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Legal alert no. 24

Main Amendments to the “NRAU”

According to the final approved draft, it is foreseen an extension of the transitional period for the update of the rents regarding lease agreements for residence purposes entered into prior to the effectiveness date of the Urban Lease Regime (“RAU”), approved by Decree-Law no. 321-B/90, of October 15th, as well as lease agreements for non-residence purposes entered into prior to the effectiveness date of the Decree-Law no. 257/95, of September 30th.

Thus, the approved draft foresees an extension from five to eight years of the transitional period for the update of the rents, regarding old leases, for tenants who claim and prove that the Corrected Annual Gross Income (“RABC”) of their household is lower than the corresponding to five national minimum guaranteed wages (“RMNA”). Furthermore, in accordance with the approved draft, at the end of the eight year period, the landlord is entitle to promote the transition to the “NRAU”, and in the absence of a reply from the tenant or lack of agreement between the parties regarding the nature and duration of the agreement, a term of five years will be automatically established, in place of the current period of two years provided by the “NRAU”.

Also, according to the final draft of the Draft Bill, it is established that tenants that, besides having claimed and proved that the “RABC” of their household is lower than five “RMNA”, have 65 years of age or more or a disability with a degree equal or superior to 60 %, will benefit from an extension of the transitional period from five to ten years, that is to say, additional five years to the current period.

Additionally, the new legal framework also provides an amendment to the ranges establishing the amount of the rent during the transitional period, through the introduction of two new ranges, being the rents updated in order to correspond to a maximum of 25%, 17%, 15%, 13% or 10% of the “RABC” of the tenant’s household, according to their income.

Lastly, the final draft of the approved Draft Bill also establishes an extension of the transitional period from five to ten years for lease agreements for non-residence purposes that claim one of the legally provided situations [micro companies, private non-profit institutions and student fraternities (República de Estudantes)]. Moreover, the final version of the Draft Bill also provides that, at the end of the ten years period, the landlord is entitle to promote the transition of the agreement to the “NRAU”, and in the absence of a reply from the tenant or lack of agreement between the parties regarding the nature and duration of the agreement, a term of five years will be automatically established, that is to say an additional two years added to the current provided period.

Main Amendments to the “RJOPA”

Several amendments to the “RJOPA” were also added resulting in a stronger protection of the tenants in case of execution of works in the rented property.

In this regard, the amendment to the “RJOPA” provides a new concept of profound rehabilitation and restoration works, which completion may justify the termination of the lease agreement. For this purpose, the Draft Bill defines this rehabilitation works in accordance with the definition legally provided by the Legal Regime of Urbanization and Edification for rehabilitation, modification and expansion works.

Furthermore, and in relation to the modification or expansion works, for them to be considered as a profound rehabilitation or restoration, it is necessary that once concluded it will provide the leased property with a good or superior conservation condition. Moreover, it is also require that the cost of the rehabilitation work, including VAT, corresponds to at least 25% of the renovated property, or of the amount proportionally calculated whenever this amount does not correspond exclusively to the leased property.

It should be noted that the amendment added for the increase of the amount of the compensation due to the tenant in case of termination of the agreement by the landlord in order to complete rehabilitation works, which is increased to two years of rent, instead of the current value of one year of compensation, being that this value may not be lower than the double of the amount of one fifteenth of the property, should also be highlighted.

Another relevant amendment to be pointed out refers to the period of resettlement in cases of deep rehabilitation and restoration, which shall be of three years, instead of the current established period of two years, whenever the parties choose the rehabilitation option as an alternative to the compensation.

In case of termination of the lease agreement, and pursuant to the final draft of the Draft Bill, an amendment related to the period of eviction of the property by the tenant is set, which is now of 60 days upon the confirmation of the termination of the lease agreement by the landlord, instead of the current 15 days provided by the “RJOPA”. Furthermore, 50% of the compensation is now due by the landlord after the confirmation of the termination of the agreement and the remaining amount is due upon the delivery of the property, under penalty of ineffectiveness of the correspondent termination, differently from the current full payment due by the landlord upon the delivery of the property.

It is also added an amendment related to the assignment of the lease agreement caused by death of the tenant, which shall not terminate, being applied the general regime foreseen for the assignment to the spouse, unmarried partner, ascendants and descendants with residency at the property.

Lastly, it is also included in the “RJOPA” a pre-emption right in case a new lease agreement is signed regarding to a property which has been terminated for rehabilitation purposes. Thus, if the property is leased again, the evicted tenant will have a pre-emption right over the scope of the new lease agreement, during a two year period as of the termination of the lease.

Main Amendments to the Civil Code

In relation to the amendments regarding the provisions of the Civil Code, the final draft of the Draft Bill provides that, the termination of the lease by the landlord based on the lack of payment of the rents due, shall occur solely in case of delay in payment for three months or more, instead of the two months currently provided by the no. 3 of article 1083º of the Civil Code.

Furthermore, it is added an amendment over the regime of termination of the lease agreement by the landlord, justified in the opposition of the tenant to construction works ordered by a public authority, as the tenant will now have 60 days to cease the opposition and, therefore, to avoid the termination of the lease agreement, instead of the current established period of one month.

Lastly, it is also important to point out that the subsidiary period for the lease agreement for residence purposes is now defined in five years, in case the agreement does not set any other period, different from the current subsidiary period foreseen of two years.

Finally, we highlight that this recently approved Draft Bill is currently still subject to the Presidential assent required in order to be published in the Official Gazette of the Portuguese Republic.

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