The Lease Law Urban

ANGOLA- THE LEASE LAW URBAN

On January 21, 2016 came into force the Urban Lease Law "ULL" (Law No. 26/15 of 23 October). This Act repealed the famous "Tenancy Law" (Decree 43525 of March 7, 1961), inherited from the colonial time for over 50 years and completely inadequate of the socio-economic reality of the country.

It is a law long awaited by Angolans and we knew that sooner or later it would be unsustainable to maintain the reality of the rental market completely out of the Law.
 

I believe that it was expected that the ULL would introduce deeper changes to the lease regime, and it seems to me, however, that it has not evolved as much as it was really necessary, but if we think that this change occurs after 50 years, it is understood the caution of the legislator in not being that bold to make too many changes.

For those who do not know the Angolan rental market, I will explain in a very brief summary: in the last decade, we had an economic boom that attracted many foreign private investment and potentiated the arrival of thousands of people, expatriates and also Angolans returning to their country, which resulted in a shortage of properties available for rent and a higher demand than supply, especially in Luanda, the capital.

However, the economic scenario has changed. The low oil price affected all economic activities and the urban lease market was not an exception to this rule. The alarm has sounded - has the "el dourado" of the rental estate market come to an end? Well, we are facing an ULL, which coming into force coincided with three new factors: a strong economic crisis; an increase in supply in the housing market - were built dozens of new buildings in recent years -; and a slowdown in demand, considering the non-renewal of employment contracts of thousands of expatriates and consequent abandonment of the country.

The survey I have been doing made me realize that there are many reservations, many misinterpretations and fears about the future of the real estate business, especially by Landlords. With this article I hope to clarify some doubts about the ULL, given that other fears will dissipate only until new winds blow and the economic scenario changes.

When reading the preamble of ULL, I quickly realized that the legislator had the concern to give it a social matrix. There is in this law a clear protection to the tenant, not representing, therefore, novelty regarding the Tenancy Law which was also protective, and the tenant is considered the social part and economically the weakest in the contractual relationship. It follows therefore that the ULL wanted expressly to safeguard the right to housing and quality of life, enshrined in the Constitution of the Republic of Angola.

Thus, like in the previous law, the rule of binding leases is kept automatically renewable with strong limitations of the landlord’s right to end the lease. The landlord can only do so when there is "just cause" and - most often - using the courts to be able to assert their rights and resume possession of his/her property. The landlord is "stuck" to the lease agreements, reason why they are called by “binding contracts."
In the current socio-economic context, we agree that if the intention of the legislator was to ensure alternative access to housing, so the stringency of the law and the excessive protectionism to the tenant can produce exactly the opposite effect, discouraging the real estate investment and creating anti-bodies to the owners and potential investors, who tend to weigh more accurately the risks and costs of real estate investment.

I agree that there is a need to guarantee the right to housing constitutionally protected, but this should be fostered by strategic social policies, such as the construction of housing centralities with resolvable rent payment (already underway in the country) or support to the families through of mortgage loans with subsidized interest.

In my view, the urban lease, like other businesses, must be dynamic and flexible, respecting the law of supply and demand and attracting investors who can provide more homes to the market and thus add more economic value to State treasury by way of taxation. For this to happen, it is necessary that investors - Landlords - feel confidence in the law and that it protects somehow, the management of its assets.
 

On the other hand, I consider that an effective modernization and streamlining of the current lease context would only really be possible when accompanied by rapid mechanisms for the resolution of disputes between landlord and tenant.

Despite the fact that ULL has introduced (i) the rent payment procedure pending legal action and (ii) the immediate eviction for nonpayment of the referred rents, this law did not bring structural innovations in relation to the resolutions of disputes, specifically in matter of eviction. The exception of the aforementioned changes, is that the New Urban Lease Law (NULL) basically kept the procedural rules that already existed in the Civil Procedure Code, which defines the processing of evictions in the summary process, and allowing the use of judicial decisions with suspensive effect, which means that conflicts between Landlords and tenants can last for years until the final decision of the Supreme Court, thus frustrating - again - the expectations of Landlords. We all know that the dynamics of the economy and real estate costs are not consistent with the slowness of our courts.

The alternative to the courts would be the means of extrajudicial dispute resolution (arbitration, conciliation, mediation), but it seems to me that these are not yet sufficiently disseminated, on the other hand, there is lack of culture of use of such means, associated with the fear of high costs they might entail.

For example, let's see how is the dynamics of settlement of disputes in countries that are close to us:

In Portugal, for example, was created the National Lease Counter "NLC", a court clerk has exclusive jurisdiction for the conduct of the special eviction procedure. However, it is known that despite having offered greater speed in resolving conflicts between Landlords and tenants, the NLC sins because disputes are referred to the courts if the tenant does not voluntarily abide by the decree or opposes the eviction.

In Brazil, the rental market is quite mature and demanding, and is supported by a prevention policy. As a rule, contracts are generally managed by the property managers, which require tenants a prior registration and the introduction of the guarantor or other guarantees, which are activated in case of default by the lessee. The tenants and guarantors must submit their personal documents, salary proof, residence and banking, tax returns, negative certificate of debt and criminal record before signing the contract.

This demand of the Brazilian market eventually bears fruit an excellent deterrent effect of non-compliance by bringing the Landlord some security on the lessee's profile and ensuring the timely payment of rents, avoiding recourse to the courts.

Returning to our ULL, the good news is that from now on, for housing rentals, the parties may choose between “binding” contracts (which are automatically renewed) and limited-term contracts or "fixed term" with a minimum period of 5 years. That is, if they choose a contract for a limited period at the end of the contract term, the Landlord does not need to have a reason to justify the termination of the lease contract it may freely terminate through tenants notice.

Because of the scarcity of alternative options, the ULL allows, that in the mentioned fixed-term contracts, the tenant can terminate the contract at any time, with 90 days’ notice before its end, bringing a strong insecurity to the durability of the contracts and consequently, the Landlords who see reduced their expectations of having indeed a yield of 5 years or more.

There are questions about the possibility of celebrating fixed term contracts for commercial leases. The law does not provide a chapter for commercial lease. I conclude that the legislator only wanted to assign this option to lease for housing.
 

I would like to impress upon the reader that ULL only applies to all lease contracts entered into from January 21, by which the contracts concluded prior to this date continue to follow the rules of Tenancy regime.

There have been doubts about the fixing of rents in kwanzas. In fact, this amendment covers all contracts, including those which have been concluded under the Tenancy regime. All rents must therefore be fixed in Kwanzas.

Another issue that has afflicted mainly the Landlords, much due to the devaluation of the Kwanza is the possibility to index the value of the contracts to the US dollar. It being understood that the ULL imperatively provides for the fixing of rents in Kwanzas, it is also true that there is no express prohibition of indexation clauses to foreign currency or fiscal correction unit (FCU) or inflation rate, so, it is possible to use the dollar or UCF as indexing references. Clarified this point remains the question of which exchange rate to use? Our Civil Code refers to "the fulfillment day of the exchange." This has been the formula that the market has found to fight the devaluation of the kwanza.

With regard to the ban of rent anticipation for more than three months, it is a topic that has generated some discomfort to the market, where it was customary practice the early collection of a year rent by the Landlords. In fact, the previous law already prohibited the anticipation of rents, so it is not any significant change brought by ULL. The novelty is that the market demand and supply has dramatically changed and has brought a new dynamic to contractual relationships that, let's be frank about it, was completely distorted.

Talking about urban rent in Angola requires me to address the issue of Urban Land Tax ("IPU"). As is known, the tax administration has been attentive about the payment of this tax that has been neglected for so many years. Well, in Angola there is a separation of the tax base on which the tax levied, which allows to separate the tax falls on the assets or the income generated by this, not being cumulative.
 

The IPU rate for leased property is 15% and the payment is by reverse the Landlord in two equal installments due in January and July of the year following the receipt of income. However, if the tenant is a legal person with proper accounting, has the burden of withholding tax at source at the time of payment of rent, providing copy of the Revenue Collection Document to the Landlord.

• To the reader that intends to enter into a lease contract soon, I leave you a checklist:

• Contracts must be in writing;

• Lease agreements for trade, industry or exercise of professional services, and contracts for more than 6 years must be made by public deed;

• The properties for urban rental housing must have certificate of habitability;

• The rents must be fixed in Kwanzas;

• There is the possibility to conclude lease agreements for housing for the right period of 5 years or more;

• The update of rents can be conditioned or free, must appear in the update mode in the contract;

• Obligation payment of IPU, rate 15% (except legal exemptions).

In conclusion, there are many challenges and constraints facing the urban lease market. 

Challenges that started with the quality of available real estate, high levels of investment value, maintenance costs, the rigidity of the law in relation to contractual terms and tenant protection, the delay for the settlement of disputes, among others. It is a process that will follow its natural course, respecting the dynamics of the country and the economy. As a legal author would say (Orlando Gomes, general transformations of the Law of Obligations, p. 152) "the reality allows more than the legal logic”.

In fact, so it has been.

I sincerely hope that you my first blog article has been helpful and enlightening.

See you soon!

Leonor