On 18 January 2015, Law No. 79/2014, of 19 December, amending the following legal frameworks, came into force:
The substantive lease regime, set out in the Civil Code, enacted by Decree-Law No. 47,344, of 25 November 1966;
The New Urban Lease Regime ("NRAU"), enacted by Law No. 6/2006 of 27 February, amended by Law No. 31/2012 of 14 August;
the legal framework of works in leased buildings, enacted by Decree-Law No. 157/2006, of 8 August, amended by Decree-Law No. 306/2009 of 23 October, and by Law No. 30/2012 of 14 August; and
The legal frameworks of determination of the annual gross corrected income and granting of rent subsidy enacted by Decree-Law No. 158/2006 of 8 August, amended by Decree-Law No. 266 C / 2012 of 31 December.
Below, we shall analyze the main changes to the transitional and rent update framework, as well as to the legal framework of works in leased buildings.
Transition to the NRAU of Residential Leases previous to the RAU
First of all, in the initial communication to the tenant, in addition to having to attach a copy of the caderneta Predial urbana (property tax document) and state the amount of the rent, the proposed type and duration of the agreement and the value of the leased premises, the landlord must now also indicate:
That the period for responding is 30 days;
The content that the tenant may present in his or her reply;
The circumstances that the tenant can claim, alone or together with the reply and within the same period, and the requirement need o submit the relevant supporting documents; and
The consequences of the failure to reply, as well as of the failure to claim any circumstances of exception.
As part of the tenant's reply, the latter is now entitled to complain against the tax assessment of the leased premises. Note that the taxable value of the property is taken as basis in those situations in which tenants and landlords do not agree on the amount of the rent.
According to the law, such complaint does not suspend the rent updating process, but should it determine a reduction of such rent, the tenant shall be entitled to recover the amount unduly paid.
On the other hand, the level of protection for disabled persons or persons with a degree of incapacity of 60% is extended. Previously, this special protection was only granted to persons with a level of disability or incapacity of more than 60%.
It should be noted that, notwithstanding that in his or her initial response the tenant must prove the exceptional circumstance possibly claimed, over the five-year transition period, the tenant will only have to prove it if so requested by the landlord until the day September 1 of then current year, and shall do so until the 30th of that month.
Finally, should the tenant, in his reply, choose to give notice of non-renewal of the agreement, the new law provides that the same continues to be compensated for the works lawfully carried out, under the terms applicable to the improvements made by a bona fide possessor, regardless of the provisions of the agreement and now including the works that have not been authorized by the landlord.
Transition to the NRAU of Non-Residential Leases prior to Decree-Law No. 257/1995
As regards to rules of procedure, as happens in residential leases, in the initial communication, the landlord must now also indicate:
That the period for responding is 30 days;
The content that the tenant may present in his or her reply;
the circumstances the tenant can claim, alone or together with the reply and within the same period, and the requirement to submit the relevant supporting documents; and
The consequences of the failure to reply, as well as of the failure to claim any of the circumstances of exception.
Concerning the claim of exceptional circumstances in the reply of the tenant, there were also some amendments, as explained below.
To begin with, there has been an extension of the business entities covered, since the concept of micro-entity has been replaced by that of micro-company, which is deemed to be the company that does not exceed two of the three following limits:
Balance sheet total of € 2,000,000.00;
Net turnover of € 2,000,000.00; and
10 employees on average during the year.
Second, these exceptional arrangements will now also apply to private non-profit legal persons, engaged in a non-professional cultural, recreational, social solidarity or sporting activity, declared as being of public interest or of national or municipal interest, or to private legal persons that pursue an activity declared to be of national interest.
Third, for the entities claiming any of the exceptions, at the end of the five-year transition period and in the absence of an agreement between the parties as to the type or duration of the agreement, the protection period is extended for another three years (previously two), resulting in a total transition period of eight years.
Note that this extension of the transition period covers entities that were already protected and those that become protected under the new law.
Fourth, in the event of termination of the lease by the landlord, the tenant becomes entitled to compensation for the improvements made, regardless of the provisions of the agreement and that the works have not been authorised.
Finally, it should be noted that, similarly to what was mentioned in respect of residential leases, also in non-residential leases the tenant is entitled to complain against the tax assessment of the leased premises or give notice of non-renewal of the agreement in its reply, in which case it will be entitled to compensation for the improvements made, regardless of the terms of the agreement and that the works have not been authorized by the landlord.
Works in Leased Buildings
With regard to the amendments to the legal framework of works in leased buildings, we draw your attention to the following main points:
Execution of conservation works and procedures to be followed by the landlord to have the leased premises vacated; and
Right of non-renewal of the lease agreement for demolition or to carry out extensive renovation or restoration works.
Regarding the first point, if vacating the leased premises is indispensable for the implementation of conservation works, the landlord shall be entitled to request the tenant, with a minimum of three months notice, to vacate the leased premises for the period necessary, which cannot exceed 60 days.
In this case, the landlord is required to relocate the tenant in conditions similar to the ones he or she has in the leased premises, and shall bear the costs inherent to the relocation. Furthermore, the tenant shall be entitled to compensation for damages that may arise from non-compliance with the maximum 60-day term referred to above.
Note also that the landlord can only communicate the need to vacate the leased premises to carry out maintenance works, if he or she has not used the same power in the previous eight years and if the agreement has been in force for an effective period of at least two years.
Regarding the amendment referred to in ii) above, the reform of this law determined that extensive refurbishment or restoration works are works of alteration, extension or reconstruction, subject to prior authorization in accordance with the legal framework of urban development and construction and the legal framework of urban regeneration.
The review of the concept of extensive refurbishment or restoration works excludes from its scope works not subject to prior control, in particular the above-mentioned conservation works, which, consisting in a legal obligation of the landlord, no longer justify non-renewal of the lease agreement.
The termination of open-ended lease agreements to perform extensive refurbishment or restoration works requires the landlord, by agreement and as an alternative, to pay compensation equal to one year of rent or to ensure the resettlement of tenant for a period of not less than two years.
The landlord is entitled to give notice of non-renewal of the agreement for demolition when the latter:
Is ordered by the competent authorities pursuant to legal framework of urban development and construction and the legal framework of urban regeneration;
Is made necessary by the degradation of the building, to be attested to by the municipality; or
Arise fully from the applicable land management plan, in particular from a detailed urban regeneration plan.
Similarly, in these cases too, the landlord is required to pay to the tenant compensation equal to a year’s rent, except in situations where the order or the need for demolition not the result of a culpable action or omission on his or her part.
To make the non-renewal effective, the landlord must send a communication to the tenant no less than six months before the intended date of vacancy, which communication shall state the grounds for such vacancy, failing which it shall be ineffective.
In order to be effective, the termination must also be accompanied by:
Proof that a prior control procedure concerning the urban project to be carried out at the leased premises has been initiated with the competent authority; and
Formal declaration of the legally qualified technician that is the author of the project stating that the urban project to be carried out corresponds to extensive refurbishment or restoration works or demolition works , under the terms set out above, as well as the reasons why the execution of the works requires that the leased premises be vacated.
To be effective, the notice of non-renewal referred above must also be confirmed, by means of a notice to the tenant, accompanied by:
Works permit or prior communication instrument;
A document issued by the competent Town Council attesting that the urban project to be carried out at the leased premises constitutes alteration, extension or reconstruction works, subject to prior control or that it constitutes demolition works in respect of which one of the three situations referred to above arises, should this not follow from the document referred to in the previous paragraph.
In the latter case, the leased premises must be vacated within 15 days after receiving the confirmation, unless the six-month period referred to above has not lapsed, in which case the leased premises shall be vacated until the end of the last of these periods.
Note that the compensation due for the non-renewal in these circumstances must be paid upon handover of the leased premises, failing which the non-renewal shall be ineffective.
Finally, with regard to non-residential leases, in case of termination of the lease agreement by the landlord to carry out the works referred to in ii) above, the tenant becomes entitled to compensation for the improvements made, regardless of the provisions of the agreement and that the works have not been authorised.
Conveyance mortis causa
In the context of non-residential leases entered into before the effective date of Decree- Law No. 257/1995 of 30 September, the legislator extended the possibility of conveyance mortis causa, to include the situations in which the successor pursues a liberal profession in the leased premises in common with the original tenant for more than three years, similarly to what used to happen in the cases in which the successor had been operating a commercial establishment in common with the original tenant, under similar circumstances.