of this loan, if the tenants do not use the IHRU, IP loan. This interest-free loan aims to offset the monthly rent, due and not paid, whenever the remaining disposable income of the household falls, for that reason, below the IAS.

Statement of income loss:

The break in the income of the tenant, the student with a lease for housing located at a distance superior than 50 km from the permanent residence of his household, for frequency of educational establishment and the guarantor of tenant who is a student and does not earn income of work, is demonstrated as follows:

• By comparing the sum of the income of the members of the household in the month in which the determining cause of the change in income occurs with the income earned by the same members of the household in the previous month, or
• In the case of members of the household in which most of their income derives from CIRS category B business or professional work, when the billing of the month prior to the drop in income is not representative, they may choose to demonstrate the decrease in income with reference to the income for the same period of the previous year, maintaining the previous provision for the remaining members of the household.

In the case of landlords the break is demonstrated as follows:

• By comparing the sum of the income of the members of the respective household in the month in which there is a non-payment of rents due by their tenants with the income earned by the same members of the household in the previous month, or
• In the case of members of the household in which most of their income derives from CIRS category B business or professional work, when the billing of the month prior to the drop in income is not representative, they may choose to demonstrate the decrease in income with reference to the income for the same period of the previous year, maintaining the previous provision for the remaining members of the household.

Income considered relevant for the purpose of demonstrating the breach:

a) In the case of income from dependent work, the respective gross monthly amount;

b) In the case of CIRS category B business or professional income, the amount before VAT;

c) In the case of pension income, the respective gross monthly amount;

d) In the case of property income, the value of the rent received;

e) The monthly amount of social benefits received on a regular basis;

f) The monthly amount of housing support received on a regular basis;

g) The values of other income received on a regular or periodic basis.

Evidence:

• Income from dependent work is evidenced by the corresponding salary receipts or by a declaration from the employer;
• Business or professional income is evidenced by the corresponding receipts or, in cases where its issue is not mandatory, by the invoices issued under the legal terms;
• The income referred to in subparagraphs c) to g) above, is evidenced by documents issued by the paying entities or by other documents evidencing the respective receipt, namely obtained from the websites of the Tax and Customs Authority and Social Security, or by the declaration under the honour’s commitment beneficiary, when it is not possible to obtain that declaration, taking into account the nature of the benefit;
• The landlord’s drop in income from the tenant`s failure to pay rent is demonstrated by the landlord through the corresponding notice from the tenant.

When it is not possible to obtain proof of the value of the income referred to in subparagraphs b) to f) above, the income may be certified by a declaration by the employee, under honour, or by the certified accountant in the case of self-employed workers in the organized accounting regime.

The proof of income subject to these declarations must be delivered within a maximum period of 30 days after the date of communication to the landlord or of the application submitted to the Institute of Housing and Urban Rehabilitation, IP, as the case may be, unless the receipt of proof is still depend, at the date, on issuance by a competent entity for the purpose, in which case this fact must be communicated to the landlord or to IHRU, IP, as the case may be, with an indication of the expected date for obtaining it.

Tenants who are unable to pay the rent have a duty to inform the landlord of this impossibility, in writing, up to 5 days before the expiration of the first rent in which they intend to benefit from these schemes, attaching the supporting documentation of the loss of income.

This communication should preferably be made by email.

For rents due on April 1, 2020, notification to the landlord can be made up to 20 days after the law comes into force, that is, until April 27, 2020.

People who, for demonstrating the drop in income, deliver or subscribe to documents that constitute or contain false declarations, are responsible for the damages that may occur, as well as for the costs incurred with the application of these exceptional measures, without prejudice to another type of responsibility generated by the conduct, namely criminal.

NON-HOUSING LEASE

• The regime stipulated in Law no. 4-C/2020 regarding non-residential leasing provides only solutions for tenants and, among them, only for the following:
• Establishments open to the public for retail and service provision activities closed or whose activities are suspended under Decree no. 2-B/2020, of April 2, or by legislative or administrative determination, pursuant to Decree-Law no. 10-A/2020, of 13 March, in its current wording, or under the Basic Law for Civil Protection, approved by Law no. 27/2006, of 3 July, in its current wording, of the Basic Law on Health, approved by Law No. 95/2019, of September 4, or other provisions aimed at implementing the state of emergency, including in cases where they maintain the provision electronic commerce activities, or to provide services remotely or through an electronic platform;
• Catering establishments and similar, including when they maintain activity for the exclusive purpose of making food for consumption outside the establishment or home delivery, under the terms provided for in Decree No. 2-B/2020, of 2 April, or any other provision that allows it.
• The tenant who fulfils the requirements indicated above can pay the rents due during the state of emergency and in the first month thereafter within 12 months from the end of that period;
• Payment is made in monthly instalments of not less than a twelfth of the total amount due, paid together with each month’s rent;
• The tenant has the same duty to inform the landlord foreseen for the housing tenant;
• During this period, the payment of any penalties based on the delay in the payment of rents is not required;
• Impossibility of invoking the failure to pay rents due in the months in which the state of emergency prevails and in the first subsequent month, as a basis for resolution, termination or other form of contract extinction or as a basis for the obligation to vacate buildings;
• There is no provision for a financial support regime such as that applicable to housing leases.

PUBLIC ENTITIES

• Public entities with properties leased or assigned under another contractual form may, during the period of validity of this law, reduce rents to tenants who have proven to have a drop in income greater than 20% compared to the previous month or the same period of the previous year, when it results in an effort rate greater than 35% in relation to income;
• It does not apply to tenants who are beneficiaries of special housing or income rental schemes, such as supported lease, supported rent and social rent;
• Possibility to exempt tenants who prove that they have ceased to receive any income after March 1, 2020;
• Possibility of establishing moratoriums on its tenants.

The termination of the contract on the initiative of the tenant makes it mandatory, from the date of termination, the immediate payment of past due and unpaid rents, under the terms of Law no. 4-C/2020, of April 6.

April 14, 2020

Filipa Correia Pires