A tenancy deposit to rent a house is often a cause of friction between landlords and tenants. Deposits on rental are regulated legally by the Portuguese Civil Code, but it is not always easy for both parties to understand their rights and responsibilities when it comes to deposits. Therefore, we decided to address this issue today and explain everything that is at stake when it comes to paying or collecting a deposit, which is known as a ‘caução’ in Portuguese.
Today's article was written in answer to questions from readers and the legal stuff was given the all clear by the Portuguese the law firm BAS.
The tenancy deposit scheme in the lease agreement is covered in paragraph 2 of Article 1076 of the Civil Code (CC) and establishes that the parties to the lease agreement may guarantee, in any way provided by law, the fulfilment of their obligations.
What does this mean?
In practice, this means that the Landlord may require the Tenant to pay a cash deposit before they move in in order to prevent any possible damage that they may cause to the property while they live there.
The deposit amount must be expressly stated in the lease contract. There is no limit to the amount of money that may be requested by the Landlord as a guarantee, and the Tenant is free to accept it or not. If the tenant considers that the landlord's requirement is unreasonable, they may not wish to enter into the rental agreement.
The deposit must be used to carry out maintenance work on the property, which may have deteriorated because the tenant was living there. For example, it is lawful for the tenant to hang a painting on a wall (Article 1073 of the Civil Code), but if this results in any sort of deterioration of the property, then either the tenant should carry out the repair or the landlord will use the deposit for such purpose.
On the other hand, if there is no need to carry out any repairs or if the Tenant has carried out all necessary repairs before handing the property back to the owner, then the Tenant may ask their Landlord to refund the value of the deposit they paid.
Remember, the tenancy deposit should not be confused with rents paid in advance.
What is the advance payment of rents for?
Article 1076.1 of the Civil Code in Portugal now allows the Tenant to pay more than one month’s rent to the Landlord when the lease agreement starts. Before, the advance payment of one month’s worth of rent was allowed, but now up to a maximum of 3 rents is allowed, as long as this is expressly stipulated in the contract.
When the rent is paid in advance and considering that the lease will have the full duration and the end date already down in writing, the tenant will not need to pay the last few rental payments contained in the lease. For example, if the parties enter into a 3-year lease contract where the tenant pays 3 months’ rent in advance to the landlord at the beginning of the lease, the tenant doesn’t have to pay rent for the last 3 months of the lease.
We are sometimes asked what happens to rents paid in advance when one of the parties chooses to terminate the lease early. Let’s imagine the following situation similar to the previous example, where the lease is agreed for a period of 3 years and where the tenant pays 3 months’ rent in advance.
At the end of the second year, both parties agree to terminate the contract and the tenant undertakes to return the property within one month of this agreement. In this case, as we’ve already seen, the tenant will not have to pay for this last month when they’re living in the property, but what happens to the other two months of rent, paid in advance when the contract was signed?
In this case, the Landlord will have to return the two months of rent to the Tenant which they paid in advance.
In short, when the lease agreement begins the Landlord may ask for money from the Tenant, in addition to their first rental payment, in two ways: (i) a deposit and (ii) advance payment of rents. The amounts of both of these payments shall be expressly mentioned in the lease contract – both the value of the deposit and the value of the rents paid in advance.
If, at the end of the lease agreement, there are no repairs to be made to the property or other obligations to be fulfilled (e.g. condominium expenses if it was agreed that they would be the responsibility of the tenant, unpaid rents, etc.), the tenant can demand to get their deposit back from the landlord. This guarantee may be repaid in any of the forms provided for in Article 623 of the Civil Code, including a bank deposit, debt securities, precious stones or metals, or by mortgage or bank guarantee.
Nowadays, the most common forms are probably bank guarantees and cash deposits, with precious stones and metals as rental deposits having seen better days...
As for any rent paid in advance, as mentioned above, the Tenant is allowed not to pay the last few rents of a lease contract that is about to come to an end, up to a maximum limit of 3 rents, as long as they have already paid.