Covid-19 – Late payment in rents

It was published and enters into force today, with effects on April 1, 2020, Law No. 4-C/2020, establishing new measures applicable to the Real State sector due to the pandemic caused by the new coronavirus.

Housing Lease

The new set of measures will apply to rental contracts for housing purposes when one of the following situations occurs:

1. A drop of more than 20% of the lessee’s household income compared to the income of the previous month or the same period of the previous year; and the level of effort of the lessee’s household, calculated as a percentage of all members’ income of that household, intended for rental payment, of at least 35%; or
2. Landlords with a drop of more than 20% of income compared to the income of the previous month or the same period of the previous year; and that percentage of the income break is caused by the lack of payment of rents by the tenants under the provisions of the law.

Therefore, Landlords will only be allowed to terminate lease on the grounds of non-payment of the rents due in the months in which the state of emergency is in force and in the first month thereafter, if the lessee does not make the payment of the outstanding rents within 12 months from the end of that period. Rents can be paid in monthly instalments not less than one twelfth of the total amount, paid together with the monthly rent.

On the other hand, it is possible to request a free interest loan to the Institute of Housing and Urban Renewal (IHRU, I.P), under the following terms:

1. Lessees and guarantors of students not earning work income, who have proven to have a drop of 20% of income and are unable to pay the rent of their permanent residence or, in the case of students, their educational residence, if it is located at a distance of more than 50 km from the permanent residence;
2. Landlords that suffer a drop of more than 20% of income compared to the income of the previous month or the same period of the previous year; and that percentage of the income break is caused by the non-payment of rents by the tenants under the provisions of the diploma.

Lessee’s loan aims to support the difference between the amount of the monthly rent and the amount resulting from the application to the household’s income of a maximum effort rate of 35 %, in order to allow the payment of the due rent. The remaining disposable income of the household cannot be lower than the indexing of social support (IAS – EUR 438.81).

For landlords, the loan will compensate the amount of the monthly rent, due and unpaid, whenever the remaining disposable income of the household falls, for this reason, below the IAS (EUR 438.81).

It shall be noted that, in order to be able to use the regime set forth in the diploma, the lessees must inform the landlord in writing at least five days before the due date of the first rent, adding, for this purpose, the evidence of the situation of income decrease. However, for rents that have expired on the 1st of April, the deadline for notification is 20 days after the date of entry into force of the law (7th of April).

Non-Housing Lease

For the leases for non-housing purposes the new measures will be applied as follows:

1. Establishments open to the public for retail activities and for the provision of services that have been closed or that have had their activities suspended under administrative or legal orders by virtue of the state of emergency in Portugal;
2. Restaurant and similar establishments, including cases where they operate exclusively for take-away or home delivery.

In this case, the lessee of the affected establishments may defer payment of rents due in the months in which the state of emergency takes place and in the first subsequent month for the 12 months after the end of that period. The payment of the outstanding rents shall be made in monthly instalments in the amount of not less than one twelfth of the total amount. These instalments must be paid together with the rent of the month concerned.

The failure to pay rents in the months in which the state of emergency is in force and in the first subsequent month cannot be invoked as grounds for termination or other form of termination of lease contracts, nor be grounds for eviction.

Finally, it should be noted that any of these situations will lead to the payment of a compensation for the delay in payment, which currently corresponds to 20% of the amount of due rent.

Additionally, these measures will also apply to other contractual forms respecting the exploitation of real state for non housing purposes.

Public Entities

Under the law, public entities with leased properties (by any other form object of use agreements) may reduce rents to tenants who have proven to have suffered a decrease in their income of more than 20 % compared to the income of the previous month or the same period of the previous year, when the payment of the rent results in a level of effort of more than 35 % in relation to the income.

For more information please contact us at: jlp@ccsllegal.com

[Photo: Ricardo Resende, available at: unsplash.com]