1.  Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?
  2.  Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?
  3.  Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the Government as a result of COVID-19?
  4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?
  5.  Could a lessee consider other legal options, such as a lease termination, not paying rent at all or other options as a result of COVID-19? 

jurisdiction

Portugal
Updated on 27.03.2020

1. Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?

No, according to the law it will not be possible to reduce the rent although there may be a reduction in rent if this possibility is stated in the agreement (e.g. force majeure clause covering epidemic situations, change of circumstances clause, suspension or extension of time clauses for non-attributable events, etc.). We strongly advise therefore that this situation is analysed on a case-by-case basis.

Nevertheless, on a medium- or long-term basis we can see the possibility of such reduction being demanded by lessees through the Court if a general decrease of prices in the lease market occurs because of the epidemic event. In this regard, lessees can argue "force majeure" or change of circumstances.  A temporary reduction of the rent could be applied by the Court as an equitable and balanced solution.

2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?

Not according the Law. 

3. Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the Government as a result of COVID-19?

Not unless the lease agreement allows for the suspension or the reduction of the payment of rent, although even in this situation this reduction or suspension may not imposed by the lessee on the lessor. The risk of the business, which includes the rent, must be globally assumed by the lessee.  So far, the Government has not indicated that any direct or indirect financial support will be available to lessor, only to lessee companies.

4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?

To ensure compliance with the lessee's obligations, there may be two main guarantees. A bank guarantee or a deposit of an amount corresponding to a certain amount of the rent are often used. In some and very specific cases, a personal or institutional guarantee provided by a third party, the so-called Guarantor, may also be provided. Nowadays, insurance for this purpose is also increasingly agreed between lessor and lessee.

As already mentioned in the response to the first question, if there is a medium- or long-term suspension of the lessee's activity, imposed or not by the Government, the change of circumstances can justify the termination or a reduction of the rent. If not agreed between the lessor and the lessee, the lessee must make a claim for such contractual amendment to the Court.

In view of the situation of COVID 19 the lessee may argue that there was a "force majeure" or change of circumstances, i.e. that the circumstances in which the parties (lessee and lessor) founded the decision to enter into the agreement suffered an abnormal change, therefore, the agreement may be modified or terminated on this, including arguing for a possible reduction of the rent.  Whether such arguments can be made by a lessee will depend on a case-by-case analysis and, taking in account any Government measures that may be adopted in relation to the epidemic situation.