In Portugal, real estate properties may be classified under 3 different categories:
- Urban property (“prédio urbano”), in cases where the property is an existing building or a plot of land for construction;
- Rural property (“prédio rústico”), in cases where the property is a land destined for agricultural/forestry purposes; and
- Mixed property (“prédio misto”), in cases where the property is simultaneously composed of an urban and a rural property.
Real estate properties may be subject to different types of rights entitling the respective holder to use them and operate them. The main titles to real estate properties are better described in section 1. “Property Title”. We highlight below the most relevant specificities applicable to agricultural real estate assets.
- (i) Ownership right (“direito de propriedade”)
Full ownership is the most standard title in agricultural real estate transactions whenever the agricultural investor intends to be the owner of the land and to use and take profit from it without limits.
However, as the acquisition of this right entails some initial costs (such as the payment of the acquisition price, municipal transfer tax, stamp duty and municipal property tax) and the full assumption of the geoclimatic risks involved in the agricultural activity, other types of titles may also be considered under the agricultural strategy of the farmer (e.g., surface right or leasehold). The type of harvest to be planted and the respective maturity is also relevant for the decision to choose the adequate title to the asset.
- (ii) Surface right (“direito de superfície”)
Apart from granting the respective holder the right to build or maintain a construction on or below a land owned by a third party, this right also entitles its holder to grow or maintain crops on the land (mainly designed for trees). The surface right holder may use, profit from and dispose of the respective crops.
In cases where the surface right is granted on a temporary basis, the crops shall revert to the owner of the land upon the elapsing of the surface right. In such cases, unless otherwise agreed, the surface right holder is entitled to receive a compensation corresponding to the value added to the land as a result of the crops.
This right is typically associated with the plantation of long-term crops in the land or part of the land, such as orchards, cork oaks or pine forests, whereby the owner of the land intends to maintain the ownership title over the land and the farmer intends to have a perpetual and marketable right (stronger than a lease) over the plantation made.
- (iii) Leasehold
Leasehold is the most commonly granted title in the Portuguese market for the utilization of rural properties, as this right entitles the farmer to operate the land and collect the harvest without bearing the costs and risks associated with the ownership title (no payment of acquisition price and taxes – except for the monthly rent under the lease - and no assumption of full geoclimatic risks as the Portuguese legislation provides for protective measures to tenant in this regard). Lease agreements with a duration longer than 6 (six) years are not subject to registration with the Land Registry Office, unlike non-residential lease agreements. The Rural Leasehold regime is further addressed below.
Real estate properties must be duly registered with the Land Registry Office, for registry purposes, and with the Tax Authorities, for tax purposes. All properties are identified by a registry number and by a tax article according to the parish in which they are located.
The Land Registry Office is the entity in charge of keeping public records on the properties and their current status, including ownership title and any charges or encumbrances. The record includes a detailed composition of the property, its areas and boundaries, but does not include a plan showing the exact limits of the property.
In what regards rural properties, sometimes it is difficult to define the exact limits of the land and it is possible to encounter some rural properties that are not even registered with the Land Registry Office or the Tax Authorities.
In recent years, the Portuguese sovereign bodies have created certain instruments to surpass these difficulties, one of which is the Rural Property Geometric Registration (“Cadastro Geométrico da Propriedade Rústica - CGPR”), a database which allows the use of the elements of rural property’s geometric registration for tax purposes, currently available online and in force in municipalities mainly located below the Tejo river. This platform provides information on the delimitation of the properties and on the respective existing crops. This information may be updated by the respective landowners through an administrative complaint process (“processo de reclamação cadastral”), submitted in writing along with the necessary supporting documentation and filed with the tax office of the area in which the property is located.
With the aim of targeting the municipalities that do not have CGPR, in 2017 the Portuguese sovereign bodies set up a simplified registration information system, which foresees (i) a georeferenced graphic representation procedure (“procedimento de representação gráfica georreferenciada - RGG”) and (ii) a special registration procedure (“procedimento especial de registo”) applicable to all rural and mixed properties in the Portuguese territory accessible through the online platform named “BUPi – Balcão Único do Prédio”.
Pursuant to the SIGIS legal framework, the concept of real estate assets includes (i) rural properties susceptible of autonomous economic operation (including for forestry purposes), (ii) urban buildings, (iii) autonomous units and (iv) plots of land that become urban buildings or autonomous units within three years as of the respective acquisition.
The express inclusion of rural properties in this legislation as an eligible real estate asset provides the adequate legal framework for the agricultural players to invest in agricultural assets through a vehicle in form of a SIGI. This is a relevant difference, for instance, in relation to the SOCIMIS regime, which refers solely to the acquisition and/or lease of urban buildings (“inmuebles de naturaleza urbana”).
Collective Investment Undertaking
The collective investment undertakings described in section 3. “Investment Structures”, in case they invest in rural property used for agricultural activities, will need to be set up under a special category and may only be marketed to specific segments of investors as defined in their management rules and regulations and prospectus.
This type of special collective investment undertaking shall abide, in general, by the provisions established for the standard form, with certain exemptions, inter alia, the minimum amount of initial subscription is €15,000.00, unless a different amount is determined by CMVM, considering the specific characteristics of the vehicle, or it is requested by the promoter of the vehicle.
The management rules and regulations and prospectus of these special collective investment undertakings needs to detail, in particular, the type of assets that may be included in the respective portfolio and their limits.
Please refer to section 4. “Real Estate Transactions” with the following specificities:
In agricultural real estate transactions deals (carried out by means of asset deal), the parties usually enter into a promissory sale and purchase agreement that precedes the definitive agreement of conveyance of the property; however, this is not mandatory according to law and, therefore, the parties may proceed directly to the execution of the public deed. The promissory agreement has the advantage of crystallizing the applicable terms and conditions, such as the purchase price and the pre-emption rights mechanisms, in case the purchase cannot be executed immediately.
The promissory agreement for the purchase and sale of agricultural real estate assets must be made in writing but is not subject to any formal requirements, unlike the promissory purchase of urban properties (i.e., certification of powers and capacity of the signatories and certification of the use permit), unless there are urban constructions in the land subject to licensing; however, it is advisable to certify the signature of both parties in case the purchaser intends to provisionally register the acquisition of the property.
The transaction documents usually include a package of representations and warranties and may include conditions precedent that need to be fulfilled prior to the closing of the transaction. Standard representations and warranties would correspond to the ones given over ownership title, charges and encumbrances, identification of the property (including its boundaries and areas), identification of the adjacent properties owners and admissibility to plant the existing / intended harvest and the respective authorizations / permits. Conditions precedent are usually foreseen when the conclusion of the transaction depends on (i) obtainment of sources of financing, (ii) non-exercise of pre-emption rights, or (iii) irregularities and/or registry issues that must be settled prior to the transaction.
According to Portuguese legislation, there are some specific entities that may benefit from pre-emption rights in the transfer of rural real estate properties (carried out by means of asset deal), in addition to those entities that may typically pre-empt over the transactions of urban properties (e.g., public entities), such as:
- (a) Tenants in rural lease agreements in force for a period longer than 3 years
After notification by the landlords, tenants must exercise their pre-emption right within 30 calendar days of receipt of said notification, otherwise the respective right will forfeit.
Whenever the respective tenant exercises its pre-emption right, it is obliged to operate the property during a minimum period of five years, except in case of duly proven force majeure. In the event of failure to comply with this obligation, the tenant (purchaser) shall undertake to pay the previous owner an amount equivalent to five times the last rent due and to transfer the property to the purchaser undermined with the exercise of the pre-emption right, if the latter so wishes, at the price of acquisition.
- (b) Owners of adjacent rural properties with an area smaller than the applicable minimum crop area (“unidade minima de cultura”)
The minimum crop area is fixed in a government decree and may vary depending on whether it refers to irrigation crops (“terreno de regadio”), dry crops (“terreno de sequeiro”) or forestry (“terreno de floresta”) and on the geographical area were the crop is located.
We highlight that this regime has been subject to different interpretations over the last years. Before 1988, the main jurisprudence sustained that this pre-emption right only applies whenever both properties (i.e., the property to be sold and the adjacent property) have an area lower than the minimum crop area, although some court rulings defended that the owners of adjacent rural properties would be entitled to pre-empt even when only one of the properties complied with the minimum crop area criteria (minority view).
Between 1988 and 2015, the legislation in force set forth specific wording in line with the minority view referred to above.
Since this specific legislation was revoked in 2015, we have reasons to believe that an interpretation of the pre-emption right regime in line with the minority view no longer applies. However, there are still no relevant number of judicial decisions that reinforce this position.
Nevertheless, this pre-emption right will not be applicable whenever (i) any of the lands involved in the transaction is a component part of an urban building or is intended for any purpose other than agriculture; or (ii) the disposal covers a set of properties which, although disperse, form a family agricultural business.
These pre-emption rights must be exercised within 8 days as from the reception of the pre-emption right notice.
- (c) Owners of adjacent rural or mixed properties located in a national agricultural reserve area -RAN);
Owners of adjacent rural or mixed properties included in a RAN area are also entitled to a pre-emption right in the sale of adjacent rural and mixed properties, regardless of the regime mentioned in b) above being applicable (and irrespective of the minimum crop areas of the properties involved).
Fractioning and parcelling of rural properties
The law foresees some restrictions and rules to the modification of rural properties, notably to their split (fractioning) or reunion (parcelling) into parcels of land. These figures correspond to administrative procedures and are governed by specific legislation.
Modifications arising from fractioning or parcelling operations are subject to update in the Land Registry Office and the Tax Authorities, as well as in the georeferencing systems (when applicable).
- (a) Fractioning
Agricultural assets may not be divided into parcels of land smaller than the minimum crop area (see definition above).
Fractioning is also not allowed when it may result in parcels of land encroached or burdened with easements, or in parcels of land that have more irregular boundaries than the original land, or if the new parcels of land have less than 20 meters wide, even if the minimum crop area is respected. For this purpose, land belonging to the same owner shall be considered as a whole, even if it is composed of different legal properties.
The prohibition of fractioning is not applicable to:
- Land which is part of an urban building or which is intended for a purpose other than agriculture;
- If the acquirer of the plot resulting from the division is the owner of adjacent land, provided that the remaining area of the divided plot corresponds to at least the minimum crop area; and
- Fractioning aimed at disintegrating land for the construction or rectification of property limits.
For the purposes of fractioning in RAN areas, the minimum crop area corresponds to three times the area foreseen in general provisions.
- (b) Parcelling
Parcelling means the set of land redevelopment operations aimed at putting an end to fragmentation and dispersion of rural properties belonging to the same owner in order to improve the technical and economic conditions of the farm. Thus, rural parcelling operations determine the reunion of properties in a single rural property owned by an individual and the elimination of existing landlocked properties.
All adjacent rural properties with an overall area lower than the minimum crop area and belonging to the same owner, regardless of their origin, must be officially merged by a tax department, or at the owner's request, by means of registration of a new property under a single tax article and mentioning its corresponding former tax articles.
Pursuant to Circular No. 1/2004, of 2 January, of the Instituto de Financiamento da Agricultura e Pescas, I.P. (IFAP) and the protocol entered into between the IFAP and various local credit institutions, the financing facilities to be contracted within the scope of the credit lines aimed at financing the operating needs of the productive units of the agriculture, forestry and livestock sectors, e.g. to finance the costs of the agricultural operations (land preparation, sowing, irrigation, harvesting, animal feed, etc.), benefit from a limited maximum nominal interest rate indexed to Euribor 6 months to which may accrue a limited maximum spread.
These short-term credit lines made available by local credit institutions benefit from several commercial advantages, such as, a subsidy of 20% over the applicable reference interest rate granted by the IFAP, a speedier analysis and decision of the credit proposals, competitive spreads and reduced commissions.
The credit line may have a maximum term of one year as from the date of the initial drawdown and it is subject to a one-off reimbursement, to be made by the deadline set in in accordance with the tables published by IFAP.
The cumulative amount of aid to be granted to each farmer/producer shall not exceed €20,000,00 over any period of three fiscal years.
Please refer to section 6. “Planning and Licensing”. We highlight the following specificities:
Planning Instruments and Specific Land Use Legal frameworks
- (a) National Agricultural Reserve (“RAN”)
RAN is a specific delimitation of the areas, under the planning instruments, most suitable for agricultural activity. Due to its use, RAN is considered to be a restriction of public utility, to which a special territorial regime is applied.
RAN intends to protect the soil resource, to support the development of agricultural activity and to contribute to the sustainable development of agricultural activity. RAN area should be exclusively allocated to agricultural activity and any action which diminishes or destroys the potential for the pursuit of agricultural activity is forbidden, being considered a non-building (non aedificandi) area, which means that, in principle, any urban construction activity is forbidden. The law foresees an exception to this principle, as regards certain specific non-agricultural uses of these areas, for example, in the following scenarios (i) construction works for agricultural purposes, when integrated in the management of agricultural operations, (ii) construction of residential buildings for the permanent residence of farmers, (iii) installations or equipment for the production of energy using renewable energy sources, (iv) rural residential tourism developments, or (v) water abstraction works or the implementation of hydraulic infrastructures.
Non-agricultural uses of areas within the RAN, for which an approval, license or administrative authorisation is required, shall be subject to the prior binding opinion of the respective RAN regional bodies, to be issued within 20 (twenty) days.
Non-compliance with the RAN regime may trigger the application of fines ranging between €1,000.00 (one thousand euros) and €35,000.00 (thirty-five thousand euros).
- (b) National Ecological Reserve (“REN”)
REN is a specific delimitation of areas, under the planning instruments, subject to special protection due to its ecological value or exposure and susceptibility to natural risks.
REN is a restriction of public utility, to which a special territorial regime is applied. It establishes a set of conditions regarding the occupation, use and transformation of the soil, and identifies the uses and actions compatible with the objectives of this regime in the various types of areas
The following uses and actions of a public or private nature are, in principle. forbidden in REN areas:
- Allotment operations;
- Urbanisation, construction and expansion works;
- Communication paths;
- Excavations and landfills;
- Destruction of vegetation cover, excluding actions necessary for the normal and regular development of agricultural operations, forestry operations and extraordinary phytosanitary protection actions provided for in specific legislation.
Uses and actions compatible with the objectives of ecological and environmental protection and of prevention and reduction of natural risks in REN areas are excluded from the above limitation and may be subject to a prior notification to the Regional Coordination and Development Committee (“CCDR”).
- (c) Natura 2000 Network Legal Regime
The Natura 2000 network is the main instrument for nature conservation in the European Union, resulting from the application of Birds Directive and Habitats Directive.
As per this legal framework these areas of Community importance for the conservation of certain habitats and species are divided into Special Protection Areas (SPAs) and Special Areas of Conservation (SAC).
Within these areas special requirements and conditions may be applicable for the implementation of activities and also authorisations|opinions issued by the Institute for Nature Conservation and Forestry (“ICNF”) shall also be needed.
- (d) Nature Conservation and Biodiversity Regime
Apart from the Nature 2000 Network legal regime, other nature conservation and biodiversity regimes may be applicable, for instance regarding protected areas such as national or natural parks and nature reserves. The licensing of activities within areas that are classified as protected areas must observe the rules and specifications set forth in the respective planning instruments (planos de ordenamento) and require an opinion or an authorisation of ICNF, depending on the situation at stake.
From a regulatory and licensing standpoint, the development of an agricultural related activity may be dependent on a prior licencing procedure containing concrete requirements and specifications, as highlighted further.
We note that in addition to the regulatory specifications for agricultural activity at stake, which are directly linked to the use of the land and the plantations (briefly mentioned below), there may be other licensing requirements not directly related to these matters, namely, licensing for the selling of organic products and for the use of protection products.
Please find some examples of activities subject to licensing:
- (a) Vineyards
In cases where the investment includes vineyards, the investor should undertake a licensing procedure from Institute of Wine and the Vine (Instituto da Vinha e do Vinho , I.P. “IVV”) in order to be allowed to plant vineyards. Said licensing procedure may take the following forms:
- (i) Planting authorisation
Planting authorisations are valid for a period of three years counted from the date they are granted by IVV and cannot be extended or transferred to third parties.
Planting rights that have been granted on the past should have been converted into planting authorisations until end of 2020.
- (ii) Replanting permit
Such permit is applicable in specific cases where the investor acquires or leases a property which already contains vineyard with a valid legal framework.
Notwithstanding the information provided above, it is important to note that specific provisions regarding vineyards and their plantations may be applicable, for instance, within Delimited Areas, such as the Douro Area.
- (b) Cork oaks and holm oaks
Also, it is important to note that specific protection and conservation regimes may be applicable. We highlight that the cutting or pruning of cork oaks and holm oaks is subject to a prior authorisation issued by the Forest and Nature Conservation Institute (Instituto da Conservação de Florestas e da Natureza, I.P. – “ICNF”). Such activities may only be authorised by ICNF in case it aims to improve the productive characteristics of the specimens or due to phytosanitary reasons. Otherwise said activities might be considered as a “prohibit activity”, not being authorised by ICNF.
- (c) Cork Harvesting
Harvesting of mature or secondary cork with less than nine years of creation is not permitted. Nevertheless, exception is made by the applicable legal framework, upon reasoned request in which the intervention area and the number of trees to be stripped are pointed and upon ICNF authorisation, in the following situations:
- With eight years of creation, to make it feasible to organise the exploitation of cork, namely the harvesting of stripping and the suppression of pieces;
- At eight or seven years of age, provided that all the conditions laid down in a technical standard drawn up by the ICNF are met and that proof of the required conditions, certified by a laboratory recognised for that purpose, are presented together with the request;
- At any age, in the case of cork oaks affected by fire, after verification of their recovery. This authorisation may include the partial harvesting of cork from each tree, subject to the presentation of a harvesting plan that guarantees the elimination of half a tree by 2030, which must be approved by the Institute for Nature Conservation and Forests.
Lastly, in this respect, we note that as from 2030 it will not be allowed to harvest cork oaks in pieces.
Water abstraction rights
General Legal Framework
The Water Law which enacted the EU Water Framework Directive and the Water Use Legal Regime constitute the two key legal regimes applicable to water management, use and protection.
The use of water resources and the occupation of the public hydric domain is ruled by a main principle that determines the prior obtainment of a water use title (“Título de Utilização de Recursos Hídricos”) for all activities that may have a significant impact on the water stage, which, depending on the type of use, can be (i) a license, (ii) a concession agreement or an (iii) authorisation, issued by the Portuguese Environment Agency (Agência Portuguesa do Ambiente, I.P., hereinafter “APA”), which is the National Water Authority.
The development of an activity without the necessary water use title constitutes a very serious environmental misdemeanours, punishable with a fine up to €5,000,000.00 (five million euros) for companies, as determined by Environmental Misdemeanour Framework Law.
Considering that, for agricultural purposes, the main use of water resources is by means of water abstraction or the installation of agricultural equipment, we highlight the following licensing procedures regarding Water Use Titles (“Títulos de Utilização de Recursos Hídricos”):
- (i) Authorisation
Following to the applicable legal framework the obtainment of a prior authorisation for the use of the water resources is applicable for the activities, namely, execution of constructions, implementation of hydraulic infrastructures or collection of water that take place or may affect the bed, margin or private waters.
- (ii) License
The abstraction of water, in general, is subject to the obtainment of a license issued by APA.
According to the applicable legal framework, such license is obtained by the interested party by submitting a request to APA, which shall be filed, whenever possible, by electronic means.
The final decision issued by APA allows the holder of the water use title to develop the requested activity in accordance with the conditions, terms and limits set forth therein.
It is important to note that a license can only be issued for a maximum period of 10 (ten) years, considering the type of use and the necessary period for the depreciation of the investments made.
The issue of the license implies payment to APA of (i) a water use charge, due annually, and (ii) a deposit (“caução”) to ensure compliance with the water use title obligations and conditions – environmental recovery deposit.
- (iii) Concession Agreement
In accordance with the Water Law, the abstraction of water, in general, is subject to the issuance of a license. Nevertheless, pursuant to the Water Law, if the abstraction of water is destined to irrigate an area exceeding 50 (fifty) hectares, the water use title shall take the form of a concession agreement entered into between the applicant and APA.
Article 68, no. 3 of the Water Law determines that a concession agreement may be attributed by: (i) decree-Law, in the case of public companies; (ii) public tender, in which case this procedure should, in principle, observe the terms and conditions applicable under Part II of the Public Procurement Law; or by (iii) request of an interested party submitted within 30 (thirty) days of the public announcement of the procedure, if no other applicant presents an identical request.
The execution of a concession agreement determines payment to APA of (i) a water use charge, due annually, and (ii) a deposit (“caução”) to ensure compliance with the water use title obligations and conditions – environmental recovery deposit.
Other relevant legal regimes on water abstraction
Apart from the legal framework mentioned below and the need to obtain a title for the use of water resources, specific provisions regarding Hydro-Agricultural Undertakings may also be applicable. Additionally, there are other entities that may take part on the licensing procedures regarding water abstraction, such as the relevant Irrigators Associations.
- (i) Hydro-Agricultural Undertakings’ Legal Regime
The Hydro-Agricultural Undertakings’ Legal Regime (“Regime Jurídico dos Aproveitamentos Hidroagrícolas”) determines, namely, the provisions applicable to the various works, including irrigation, to be carried in the public water domain.
Despite the existence of this general legal framework, Portugal is divided into different areas of Hydro-Agricultural Undertakings, where specific provisions, approved by autonomous regulations, apply. Thus, depending on the area in which the investment is made, specific requirements set forth in each regulation must be observed by the beneficiaries (landowners or tenants) of the irrigated area managed by a management entity.
In each of the Hydro-Agricultural Undertakings, the management entity is entitled to determine, namely, (i) water availability for the irrigation campaign, taking into account the annual hydric availability and the needs of each crop and/or activity, (ii) irrigation periods and shifts, (iii) supervision of the use of the facilities and of the soils, (iv) the application of fines for non-compliance with the legal regime established under the Hydro-Agricultural Undertakings’ Legal Regime, and (v) the Annual Plan for the use of water resources, which shall contain information on the crops and irrigation methods, the economic and financial feasibility of the exploitations, the cultural aptitude of each type of soil, the weather conditions and necessary water volumes for precarious users (“utentes a título precário”) for each irrigation campaign.
Finally, it should be noted that each Undertaking comprises an irrigation perimeter (“Perímetro de Rega”), managed by the relevant Irrigators Associations.
For a general framework on the taxation applicable in Portugal, please refer to “Tax” chapter of each section.
Agricultural real estate transactions most often target the acquisition of assets that qualify as rural properties. Rural properties benefit from the lowest Property Transfer Tax rate (5% compared to a maximum rate of 7.5% for residential properties).
In addition to the above, a specific range of exemptions may apply to the fractioning and parcelling of rural properties, provided certain conditions are complied with. The tax benefits include:
- Property Transfer Tax and Stamp Duty exemption on the transfer and acquisition of rural properties that will be subject to a property reunion (parcelling);
- Stamp Duty exemption on bank facilities (covering the principal amount and interest payments) that are granted for the purposes of the real estate transactions under a parcelling procedure;
- Municipal Property Tax exemptions may also be available, for certain types of rural properties (subject to a case-by-case analysis).
A rural lease is an agreement under which the owner of a rural property assigns its use to an individual or company for agricultural or forestry purposes, or to produce agricultural or forestry-related goods and activities.
A lease over a rural property is considered a rural lease, provided that the agreement and respective circumstances do not suggest a different purpose. The simultaneous lease of a rural part and of an urban part is considered rural when it corresponds to the express will of the contractors. In case of doubt, the criteria defining the type of lease in question is the main purpose of the contract and the rent attributed by the contractors to each urban and rural part. In the absence or insufficiency of any of the criteria just mentioned, the lease is considered a non-residential lease.
The rural lease agreement may be of 3 types: (a) agricultural lease, (b) forestry lease, or (c) seasonal crop lease, depending on the purpose established by the parties in the agreement (in case of silent, the lease shall be considered an agricultural lease).
- (i) Agricultural Lease
Lease of land for production, cultivation and harvest of agricultural products, animal husbandry and the production of animal goods and for keeping the land in good agricultural and environmental condition;
- (ii) Forestry Lease
Lease of land for the installation, management and operation of forest stands on bare land or covered with spontaneous vegetation, the management and operation of existing forest stands, the installation and operation of forest nurseries, the establishment or extension of conservation areas and all activities associated with the development, maintenance and operation of forest stands and forest nurseries; and
- (iii) Seasonal Crop Lease
Lease of land for production of crops grown under special conditions and in accordance with a cultural calendar limited to one time of year, normally on the basis of one campaign per cultural page.
Rural lease agreements cover the land, water and vegetation of a property, and, when expressly stated in the contract, it may also cover (i) constructions and infrastructure destined for the purposes of the normal and regular operation of the leased property, (ii) the tenant's residence and the development of other economic activities linked to agriculture and forestry and (iii) other goods, such as machinery and equipment, in which case an inventory should be attached to the lease.
Unless otherwise agreed in the contract, all existing real estate properties included in the rural property shall be assumed to be included in the lease. Moreover, the rural lease can also cover the transfer of production rights and/or rights to financial support arising from the common agricultural policy.
Rural leases must be executed in writing with the identification of the parties and the description of the leased land and are not subject to any formal requirements such as the certification of powers and capacity of the respective signatories; however, in case the land operator intends to apply for agricultural financial support it is advisable to certify the signature of both parties as this may be demanded by the relevant financial entity.
Duration / Termination
- (i) Duration
Agricultural leases must be executed for a minimum period of 7 years, being deemed to have a 7-year duration even if no duration or a shorter duration is established by the parties. Regarding permanent crops such as almond or olive trees, parties usually foresee durations ranging from 20 to 25 years. These leases are automatically renewable for successive periods of at least 7 years.
Forestry leases may not be executed for a period shorter than 7 years and longer than 70 years, the respective duration being automatically adjusted to these limits where divergent time periods have been fixed in the agreement. In these types of agreements, the parties usually foresee durations ranging from 27 to 30 years. Except otherwise stated in the agreement, these leases are not automatically renewed at the end of the contract.
Seasonal crop leases may not be executed for periods longer than 6 years, the respective duration being automatically adjusted to this limit where a divergent term has been fixed in the agreement, and they are assumed to have a 1-year duration in cases where no duration is foreseen. It is standard to have seasonal crop leases with a 1-year duration. Except otherwise stated in the agreement, these leases are not automatically renewed at the end of the contract.
- (ii) Termination
The landlord or the tenant may oppose the renewal of the lease agreement with 1-year prior notice in relation to the end date of the lease or the date of its renewal.
Early termination by either party may be freely admitted under the lease; however, each party must explicitly and clearly invoke the grounds for the exercise of this right (lack of grounds may be challenged in court).
The tenant may terminate the contract early, with 1-year prior notice in relation to the intended term, in cases of abandonment of agricultural or forestry activity, or when the leased premises, for reasons not attributable to the tenant, do not allow for the development of agricultural or forestry activities in a balanced and sustainable economic manner (parties usually restrict the application of this rule in the contract by agreeing the need to (i) justify and prove grounds for the abandonment of agricultural activity (eg. force majeure events) and (ii) prove reasons that not allow for the development of agricultural activity).
The tenant may also terminate the lease in the event of (i) a reduction or change in the property’s productive capability due to unpredictable and abnormal causes not covered by insurance, except in the case of forestry and permanent crop plantations; or (ii) the existence of unforeseen and abnormal circumstances that result in the loss of more than a third of the permanent crop or forestry plantations and which seriously jeopardise the economic return of the farming operation, in the case of agricultural or forestry leases (this rules are usually mitigated by parties under the lease agreement).
The tenant may prevent termination of the agreement by the landlord (by means of opposition to renewal or early termination), provided that it meets, cumulatively, the following conditions: (a) aged over 55 (fifty-five) and has resided at or used the property for over 30 (thirty) years; (b) the income obtained from the property constitutes the main or exclusive source of income of the household (this rule will only apply to individuals and not to companies).
In the event of termination of the agreement by the landlord (by means of opposition to renewal or early termination), the tenant is entitled to compensation: (a) for any improvements made in the property; and (b) for any land improvements and plantings which made the land more productive, performed with the consent of the landlord (it is common to have tenants waiving this right to compensation for improvements under the rural leases, however the admissibility of such waiver is debatable).
Unless otherwise agreed, the lessee is entitled to carry out all necessary actions for the collection, use and processing of any outstanding harvest, even if the lease has already lapsed, in relation to the harvest collection period immediately following the expiry of the lease.
When termination of the lease occurs due to an event not attributable to the lessee, the latter benefits from a pre-emption right in the execution of new lease agreements within the following five years.
The rent is annual, it must be previously stipulated in the agreement and corresponds to a cash benefit usually calculated with reference to the number of hectares of leased land. Parties may agree that the rent is paid in advance. Usually, upon execution of the lease, the tenant pays the first annual rent in advance.
Regarding forestry leases, the parties may agree on a variable portion of the rent linked to the productivity of the property. This possibility is not foreseen in the law for the other types of rural leases.
Unless otherwise stated, the payment of rent must be made until the last day of the year to which it refers to. It is common to foresee that the rent is paid at a specific time each year.
Unless otherwise agreed, the rent review mechanism corresponds to the total result of the change in the consumer price index, without housing, published every year by the Portuguese National Institute of Statistics (this will be applicable regardless of the land’s level of productivity).
Costs and Service Charges
It is standard to foresee that all costs are assumed by the tenant (e.g., costs incurred with water extraction are always assumed by the operator of the land). However, it is not possible to foresee triple net since the tenant may not be responsible for the taxes of the property (a clause in that sense will be deemed as null and void).
In leases which include the use of an agricultural pivot, usually the tenant will be responsible for its use, maintenance and repair as well as of the whole irrigation system (depending on what is agreed between the parties).
There is a general principle in the law obliging the landlord and tenant to allow and facilitate the implementation of land maintenance and recovery actions, as well as any improvements the other party must or intends to carry out to assure the use of the property in compliance with the purpose of the lease, and with a view to improving production conditions and, as a result, the levels of productivity. Apart from this principle, parties may freely agree on the maintenance rules of the land.
Unless otherwise agreed in the contract, the landlord’s consent is required for the tenant’s performance of works and improvements.
Unless otherwise stated in the contract, upon termination of the lease for any reason, any improvements made by the tenant shall revert to the landlord.