Learn what the Constitutional Court says about the possible right of preference in the transfer of this property.

 

As amended by Law 64/2018 of 29 October, Article 1091(8) of the Portuguese Civil Code[1] established that in the “lease for housing purposes relating to part of a building not constituted in horizontal property, the tenant has the right of first refusal under the same terms foreseen for the autonomous fraction tenant”.

 

Following this, a group of thirty-six Members of the Portuguese Parliament initiated the procedure meant to evaluate the constitutionality of this rule.

 

As a result, the Constitutional Court[2] issued Ruling No. 299/2020, in which “declares, with general mandatory force, the unconstitutionality of the rule contained in paragraph 8 of Article 1091 of the Portuguese Civil Code, as amended by Law 64/2018 of 29 October, for violation of paragraph 1 of Article 62, in conjunction with paragraph 2 of Article 18 of the Portuguese Constitution”.

 

The claimants, who requested that the rule be examined by that Court, consider that there is a violation of the fundamental guarantee of private property - in the aspect of the limitation of the contractual freedom of the parties and fair compensation.

 

The Members claim that when the tenant exercises his preference under that rule - considering that the owner intends to sell the whole building and not only part as it ends up following that exercise - the fundamental right of private property is violated, plus that the owner is not fairly compensated for that violation ^[3].

 

The TC analyzed, throughout the Judgement, the fundamental rights that it considered to be in collision and which limitations to these rights are allowed by the Constitution of the Portuguese Republic.

 

On one side, the right of preference is presented as an important corollary of the Constitutional Right to Housing^[4], and it is concluded that “rigorously, the extent of the right of first refusal provided for in that rule [nr. 8 of article 1091 CC] is not to grant the tenant a means of immediate access to full ownership of the leased premises, but only to grant the tenant a right to establish co-ownership over the property.” [5]. This understanding is sufficed by the text in Article 1091(8)(c).

 

What the Council Judges have understood is that it is not by conferring on the tenant of part of a building not constituted in horizontal property a right of preference on the same terms as are provided for the autonomous fraction tenant, that the Right to Housing is protected, since the tenant does not acquire the property through that mechanism.

 

In contrast with the Right to Housing would be, the already mentioned Right to Private Property, enshrined in Article 62(1) of the Constitution.

 

This regulation, as the ruling clarifies, results in a double guarantee to private property, one of which translates into the fact that there are no limitations to property rights by law that seek to protect other values and interests that are not also protected by CRP.

 

The right not to be deprived of private property is broken down into the right to access property, the right to transmit it - which is embodied in contractual freedom - and the freedom to use and benefit from the goods of which one is the owner.

 

Confronting these two rights, the Council Judges understand that “The legal right of preference of the tenant constitutes a limit to the landlord's property right” – in the aspect that it limits the landlord in the choice of the party to whom he intends to sell the property, consequently limiting his contractual freedom. In other words, the owner intends to alienate the whole building to a certain person, informs the tenant of this sale project and the tenant exercises the preference - the owner is then obliged to do business with the tenant and not with the person to whom he initially intended to sell.

 

From this analysis it can be concluded that the limitation to the property right that results from the existence of a right of preference, in the general terms that the law confers on tenants (as in Article 1091(1) of the Civil Code) is not a limitation prevented by the Constitution.

 

However, the same does not occur following the application of the rule set out in Article 1091(8) of the CC, since this rule not only affects the freedom of choice of the counterparty, but also implies that the landlord (i) is prevented from transferring the entire building to a third party; (ii) with the declaration of preference, is obliged to transfer to the tenant the ideal share of the building corresponding to the permilage of the leased premises; (iii) cannot freely stipulate the price of the leased premises; (iv) sees the lease agreement terminated; (v) with the subsequent affectation to the preferred party of the "exclusive use" of that part of the building corresponding to the leased premises”.

 

Thus, the Council Judges have concluded that paragraph 8 of article 1091 of the Civil Code, as amended by Law 64/2018 of 29 October, is unconstitutional, since:

 

a) The right of preference granted to the tenant of part of the building not constituted in horizontal property does not guarantee him access to the full ownership of the leased premises, but rather becomes the landlord's co-owner;

 

b) The obligation to constitute horizontal property at a time prior to sale would be a more appropriate and suitable means to ensure stability in the housing;

 

c) Therefore, stability in housing is not necessarily guaranteed by the measure;

 

d) The measure does not safeguard the balance of interests between the owner and the tenant, making the weight of its application lean towards the owner - through the sacrifice of free transferability.

 

That is, the result that is obtained by applying the rule (or that is not obtained as we have seen - since the right to housing is not guaranteed) is not proportional to the effort generated by it (i.e. the landlord intends to sell the whole building and is prevented from doing so under the terms that generated the preference without being properly compensated for it).

 

We conclude[6], by emphasizing that the declaration of unconstitutionality with general mandatory force, because it produces effects since the implementation of the rule declared unconstitutional, implies to consider that the rule[7] - and consequently the right of preference of the tenant of a property part of an urban building not constituted in horizontal property - has never existed.[8].

 

 

Lisbon, August 2020.

---

[1] Henceforth “CC”.

[2] Henceforth “TC”.

[3] Notice that point a) of no. 8 of article 1091 of the Civil Code, as amended by Law no. 64/2018, of 29 October, establishes that the right relating to the share of the building corresponding to the permilage of the leased property for the proportional value of that share in relation to the total value of the transfer.

[4] Previsto no n.º 2 do Artigo 65.º da Constituição da República Portuguesa.

[5] Understanding, which is sufficed by the text contained in paragraph 8 c) of Article 1091, where it reads "acquisition by the preferred party is made with the exclusive usage of the share of the building to which the lease corresponds”.

[6] In accordance with the text of Article 282 of the CRP;

[7] Paragraph 8 of Article 1091 of the Civil Code as worded by Law 64/2018 of 29 October;

[8] Decisions taken in definitive terms by other courts are safeguarded - the cases res judicata.

---

This document is intended for general distribution to clients and colleagues and the information contained herein is provided as a general and abstract overview. It should not be used as a basis on which to make decisions and must not be relied upon in the absence of professional qualified assistance. Its contents may not be reproduced, in whole or in part, without the express permission of the publisher(s). If you would like further information on this subject please contact Joana Cotovio (jrc@vma-associados.com) or Marta de Sousa e Meneses (msm@vma-associados.com).