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H10E - Habitation Rental
Category : Housing
H10E - Habitation Rental
afpop strongly recommends that members only rent property with a written contract and that both the prospective landlord and tenant consult a lawyer and a financial advisor before drawing up a tenancy agreement.
Types of contracts (regime de contrato)
There are three types of house rental contracts:
a freely negotiated contract (renda livre)
a controlled rental agreement (renda condicionada)
a subsidised rental contract (renda apoiada)
Most new rentals are freely negotiated (renda livre), legislation does not limit the level of rent that can be agreed between the landlord and tenant. This bulletin refers principally to this type of contract. Controlled rental conditions may be applied when there is no written rental agreement, when the tenancy is transferred to other occupants, or when the government subsidised the construction of the house. Controlled rents are based on the value of the property.
The contract
The contract should be in writing. There must be at least three originals (one for the landlord, the other for the tenant and a copy should later be deposited at the local tax department (Repartição das Finanças). Both the landlord and tenant should sign the contract. Any guarantor should also sign. The landlord is responsible for providing the tax stamps for the contract, normally is 10% of the monthly rent.
A written contract will include:
identification of the landlord and tenant
the legal basis on which the landlord is renting the property (owner or sub-let)
identification and location of the property
the areas for private use by the tenant and the common areas
the licence from the Municipal Council for occupation
the starting date of the contract and the period of validity
the type of contract and the value of the monthly rent
the Energy Efficiency Certificate (Certificado Energético) mentioning the number and classification
other optional clauses, such as the state of the building and contents, responsibility for maintenance and repair, and whether there are restrictions to use of the building or sub-letting.
If the contract does not state the condition of the building, the implication is that it is in good repair.
Duration of contract
At present the minimum period for residential rental is one year with renewal to 3 years, unless there is a different prior agreement between the landlord and the tenant (all contracts must be signed and witnessed and notarised).
Transfer of a tenancy
A tenancy may be transferred in case of separation, divorce, or death of the tenant. In the case of separation or divorce the tenancy may be transferred from one spouse to the other either by mutual agreement or by court order. Otherwise, the tenancy may pass to the tenant’s spouse, a direct descendant (either a child under one year old or another child who is living in the house for more than one year), the tenants parent living in the house for more than one year, or an unmarried partner living with the tenant for more than five years. There are specific rules about who has priority.
Each contract may only be transferred once. The exception being if the transfer is to the spouse of the original tenant. In this case a further transfer may be permitted to this spouse’s direct relatives. The tenancy may not be transferred to a person with another home in the same town council. The person requesting transfer of the tenancy should inform the landlord in writing within 180 days. If they do not intend to continue with the tenancy, they should inform the landlord within 30 days. If these conditions are not met the right of transfer is lost.
Under some conditions, when the rent is well below the market value the landlord may opt to convert the contract to a controlled rent or may rescind the contract, paying an indemnity of up to 10 years of rental. In either case there are specific regulations with time limits for notification. Both the landlord and prospective tenant would be well advised to take legal advice.
If the tenancy agreement is not for a limited period other occupants may have a right to a new rental agreement. The rules for this are complicated and both the occupants and the landlord should take legal advice immediately the tenancy becomes available for transfer.
In case of involuntary unemployment, permanent incapacity for work or death of the tenant or person with whom he has lived in the common economy for more than a year, the tenant can terminate the contract without paying the rents corresponding to the period of notice.
Termination of a rental agreement
The landlord can terminate the contract in the event of a delay in the payment of the rent of more than eight days*, for more than four times (whether consecutive or not), in a 12-month period, but, unlike before, they must inform the tenant by registered letter with acknowledgment of receipt, after the third month of delay in the payment of the rent, that they intend to terminate the lease.
*The compensation payable to the landlord is 20% of the amount due
The landlord and tenant may agree on terminating a rental contract at any time unless this takes place immediately this should normally be agreed in writing. Otherwise, the law specifies different periods of advice for termination of a contract (of between 3 months and one year) depending on the type of contract. A tenant or landlord wishing to terminate a contract without reaching a mutual agreement should take legal advice.
If the landlord does not fulfil the conditions of the contract, the tenant may rescind the contract at any time and request payment of compensation.
A landlord may request through the courts the expulsion of a tenant who:
fails to pay the rent on time
uses the building for activities other than housing, or for illegal, immoral, or dishonest acts
undertakes building works not approved by the landlord
sub-lets or lends the house without the landlord’s approval, or sub-lets the house for a higher rent than that approved by the landlord; or if the landlord needs the property for own housing or for descendants in the first degree
Deposit and payments
The payment of the first month’s rent is due on signature of the contract. At the same time the landlord may require payment of a deposit. The amount of the deposit must be expressly indicated in the lease. There is no limit to the deposit amount, and the lessee can fulfill it or not. In this second case, the lessee, if it believes that the lessor's requirement is unreasonable, may not want to go ahead with the lease.
Up-dating rent payment
Once a contract has been signed there are three ways of updating the amount of rent to be paid.
Annual increases
For contracts of less than 8 years, annual rent increases are determined annually by the Government. In October, the Government Gazette publishes the coefficient for the following year. For contracts valid for more than 8 years, the means of calculating the annual increase can be specified in the contract. For contracts signed before 1985 there are special rules allowing a more rapid increase in rents to bring them up to market value.
The landlord must give the tenant 30 days written notice of the increase, indicating the new amount, the value of the coefficient, and any other factors relevant to the calculation. The tenant may accept the increase, rescind the contract, or (if there is an error in the calculation) respond in writing giving the correct calculation. The landlord may then accept this proposal or appeal within 15 days to the special commission (comissão especial) at the local tax office (Repartição das Finanças). In this case the existing rent stands until the commission gives their decision.
Improvements
If the Municipal Council (Câmara Municipal) requires the landlord to carry out improvements to the house, the rent can be increased in accordance with the value of the works. The calculation is similar to that for controlled rents.
Application of a controlled rent
A rental agreement may be converted into a controlled rent agreement (renda condicionada) when:
• there is no written agreement
• if an occupant has rights to a new contract when the present agreement ends
• under some conditions, when the tenancy is inherited by the tenants family
• under certain conditions, if the period of the contract is unlimited and the tenant has another home in the same municipality or in Porto or Lisbon
Taxation
Professional financial advisors or accountants should be able to provide specific advice about landlord’s and tenant’s tax liabilities and benefits.
Declaration of contract
Normally, all rental agreements should be declared to the local tax authorities (Repartição das Finanças) by depositing a copy of the rental agreement.
Accounting and taxation of rental income
All rents received by a landlord on a property in Portugal should be declared to the tax authorities on the landlord’s annual tax return.
Allowable expenses
There are a number of tax benefits that may be applicable to the landlord, their limits are normally specified in the annual government budget. These include the deduction of:
interest and capital repayments on loans for the purchase, construction, or improvement of housing
deposits in housing savings schemes
part of the rent received under the urban rental legislation
documented charges for maintenance and repair, including security, cleaning, power, lift maintenance, administration of the property, insurance, property taxes, and some repairs
A tenant renting a house in accordance with the urban rental regulations may also be eligible for deduction of part of the rent from their taxable income.