By RUTH SHARPE
RECENT REFORMS in commercial leasing laws have left people operating under the Portuguese trespasse system with virtually worthless assets.
In February of this year, the government passed the Reforma do Regime Jurídico do Arrendamento Urbano, a new set of rules regarding urban leasing, the most significant being the removal of the trespasse leasing system.
Trespasse is a system, which most people entering Portugal for the first time have never experienced before. When someone wishes to rent a building from someone for commercial use they will buy a trespasse (lease) from the landlord.
The big difference between this system and renting is that the tenant has the right to sell their lease, with subsequent rights and obligations, to a new tenant.
Historically, this has been popular because a rent agreed many years ago, which only increases with the cost of inflation, will be lower than the market rent. Therefore, when the trespasse is transferred to a new tenant, the right to use the property is sold, with the value of it being that the rent is low. The price of the trespasse will also be proportionate to the commercial position of the business.
Earlier this month, The Resident received a letter from Debbie Haxton, the owner of the Tequila Bistro restaurant in Albufeira, who has been directly affected by the new reforms and shed some light on the situation:
“I bought a 28-seat restaurant in the centre of Albufeira six years ago, or so I thought. I bought a trespasse, an old one, which I was assured would last forever and not expire. I bought the restaurant, which had been shut for over a year. I am now informed that a law has passed that says all old leases, once sold can only be sold for five years! No options, no protection, nada. Everyone says, it can’t be possible, that’s like stealing, they can’t do that! Well, it seems they have. And I am finding it hard to accept, surely there is something I can do. Is there? Is anyone else in the same sinking boat?”
The essence of the problem is that trespasses last forever therefore, when a trespasse is sold, an amount is paid to buy the trespasse and then the new tenant starts to pay rent to the landlord.
Under the new law, once sold, the lease is only valid for five years before the landlord can then renegotiate the rent or decide to sell the lease on to someone else. The new law now protects the rights of the landlord and his property whereas the system used to heavily favour tenants.
Confirmation
The Resident spoke to a law firm in the Western Algarve and they confirmed the situation.
With the new law “you can now transfer the contract, but it will only be valid for five years, then the landlord can retain control of it. The landlord can negotiate the rent, but there are no limits to the amount he can increase it by as the contract has to be renewed therefore meaning if he wishes to get rid of the tenant he can make the rent extortionately high to drive him out.”
The landlord does not even have to give the tenant the first right to refusal for the new conditions. After five years the contract expires, so there are no rights for the old tenant except if he can manage to negotiate it with the landlord.
What is quite shocking about the situation is that tenants involved in the trespasse system did not receive any warning before the new law came into place.
One entrepreneur from Lagos inquired into buying a trespasse for a bar early last year and was told that the system was being put under review so he decided to look elsewhere.
For people like Debbie Haxton, who bought the lease more than five years ago, they have not received any warning about the changes and have effectively been duped by the government, therefore hitting the financial stance of some unsuspecting residents quite hard.
For Debbie, her only option is to carry on operating under the old agreement with the landlord until better selling conditions arise or some options or compensation for current lease holders have been made.
The government began discussing the law in 2005, and people in the law industry believe it only took six months to get the reforms through.
According to a government website “the continual low value of the rent leaves owners disinterested in maintaining the property”, which ultimately leads to buildings in urban centres becoming dilapidated and worn down.
The other scenario being those who are interested in looking after their property do not have the funds to invest. The online report outlines that the current system “depreciates the image of urban centres with detrimental impact on the environment, which will indirectly affect tourism”.
The government’s reasoning behind the reforms and the quick passage through Parliament suggests that this is a popular decision, which will widely be accepted by the public.
For those who were dependant on their trespasse as the means to their future living, all their hard work has just deteriorated into dust.
Have you been affected by this new law? If so, The Resident would love to hear from you. E-mail your story to [email protected] or fax it to 282 342 939.
