COVID-19: rental support measures in Portugal

The government has designed a mixed solution to contain the effects of the crisis generated by the pandemic.

Photo by Grant on Unsplash
Photo by Grant on Unsplash
2 April 2020, Redaction

The initiative of António Costa's socialist government to protect the rental market from the impacts of the crisis caused by the COVID-19 pandemic is a two-faced coin. It determines, on the one hand, that landlords can benefit from interest-free loans to compensate for the lack of rent payments. On the other hand, it means that tenants who cannot meet their payments have access to a moratorium during the coronavirus crisis. Both cases are aimed at preventing possible situations of economic vulnerability and distortions in the rental market, whether housing or non-housing.

The Government's proposed law, which entered Parliament on Monday 30th March, is set to be approved, albeit with possible modifications, contemplating changes resulting from the parties' proposals. In other words, the final version of this regime, may be different from the original proposal. It has however been stated that the Government's bill should come into effect very soon and should be considered by MPs as a matter of urgency.

Specifically, the document now under discussion by the Members of Parliament, which was approved last week by MPs, establishes "a relaxation in the payment of rent during the period of the coronavirus outbreak for tenants who have, demonstrably, a fall in income as a direct consequence of the limitations that, in the name of public health, had to be decreed".

In parallel, "similar support will be extended to landlords who are placed in a situation of economic deprivation due to the lack of payment of rent by their tenants", within the scope of an "exceptional regime for situations of default in the payment of the rent due under the terms of urban housing leases and non-housing leases, taking into account the epidemiological situation" that is experienced in Portugal, a similar situation to many countries in the world.

But how does this new exceptional regime for the rental market work in practice? How does it apply to landlords and owners? The Ministry of Infrastructures and Housing in Portugal has prepared a list of FAQs, which aims to answer all questions on the topic. Let's have a look. 

Comprehensive guide to the scheme to support landlords and tenants

  • What rental contracts are covered?

All property leases, including residential and non-residential leases.

  • When will it start operating and for how long?

The scheme applies to rentals due in the months in which the state of emergency applies and the first month thereafter, from 1 April 2020.

  • What benefits do I have in my housing income with this scheme?

The law provides three different types of support or special provisions that allow tenants who have suffered a loss of income to pay their rent, safeguarding their family and financial stability, and landlords to maintain the income from their rented property:

  1. Financial support for tenants and guarantors of students who have no income from work and who, due to their loss of income, are unable to pay the rent. These tenants can access an interest-free loan granted by the IHRU to pay the rent due. The amount of this loan is equal to the difference between the monthly rent due and the amount resulting from applying a maximum effort rate of 35% to the household's income. In no case shall the household's remaining disposable income be lower than the social support index (IAS).
  2. Impossibility of cancelling rental contracts due to non-payment of rent during the state of emergency and provision for a special period for the payment of rent due for households with a significant drop in income. These tenants are required to pay the outstanding rent during the following twelve months in monthly instalments (not less than one twelfth of the amount due), paid together with the rent for each month. The landlord can only terminate the agreement if at the end of those twelve months the debt has not been paid in the prescribed manner. If during this period the tenant wishes to terminate the lease, he or she is obliged to make immediate payment of the unpaid rent.
  3. An indemnity for late payment of rent (in normal circumstances, equal to 20% of what is due) cannot be claimed in the event of late payment of rents in accordance with this scheme. Landlords on low incomes who have proven to have a significant loss of income due to non-payment of rents under this bill and whose tenants do not use a loan from IHRU, I.P. to pay the rent may apply to IHRU, I.P. for an interest-free loan to offset the amount of the monthly rent due but not paid.
  • Who can access this housing rental scheme?

Tenants who have suffered a fall in their household's income of more than 20% compared to the income of the previous month or the same period of the previous year, and whose effort rate (percentage of the household's income intended for the payment of the rent) is or becomes more than 35%.

Residential landlords who have suffered a fall in their household's income when this is higher than 20% in relation to income from the previous month or the same period of the previous year, and this percentage of the fall in income is caused by the non-payment of rents by tenants under the provisions of this law, and when the household's income is lower than the index of social support (IAS).

  • What is the indemnity that is no longer due?

Under normal circumstances, in the event of late payment of the rent, the landlord may demand the payment of an indemnity in the amount of 20% of the amount due. The Government has now determined that, in the case of tenants who have suffered a significant loss of income in this period and whose late payment of rent is under the terms of this bill, the payment of this indemnity cannot be claimed.

  • How many months do I have after that and under what conditions can I pay the rent arrears?

In cases where the tenant, due to a loss of income, is unable to pay the rent for the months in which the state of emergency is in force and for the following month, the tenant may pay the outstanding rent for the following twelve months in monthly instalments (not less than one twelfth of the amount due), paid together with the rent for each month.

  • Is the planned moratorium intended only for social housing rent, belonging to the state and the municipalities, or does it extend to all rents of a housing nature?

The possibility of a moratorium is foreseen, i.e. the possibility of summarily deferring the payment of rent for the end of the state of emergency, for all public entities that have properties under lease, and it is up to them to decide whether or not to resort to its application.

Public entities - state and local authorities - with rented property will reduce the rent of tenants who have suffered a drop in income of more than 20%, and whose effort rate becomes higher than 35%, in schemes where the rent does not already depend on the income of the housing unit, as is the case with supported rent and social rent.

It is also foreseen that these entities may exempt tenants from the payment of rent their if they have lost the totality of their income.

  • What are the deadlines for informing the landlord that the rent cannot be paid?

Tenants who meet the criteria for access to the scheme and are unable to pay the rent must immediately request support from IHRU, I.P., in order to guarantee the timely payment of the rent and very favourable conditions for its regularisation.

Tenants who, in compliance with those criteria and who are unable to pay the rent in time, choose not to resort to the support of IHRU, I.P., must inform the landlord, in writing, up to five days before the due date of the first rent in which they wish to benefit from the special scheme.

In the case of rent that must be paid by 1st April 2020, the tenant may inform the landlord, in writing, up to 10 days after the date of entry into force of the decree.

  • How will the State compensate landlords with only one or two properties for the loss of revenue they may have through this regime? Will there be any help during the period in which the rent is not paid or will they have to wait for them to be paid by the tenants after this period?

The Government will provide financial support to tenants with lost income precisely to avoid the accumulation of rent arrears, thereby safeguarding the financial stability of families and landlords' income.

These tenants can access an interest-free loan granted by the IHRU for the payment of the rent due. The amount of this loan is equal to the difference between the monthly rent due and the amount resulting from applying a maximum effort rate of 35% to household income. In no case shall the household's remaining disposable income be lower than the social support index (IAS).

In addition, landlords who have a proven loss of income, whose tenants do not resort to a loan from the IHRU, I.P., may apply to the IHRU, I.P. for an interest-free loan to compensate for the amount of the monthly rent, due and unpaid, whenever the household's remaining disposable income falls below IAS for that reason.

  • Do owners have to go through the default period without receiving rent?

No, because tenants may request financial support from the IHRU, I.P., for the payment of the rent or, if there is rent due and unpaid and under the conditions mentioned above, landlords may resort to the same support from the IHRU, I.P. (see previous question).

  • How will the IHRU loan work?

The IHRU, I.P., will draw up a regulation setting out all the details of how it will operate. In any case, according to the proposed law, the loans to be granted by IHRU, I.P. are interest-free.

  • Can the tenants choose to regularise the rents in the conditions foreseen or by the loan?

The draft act encourages that the fulfilment of the contract is maintained and tenants may resort to the loan from the IHRU, I.P., for that purpose, as they will have an advantage in settling rent arrears in relation to the minimum conditions foreseen for their settlement without recourse to this support.

However, not being obliged to resort to that loan, and if they are in the conditions foreseen by the law, they may opt to regularise the rents in the minimum conditions foreseen, i.e., paying the rent that fall due during the months in which the state of emergency is in force and in the following month, and during the twelve following months, at the rate of one twelfth of the amount due, together with the rent for each month.

  • How long can tenants benefit from this loan? What interest will they then have to pay and from when?

The loan is available for the payment of rent due during the months in which the state of emergency applies and the following month. The loan is interest-free.

  • What benefits do I have in my non-residential rent with this scheme?

There are also special conditions for non-residential tenants that protect the permanence in the rented spaces and contribute to the stability of the business:

  1. Impossibility of cancellation of rental agreements due to non-payment of rent due for the months in which the state of emergency is in force and the first subsequent month;
  2. In cases where the tenant, due to the loss of his income, is unable to pay the rent in the months in which the state of emergency is active and in the following month, the tenant may make the payment of the rent due during the following twelve months, in monthly instalments (not less than one twelfth of the amount due), paid together with the rent for each month;
  3. No compensation or other penalty for late payment of rent may be claimed under this scheme.
  • Is the scheme only for establishments that have been forced to close? Which establishments can access this scheme?

The following establishments can access this scheme:

  1. Establishments open to the public for retail trade and service provision activities that have closed or have their activities suspended due to the execution of the state of emergency, including cases where they maintain the provision of e-commerce activities, or the provision of services at a distance or through an electronic platform; and
  2. catering and similar establishments, including cases where they maintain their activity for the exclusive purpose of confectionery intended for consumption outside the establishment or home delivery.
  • If I have a restaurant and I am preparing meals to sell outside, am I also entitled to access this scheme?

Yes.

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