Decree-Law No. 1/2020, January 9

 

Housing in Portugal, especially in big cities, is the order of the day, and the latest innovation comes with the birth of a new legal figure, called the Long Term Habitation Real Estate (LTH).

 

Thus, on September 5 of last year, the Government approved the decree-law that would enter into force on January 10, 2020 which passed the information that the intention is "to create an alternative housing solution, which matches the need  of security and stability with the flexibility adapted to personal and family necessities, to significantly reduce the indebtedness of families and, on the other hand, constitutes an attractive model of properties profitability so that their owners make it available with this purpose, increasing the housing supply. "

 

Decree-Law No. 1/2020, January 9, establishes that this LTH allows one or more individual persons to enjoy another person's housing property as their lifetime permanent residence, upon payment to the respective owner of a cash bond and periodic counter payments[1].

 

When reading this decree law, it is clear that its intention is to offer the tenants the security of being able to live in the same house, without the risk associated with the term of a lease agreement, paying in return a cash bond and a monthly instalment.

In addition, this regime allows the long-term tenant to purchase this habitation if he so wishes, using the amount paid as cash bond for this purpose[2].

 

This referred cash bond (art.6) is provided in cash and in the amount that must correspond between 10% to 20% of the average price sale per square meter of the habitational real estate, in the parish of the property in case, based on the updates released by the National Statistics Institute ( INE ).

 

There are also formalities associated to the constitution of the LTH that are worthwhile to be known:

 

i) the property is subject to a prior valuation (art.4) that the owner must promote at his own expenses;

 

ii) The LTH is subject to a special form, which is a public deed or a private document in which the signatures of the parties are notarized in Notary´s presence[3].

 

iii) this document constituting the LTH must also stipulate:

 

(a) the amount of the cash bond provided and the amount of the periodic counter payments;

 

(b) a resident statement, accepting the property conservation condition according to the valuation form;

 

(c) the parties postal address and, if the parties so wish, the e-mail address that each one undertakes to use for the purpose of all communications to be carried out under the LTH;

 

After completing these formalities, the resident has 30 days to promote and bear the costs of the real estate registration application.

 

While the LTH lasts (which will be only terminated with the death of the resident; if the resident waives it[4], or in case of the contract dissolution for its non-compliance[5]) the owner has some obligations, with emphasis to (i) the payment “in the part related to the construction costs of the house and other expenses in connection with the common parts of the building and, in the case of a constituted condominium, he should pay the contributions and fulfil the other obligations as a joint owner ”, (ii)“ to ensure the permanent effectiveness of the legal mandatory insurance of the building and the house”[6].

 

The resident, on the other hand, must (i) comply in time with the payments associated with the LTH (namely the monthly instalments, municipal taxes and deliver to the owner of the property the amounts relating to the Municipal Property Tax)  (ii) use the  habitation  exclusively for his permanent residence[7]; (iii) carry out and support the cost of ordinary housing maintenance works; (iv) consent  the owner to carry out the works to which he is obliged - cf. results from art. 9 and, every eight years, send the owner an updated valuation form, or allow him to access the property for that purpose[8].

 

This regime presents some advantages for both parties, while simultaneously presenting disadvantages.

 

In the case of the landlord, it is certain that he obtains a safe source of income; and that, in the event of non-compliance, he has a bond; and the expenses with the property will be reduced. However, the profile of the resident has to be considered with special caution as the availability of the property is substantially reduced[9], since the owner can only terminate the contract unilaterally in case of non-compliance.

 

On the other hand, the resident is granted the right, if he wants, to live “permanently” in the property, without being obliged to bank financing to ensure this tranquillity. However, he assumes obligations (namely payments) that he would never have in a normal lease agreement or as the owner of an asset that would belong to him.

 

 

January 2020

 

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[1] Articles 2 and 7 of Decree-Law 1/2020, of 9 January.

[2] Total or partial value of the security provided.

[3] It is not enough that the parties are in the property to sign the contract, in this case, they have to resort to a notary or lawyer to ensure the completion of the formalities associated with the contract.

[4] Article 17 of DL 1/2020, of 9 January.

[5] Article 18 of DL 1/2020, of 9 January.

[6] Article 8 of DL 1/2020, of 9 January.

[7] However, the resident may use part of the dwelling for another purpose, provided that there is a contractual provision or prior authorization by the owner - v. article 9 of DL 1/2020, of 9 January.

[8] Article 10, no. 2 of DL 1/2020, of 9 January.

[9] Compared to the urb lease regime.