2 July, 2024
Considering investing in already leased commercial property in Portugal? Understanding the legalities of leasing is crucial, especially from the perspective of an overseas investor. This guide provides an overview of key aspects of commercial lease agreements in Portugal, specifically geared towards investors who are acquiring properties with existing tenants. It’s important to note that this information applies solely to commercial properties and does not cover residential leases.
Duration
Commercial leases in Portugal are flexible regarding duration. Parties can freely agree on a term between 1 year and 30 years. If no specific term is stated, the lease defaults to a 5-year term. Leases exceeding six years must be registered with the Land Registry Office.
The agreement can address termination rights, break options, and lease renewal terms. It can also specify rules for maintenance and repairs on the property.
Rent Value and Updates
Rent is typically calculated per square meter of leased space and is usually payable monthly in advance. A security deposit or bank guarantee, equal to a set number of monthly rents (most common is two months), is standard practice to ensure the tenant meets their obligations.
Rent is generally charged without VAT. However, both parties must meet specific requirements to request a waiver from the VAT exemption. The current VAT rate for leasing purposes is 23%.
The lease agreement can specify phased or variable rents, along with mechanisms for rent updates. An annual update based on the official price consumer index is most common, but alternative criteria can be agreed upon.
Operating Expenses
The tenant covers charges for utilities like water, electricity, and internet related to the property’s use. They are only responsible for other expenses if explicitly outlined in the lease agreement.
The landlord typically handles property tax and insurance fees. Unless otherwise agreed, the landlord is responsible for structural property repairs, while the tenant is usually responsible for ordinary maintenance.
Maintenance, Repair, and Reinstatement at End of Lease
The tenant generally needs written landlord consent for any works on the property, except in emergencies. However, the tenant is obligated to perform routine maintenance to keep the property suitable for its intended purpose.
The tenant can make improvements with the right to compensation upon removal, provided it doesn’t damage the property (unless otherwise agreed). The landlord is responsible for maintaining common areas in the building, with exceptions outlined in the lease.
The lease should specify the condition in which the premises will be returned at the end of the term, considering reasonable wear and tear.
Assignments, Transfers of Lease & Subleases
Assigning the lease requires the landlord’s prior written consent, except in cases where the tenant’s entire business undertaking is transferred, which automatically transfers the lease agreement. The landlord has a pre-emption right in such situations.
Subletting the property, in whole or part, requires the landlord’s prior written consent. Failure to obtain consent can lead to lease termination. The sublease rent cannot exceed the original lease rent plus 20%, unless otherwise agreed with the landlord.
Termination
The landlord can only terminate the lease early for specific reasons, such as the tenant defaulting on rent for three months or more. The law outlines some grounds for termination, and the lease agreement can specify additional events constituting a default.
Commercial leases offer more flexibility for break options during the lease term. The agreement can allow for automatic renewals at set intervals, with recent legal changes requiring the landlord to wait at least 5 years before opposing the first renewal. Non-renewable leases are also possible.
Sale of Leased Property
The sale of a leased property does not affect the existing lease. All rights and obligations simply transfer to the new owner. However, for leases exceeding two years, the tenant has a pre-emption right to purchase the property. The tenant must be notified of the sale and its terms to exercise this right.
Looking to buy commercial real estate in Portugal? Contact us today for a free consultation and discover how we can help you unlock the exciting prospects of Portuguese commercial real estate market.
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