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Italy 
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Change in law sets landlords against tenants
17 June 2017
The amendments to legislation covering rental agreements, which became applicable yesterday, have again put landlords and tenants on a ‘war footing’.
Amendments to the New Urban Rental System (NRAU) became applicable this week, allowing an eight-year extension of the transitional period for updating old rents, according to a decree published in the Diário da República. The measure has provoked controversy in the real estate market. Landlords object and tenants applaud. António Machado, Secretary General of the Association of Tenants in Lisbon (AIL), reveals that this change has had little effect on the rental market. “At the moment, counting both residential and commercial contracts, there are about 150,000 rental agreements there were drawn up before 1990, and the effect on the market will be minimal. This is a measure to ensure that we avoid a number of evictions that would have occurred if the period had not been extended. “In 2011, there were around 255,000 lease agreements concluded before 1990, a number that has halved in just five years. This means that they will continue to decline in the coming years. The problem is postponed until later, and perhaps five years from now there will only be about 50,000 contracts. This controversy around the subject is pure demagoguery and has no relevance,” explains the person in charge.
António Machado also pointed out that this measure can have a double effect, since it will also help avoid rental subsidies. The Government will thus spend less on rental supports.
On the other hand, Menezes Leitão, president of the Lisbon Landlord Association (ALP), declares that the group has already filed suits in Portuguese courts based on the rent freeze, and hope to bring the matter to the European Court of Human Rights, considering that these measures are a veritable expropriation, and cannot therefore be executed without fair compensation. The official says that a prolongation of a contractual term for eight years is an attack on landlords, unworthy of the democratic rule of law, and it is truly shocking that the Portuguese government have done something this arbitrary. Menezes Leitão also believes that this measure will have a major impact on the real estate market, further reducing rental offerings. “Effectively, the rental market is undergoing a crisis of confidence due to decades of price freezes, although there has been some easing with the 2012 law, which definitively ended the freeze and helped boost confidence. Now that the reform has suffered a major reversal, there will be quite a few owners who will end up losing confidence in this market, which has always been subject to successive state interventions,” he stated.
Lack of confidence in the market
Reis Campos, president of the Portuguese Confederation of Construction and Real Estate – CPCI, agrees. “This measure may jeopardize investor confidence, which, right now, is essential to preserve.” At a time when the real estate market is on an upswing, and the interest of domestic and foreign investors continues to be the so important, especially in strategic areas such as Urban Rehabilitation, Reis Campos fears that any legislative change could send the wrong signal to the market. “Regardless of the specific objectives that they expect to achieve – which I do not question – amendments to the law cannot be a pretext for discussions between landlords and tenants, which would only serve to postpone and halt investment decisions,” he warns.
The president of the CPCI believes it goes beyond the thinking about the effects of this Law, the problem is that Portugal continues to legislate in a haphazard manner, without facing eal problems. In its view, Portugal can no longer ignore the need for a medium- and long-term integrated policy for housing and the entire housing market. “We must not forget that, in Portugal, social housing has been practically absent from political discourse for many years. And in fact, an extremely serious social problem persists. In Portugal, social housing is available for one in every 16 people at risk of poverty and 11% of the dwellings used as residential housing are overcrowded. That means that 468,000 families live in these conditions,” he explains.
Reis Campos also points out that the rental market is far from being considered consolidated. In the last decade, when there has been a sharp reduction in new construction and, at the same time, a near collapse of real estate credit, inexplicably the level of rents is declining. “In Portugal, the participation of this market fell from 20.8% in 2001 to 19.4% in 2011,” he said.
Mariana Vilaça Fernandes, Associate attorney for TELLES, clarifies that the new measure creates a new eight-year waiting period, in addition to the deadline established by the 2012 law. Landlords will now be forced to put on a hold on or even change any plans to restore or monetize assets, when after the reform of 2012, they had come to expect the prospect of ending most of the contracts that have been in force over several decades.
“This new law will certainly have consequences for many real estate projects and operations that have since been completed with the confidence that these old leases would end in the short term, and those expectations will now have to be readjusted. There will be a rupture in the dynamic that the 2012 law created in the rental market which, in recent years, has allowed growth in the market. This rupture will have inevitable consequences in the urban rehabilitation sector,” the lawyer admits.
Original Story: O Jornal Econômico – Fernanda Pedro
Translation: Richard Turner