Coronavirus: Payment of Rents and Other Remunerations – Deferral and New Rules 

August, 2020 - Rita Alarcão Júdice; Francisco Lino Dias

COVID-19 and the measures to mitigate the disease have had an enormous impact on people’s lives and on many sectors of the economy. In response, with regard to lease agreements and other forms of commercial use of real estate premises, the Portuguese legislature decided to introduce exceptional rules for situations of late payment of rent and other payments under said agreements. The legislature also provided financial support in the case of leases for housing purposes and introduced rules that limit the termination of such agreements and the eviction of the tenants. The above rules were set out in Law 4-C/2020 of April 6 (initially amended by Law 17/2020 of May 29) and Law 1-A/2020 of March 19 (as successively amended) 1.

These rules were subsequently strengthened, in particular with regard to lease agreements for non-housing purposes, by the introduction (through Law 27-A/2020 of 24 July) of article 168-A in Law 2/2020 approving the State Budget (the “State Budget Law”) and by Law 45/2020, of 20 August, which further amended Law 4-C/2020 of 6 April.

Article 168-A of the State BudgetLaw

Under article 168-A (5) of the State Budget Law, no amounts will be payable as minimum rent until 31 December 2020 in the case of specific forms of agreements to operate commercial and services properties in shopping centres. Until this date, only the variable component of the rent, calculated based on sales made by the tenants is due. Tenants must also pay the contractually agreed expenses, including the common expenses and charges.

Articles 168-A and 168-B of the State Budget Law also include a set of rules on support for the payment of rents due under lease agreements non-housing purposes. These rules address, in particular, moratoriums and the loans granted by the Housing and Urban Rehabilitation Institute, I.P.

1. Scope of application

Law 4-C/2020 of 6 April – regarding non-housing lease agreements – applies to agreements for the following establishments:

  • Establishments open to the public for retail trade and the provision of services that are closed or have their activities suspended (i)under Decree 2-A/2020 of 20 March, (ii) by legislative or administrative decision under Decree-10-A/2020 of 13 March, as amended, (iii) under the Basic Law of Civil Protection, approved by Law 27/2006 of 3 July, as amended, (iv) under the Basic Law of Health, approved by Law 95/2019 of 4 September, or (v) under other provisions to implement the state of emergency and after its termination, (vi) under a legal provision or administrative measure approved in the context of the COVID-19 pandemic, that determines the closure of facilities or suspension of activities. This includes cases where the business continues to trade using e-commerce, or to provide services at a distance or through an electronic platform;
  • Restaurants and similar establishments closed under the above provisions, including in cases where they continue to operate exclusively to prepare food intended for consumption outside the establishment or for home delivery, under Decree 2-A/2020 of 20 March, or any other provision that allows this.

2. Period of deferment

Law 45/2020 of 20 August extended the period during which the rent due under agreements for establishments in the situations described in 1 above may be deferred.

The previous rules already allowed the deferment of the payment of rent due between 1 April 2020 and the first month following the lifting of the restrictive measures, with the maximum limit being 1 September 2020.

The legislative amendment now approved extends the deferral period to cover the rent due until the third month after the month of the lifting of the imposed closure of the facilities or suspension of the activity occurred. However, it does establish that the deferral will not apply to any rent due after 31 December 2020.

Landlords whose tenants cease to pay rents under these arrangements can now ask for a line of credit with reduced costs. This facility is still to be regulated and its purpose is to cover the difference between the monthly rent due and the amount that results from applying to the landlord’s monthly income / monthly billing (orequivalent) of a maximum effort rate of 35%. Thisamount will have to be demonstrated under the terms of an ministerial order to be approved.

3. Settlement period

The period to settle the debts resulting from the deferral of rents has been increased.

Under the previous rules, deferred rents were to be paid from 1 September 2020 or, if earlier, after the end of the first month following the month in which the above restrictions were lifted, and the settlement was to be completed by June 2021.

With this new amendment to Law 4-C/2020 of 6 April, the period to settle outstanding rent has also been extended to 24 months. The period now begins on 1 January 2021 and extends until 31 December 2022.

The payment of the deferred amounts is to be made in 24 successive instalments, in the amount corresponding to 1/24 of the deferred amount, paid together with the monthly rent or remuneration. In cases where the payment is not monthly, it must be paid by the 8th day of each month.

The amendment now published also clarifies that the total amount owed excludes the rents due and already paid, which are considered, for all purposes, settled.

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