Real estate finance law in Portugal

Yes. Generally, there are no restrictions on the ownership of land by foreign lenders or in relation to the taking or enforcement of securities by a foreign lender.

Yes. Mortgages can be granted over immovable assets and this security will comprise land and all buildings and constructions.

2.1. The distinction between mortgages on land and buildings on the land?

Except in the cases of surface right “direito de superfície”, whereby the owner of the land may be different than the owner of the building (and, therefore, separate mortgages can be granted), according to the indivisibility principle “princípio da indivisibilidade”, a mortgage over a piece of land is automatically extendable to all buildings that will eventually be constructed over such land.

2.2. Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?

No. Mortgage certificates do not exist under Portuguese law.

2.3. Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?

Yes. The same property may be burdened by several mortgages. A registered mortgage has priority, as of the date of registration, over any subsequent real estate charges or subsequent registered mortgages. A second ranking mortgage should be registered in the same way as a first mortgage. There are no special registration requirements for second ranking mortgages. Portuguese law does not foresee the concept of priority deed, as ranking and priority of security rights in rem derives exclusively on priority on registration.

2.4. Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?

Yes. Not only the real estate may be transferred without the lender’s consent, but also it is legally forbidden to prevent the owner from selling the mortgaged asset. However, transfer is subject to the mortgage (as long as the mortgage is registered in the relevant Real Estate Registry Office).

2.5. Are there any preferred creditors (other than a prior ranking mortgage holders)?

Yes. On insolvency situations certain classes of preferred creditors will be ranked in priority to the mortgage holders.

2.6. Can “all monies” mortgages be taken?

No. The total amount of the secured liabilities but not the documents under which the obligations arise must be specified in the mortgage at the time it is granted. It is therefore possible to create “all moneys” security up to the capped amount.

2.7. Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?

Yes. The right to receive rent can be pledged. The right to receive rent may also be assigned by way of security (cessão de créditos em garantia).

2.8. It is customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?

It is possible to take a pledge over the accounts, but that is a different security than the mortgage, as the granting of a mortgage does not entail any restriction to withdrawing funds from the accounts of the mortgagor. Therefore, a lender can also restrict the borrower’s rights to withdraw funds by means of granting a pledge over the relevant account, but this restriction needs to be agreed in the relevant security document and with the bank institution operating the account.

In general, all the creation of rights in rem by way of security must be granted in a public deed before a Notary or by means of a private authenticated document. A mortgage must then be registered at the Real Estate Registry Office by filing the corresponding application, combined with the respective mortgage agreement (nowadays, it can be performed via internet).

3.1. Consequences of failure to register?

Registration is required for the security to be effective and enforceable vis-à-vis third parties.

3.2. Formalities for execution of security and costs?

Formalities depend on the type of security and the nature of the asset as do the costs. The key formality on the creation of mortgage rights is registration.

Can the lender use a Security Trustee to hold security on trust for creditors? 
There is no concept in Portuguese law similar to a trust, although the following structure may be used to achieve a similar effect – security documents may be entered into directly by each of the lenders or by a security agent duly empowered by the lenders to act on their behalf. Such security agent would accept the granting of security interests in favour and on behalf of the lenders always acting in their names and on their behalf. However, each lender will have to carry out any actions in connection with the loan, its enforcement and the enforcement of the security, exercising its corresponding rights before Portuguese Courts.

3.3. What happens if the lenders change later on e.g. on a transfer? Does new security have to be signed?

Upon the occurrence of a change in the mortgagee, which has to be granted in a public deed before a Notary or by means of a private authenticated document, the correspondent securities are considered to be automatically assigned to the new mortgagee, but such modification needs to be registered at the relevant Real Estate Registry Office and thus no additional security documents have to be signed.

There are two ways to transfer a lease agreement to a new tenant: either by way of a sub-lease or by an assignment of the lease agreement to the new tenant.

In the case of a sub-lease, it shall be authorized in writing by the landlord. However, a non authorised sub-lease is considered to be ratified by the landlord if he recognizes the sub-lessee as such, namely by way of accepting the subsequent payments of the rent carried out by the sub-lessee.

The assignment of the contractual position to a new tenant is limited to the following cases: (i) if previously authorised by the landlord or (ii) in case where such authorization is not required by law (in the event of a conveyance of a commercial or industrial establishment – in this case the landlord has a pre-emption right over the referred conveyance – or in the case of the assignment of the contractual position to a new tenant that continues to carry out the same profession in such building, or to a company with an equivalent corporate purpose).

Even in the above referred cases, the landlord shall be informed about the sub-lease or assignment within fifteen days as from the execution of the relevant agreement.

The temporary and onerous transfer of an establishment located in a leased space does not require the landlord’s authorization, but shall be communicated to him within a one month period.

In the case of a sub-lease, the original tenant is still bound by the original lease agreement. However, if the lease agreement is assigned to a new tenant, the lease no longer binds the original tenant.

5.1. Can a foreign jurisdiction (either a court or arbitral tribunal) be chosen to settle disputes and under what circumstances may such a choice not be recognised?

In general terms, a foreign jurisdiction may be chosen to settle disputes whenever such option does not infringe the exclusive jurisdiction of the relevant States. In fact, if the dispute is in respects of rights in rem in immovable property in Portuguese territory the matter must be dealt with by the Portuguese courts, as well as the enforcements of judicial or arbitral decisions over property or assets located in Portuguese territory.

5.2. Does the local law allow for the enforcement of arbitral awards or foreign judgments without review?

No. Without prejudice to any international conventions or treaties applicable in each case, both foreign judgments and arbitral awards must be reviewed by the Portuguese courts, but only in what concerns to formal aspects.

5.3. How can that security be enforced? Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

Security rights by way of mortgage may only be enforced through a judicial enforcement procedure. It is not possible to enforce security rights directly, without recourse to courts.

Except if law determines otherwise, it is up to an enforcement agent, acting under the supervision of the judge, to carry out all measures involved in the enforcement procedure, including summons, notifications and publications.

Enforcement agents may be specifically appointed by the secured party. The secured party shall be paid from the proceeds of sale of the assets, after the satisfaction of the enforcement costs and of any specially privileged credits. In principle such sale shall be made by sealed bids. In some cases, it is possible to sell directly to an interested buyer.

The secured party may propose a buyer and a price. Mortgages may, however, be sold to a third party by means of a credits assignment agreement.

5.4. Is the lender responsible for maintenance and insurance of the real estate after default until sale?

No. The borrower remains responsible.

5.5. Is there any method of foreclosure (lender obtaining good title to the real estate in satisfaction of all or part of its debt)? If so, does this require a court order and is it only automatically used when the real estate is not sold at public auction?

In principle, under Portuguese law lenders may not acquire the secured property without a court order. When pending a judicial enforcement, the secured party may apply for the credit bid/adjudication of the secured asset(s), being in such case applicable the proceedings foreseen for the sale by means of sealed bids. If no higher bid occurs, the assets shall be delivered to the secured party in order to (partially or fully) satisfy the relevant credit. In case of partial satisfaction of the credit, the enforcement may proceed as an unsecured claim, in order to seize other assets capable of assuring the total satisfaction of the credit.

A lender may also reach an agreement with the borrower in order to acquire the title to the real estate in lieu of payment (datio in solutum), but such agreements may not be entered into before the date of maturity of the credit, since otherwise the same may be considered as invalid by the court.

As explained in paragraph B.3.2 below, a foreign lender will require Portuguese Tax Id.

Yes.

Yes. There is no public register of pledges over shares, only shareholdings (quotas) in limited liability private companies. A pledge will be registered (i) in the shareholding register of each company in case of limited liability public companies (sociedades anónimas), (ii) in the case of quoted company, in the accounts of the depositary (iii) in case of limited liability private companies (sociedade por quotas) with the commercial registry office.

Security has to be granted by means of a written document. A note of the grant of the pledge must be recorded in the relevant title and included in the share register book of the company in case of shares and filed with the commercial registry in case of shareholdings (quotas).

3.1. Consequences of failure to register?

If it is agreed that certain rights (i.e. voting rights) are attached to the pledge, failure to register could result in the company whose shares are pledged not recognising the rights of the pledgee. Also, registration is required for the security to be effective and enforceable vis-à-vis third parties.

3.2. Formalities for execution of security and costs?

Security has to be granted by means of a written document. Due to these requirements and money laundering concerns, foreign entities require a Spanish Tax Id. The notary could refuse to notarise the deed otherwise. Notarial fees are payable and vary depending on the secured amount.

In case of bearer shares incorporated in certificates (acções tituladas ao portador) the pledge is granted by means of delivery of such title to the lender. On remaining situations, only a note of the charge needs to be included in the relevant title.

5.1. Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

Private sales of pledged shares do not require auction; such sales shall follow the procedures agreed upon by the parties. The security over shares may be sold to a third party.

Secured shares may be enforced (i) with recourse to the courts or (ii) directly assigned to the secured party if the parties expressly foresee it in the security document.

In relation to the proceedings to be followed in an enforcement procedure, please consider the answer to question A.6.3.

Yes. The shares can be sold to a third party by means of a public auction.

Security can be enforced without recourse to the courts and private sales are possible if it is for security in a quoted company and it is expressly foreseen as an enforcement method in the relevant security document. If the pledged asset is not qualified as a security (i.e. shares in quoted companies) it has to be sold by auction.

5.2. Are loans from shareholders subordinated? If so how is this done? Is it customary for such loans to be waived or written off contractually as part of an enforcement of a share pledge should a default occur?

Loans from shareholders are only subordinated if it is expressly agreed in the relevant loan. However, in the framework of insolvency proceedings loans from related parties would be subordinated to the repayment of the remaining debts. Subordination needs to be expressly agreed in the relevant agreement. Subordinated loans are not waived or written off contractually unless the relevant debt may be settled against another one held by the borrower against the lender.

1.1. Typical lease length?

The lease length is determined by the parties. The most typical lease length is five years in residential leases and five to ten years in non-residential.

1.2. Maximum/minimum lease length if any?

In the case of non-residential leases, the lease agreement may not exceed thirty years, but there is not a legal mandatory minimum lease length. If parties do not stipulate its term, the agreement is considered to have a ten year length.

In the case of residential leases, Portuguese Law provides a minimum length of five years (except for non-permanent housing leases and for special transitional purposes) and a maximum of thirty years. If the parties agree to a length of less than five years or higher than thirty years, the lease length is automatically considered to be extended or reduced to such limits, as the case may be.

Parties may also agree on an indefinite duration lease agreement, which remain in force until any of the parties terminate it in accordance with the terms applicable by law.

1.3. Statutory controls and obligations re renewal /termination of leases (does tenant have automatic right to renewal or can they apply to the courts for a new lease); also does some form of notice have to be served to terminate a lease to avoid renewal?

In non-residential leases, parties may freely stipulate the conditions regarding the length of the lease, its termination and opposition to the automatic renewal. If the parties do not stipulate the conditions regarding the contract termination and opposition to its automatic renewal will be applied the legal rules established for residential leases (explained below).

In the event that the parties do not stipulate its term, the agreement is considered to have a ten year length and the tenant has the right to terminate the agreement with a minimum pre-notice of one year.

In residential leases, once the first six months have passed, the tenant is entitled to terminate the lease agreement with a minimum pre-notice of one hundred and twenty days.

The residential leases with a fixed term have an automatic renewal (established by law). However, the tenant can object to such automatic renewal with a minimum pre-notice of one hundred and twenty days.

On the other hand, the landlord may oppose the automatic renewal of the agreement with a minimum pre-notice of one year.

Regarding the indefinite duration residential lease agreements, the tenant is entitled to terminate the lease agreement, at any time, with a minimum pre-notice of one hundred and twenty days. The landlord may terminate such agreements (i) in case of housing need, either by himself or by his descendants in first grade, (ii) to carry out demolition or deep renovation works in the leased space or (iii) with a minimum pre-notice of five years – which has to be confirmed by the landlord in a period ranging from fifteen to twelve months regarding the term of the lease.

The termination of the lease agreements by the landlord according to the conditions settled out in points (i) and (ii) of the preceding paragraph, is subject to a minimum pre-notice of six months and may determine some additional obligations/penalties to the landlord. All the communications hereto referred shall be made by letter with acknowledgement of receipt.

1.4. Any overriding statutes concerning the ability of the tenant to break a fixed term lease (whether or not included as a term of the lease)?

Yes. As explained in the preceding paragraph, the law provides an ability for the tenant to terminate a residential lease agreement, once the first six months of the lease have elapsed, at any time, with a minimum pre-notice of one hundred and twenty days. This possibility is also extendable to a tenant of a non-residential lease agreement, but only in case where the parties have not expressly agreed on the conditions regarding the termination of the lease agreement.

If the tenant terminates a lease agreement without complying with the conditions required for such effect, as described in point 1.3 above, such non-compliance is considered a breach of the agreement and entitle the landlord to receive a compensation equivalent to the rents which the latter will cease to receive because of the breach.

In the case of a residential lease, the termination of which by the tenant is subject to a minimum pre-notice of one hundred and twenty days, failure to comply with such pre-notice does not affect the validity of the termination, provided that the tenant pays the remaining amounts corresponding to the one hundred and twenty days pre-notice.

In addition, either the landlord or the tenant may terminate the lease agreements if the other party fails to comply with relevant obligations that, given its significance, make the maintenance of the lease unsustainable.

1.5. Any other security of tenure provisions available to a tenant that would frustrate possession or prevent receipt of market rents?

In respect of some residential leases, the execution of deep renovation or demolition works in the leased space by the landlord may determine the eviction of the leased space by the tenant. In this case, the tenant shall be entitled to, alternatively, (i) be compensated by all losses and damages incurred as a result of the repairs, with a minimum amount of at least twenty four monthly rents, (ii) relocate the tenant in the same Municipality under identical conditions or (iii) ensure the temporary relocation of the tenant in the same Municipality in order to ensure the reoccupation of the leased space.

2.1. Rental income receivable quarterly/monthly in-advance/in-arrears?

Both the rent and the method of payment are determined by the parties. If the parties do not determine this, the payment of the rent shall be monthly and must be made until the first business day of the month prior to the one to which it refers. However, the tenant is given a legal moratorium of eight days in the payment of the rent.

Once the tenant is in delay regarding the payment of the rent, the landlord is entitled to receive a compensation of fifty percent of the outstanding amount.

Parties may agree on the anticipation of the payment of the rent for a period not exceeding three months.

2.2. Periodicity of reviews?

The periodicity of reviews is freely determined by the parties. In case the parties do not expressly agree on this, the rent may be annually updated in accordance with the existing applicable coefficients. Annual rent review depends on formal notice by landlord to the tenant as in paragraph C.2.3 below.

The first update may be demanded by the landlord one year after the commencement of the lease and the following, successively, one year after the previous update. The landlord shall communicate in writing to the tenant the applicable coefficient and the new amount of the rent arising from such coefficient.

2.3. Basis of review (upwards-only or variable, indexation or market rent)?

In relation to the matters referred to in the preceding paragraph, the consumer price index (excluding housing), published by the National Statistics Institute, is the formal basis of review.

The above mentioned information shall be published in the Official Gazette by 30th October of each year.

2.4. Are rents/reviews subject to statutory control in regard to quantum or increase (i.e. rent control)?

Apart from unusual cases whereby the rent is calculated in accordance with predetermined conditions (“renda condicionada”), rents are not subject to statutory control.

3.1. Internal maintenance, decoration and repair?

Unless otherwise determined by the parties, the landlord shall execute all maintenance works, both ordinary and extraordinary, in the leased space, that are required by law or by the purpose of the agreement. Thus, the tenant may only execute works in the leased space if previously authorized, in writing, by the landlord.

However, the tenant shall be responsible for minor repairs that are required as a result of wear and tear from the ordinary use of the leased space, being also entitled to execute urgent repairs, the amount of which will then be deducted in the following rents.

Unless otherwise agreed, the tenant is entitled, upon the termination of the lease agreement, to be compensated for works lawfully made.

3.2. External maintenance, decoration and repair?

Please refer to paragraph C.3.1. above.

3.3. Structural repairs?

Please refer to paragraph C.3.1. above.

3.4. Insurance?

Insurance is not obligatory, but certain landlords (mostly real estate investment funds) often require the tenants to take out an all-risks insurance policy, including civil liability, in relation to the contents of the leased space, and to maintain the same in place throughout the validity of the lease agreement.

3.5. Other typical outgoings?

The parties are free to agree on the responsibility for the payment of other typical outgoings.

In the lack of stipulation, the tenant is responsible for the payment of the utility services referring to the leased space (e.g. electricity, gas, water and telephone).

On the other hand, in case parties do not agree on this, the landlord is responsible for the payment of all charges and expenses relating to the administration, conservation and use of the common parts of the building.

3.6. The ability to recoup any landlord outgoings (including management costs) by way of service charges?

The common practice in Portugal is that the landlord is responsible for the payment of the expenses related to the common areas of the building where the leased property is located (e.g. maintenance of common areas of the building).

However, the landlord usually transfers such expenses – including the expenses relating to the management of the leased space – to the tenant, either explicitly, by charging them directly to the tenant, or implicitly, by including such expenses in the rent.

4.1. Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

Yes.

5.1. To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is an RICS (Royal Institution of Chartered Surveyors) qualified appraisal report accepted and recognised in each jurisdiction?

According to the Portuguese law, these appraisals do not have to be necessarily prepared by a specific entity or party in order to be recognized in the courts. However, such appraisals are usually prepared by a qualified expert, previously registered in a specific public entity (Comissão de Mercado de Valores Mobiliários).

5.2. Is it possible/customary to obtain environmental reports from a local government agency or a qualified, insured environmental professional?

Since January 1st 2009, the Energetic Certification, which serves to certify the performance and energy characteristics of a building, is mandatory in Portugal, either for sale or rental properties,

Notwithstanding the above, sales and rentals of properties that have not yet obtained the Energetic Certification have occurred. However, the seller/landlord may incur in a penalty arising from such omission.

5.3. Is it possible for liability in respect of past or present breaches of environmental laws to attach to a lender by it holding or enforcing a mortgage over real estate?

A lender that has the benefit of a mortgage shall not be considered responsible for breach of environmental laws.