Unconstitutionality of exemption from paying minimum rent - Shopping Centers

In its ruling of June 28, 2022, the Constitutional Court held that the rule in the Supplementary State Budget for 2020, which declared shopping center tenants exempt from paying the fixed or minimum rent until December 31, 2020, is partially unconstitutional.

The rule in question,[1] which was approved among the measures adopted to mitigate the economic consequences of the COVID-19 pandemic, stated the following:

“In cases where specific types of contracts for commerce and services in shopping centers are applicable, no amounts are payable for minimum rent until December 31, 2020, with only the variable component of the rent calculated on the sales made by the tenant being payable to the owners of shopping centers; however, store tenants continue to be responsible for paying all contractually agreed expenses, particularly those relating to common expenses and charges.”

In response to a request made by the Justice Ombudswoman for a subsequent abstract review of this rule, a plenary session of the Constitutional Court held the following in ruling 468/2022 of June 28, 2022:

>                 The credit right of a shopping center owner or manager to fixed remuneration (or minimum rent), which, for shopping center stores, is generally foreseen in the respective contracts, is within the scope of protection of the right to private property established in article 62 of the Constitution of Portugal.

>                 If a shopping center owner or manager is deprived of this substantial remuneration, it is at risk of being unable to offer the tenants the expected financial advantages through providing the services that are essential for the shopping center to function properly. The rule in question, which applied to all shopping center store tenants regardless of the extent to which the pandemic and the restrictive measures affected their specific situation (i.e., without considering whether they made profits or suffered losses, or their financial situation) is excessively protected, meaning the sacrifice imposed on the counterparty is unjustified and disproportionate.

>                 Based on the above, the Constitutional Court issued a ruling of partial unconstitutionality, which preserves some of the legal effects of the rule in question.

In effect, the ruling declares the referred legal provision unconstitutional with binding effects, “insofar as it determines, for specific types of contracts for commerce and services in shopping centers, an exemption for store tenants from paying the fixed or minimum monthly rent beyond a reduction that is proportional to the decline in the store’s monthly turnover, capped at 50% of the amount, when the stores have seen a decrease in their monthly sales compared to the sales they made in the same month in 2019 or, if there is no such figure, to the average sales in the six months before Presidential Decree 14-A/2020 of March 18, or a shorter period, where applicable”.

In short, shopping center owners/managers may be able to claim the payment of part of the fixed rent that store tenants did not pay between March and December 2020, and the conditions for calculating the partial exemption are the same as those in force during the first semester of 2021.[2] Therefore, tenants are not fully exempt from paying the fixed monthly rent; instead, the monthly rent is reduced in proportion to the decrease in monthly sales, capped at 50% of the rent amount, for stores that saw a decline in their monthly sales compared to the sales they made in the same month in 2019, or, if there is no such figure, to the average sales in the six months before March 2020 (or a shorter period, where applicable).

Assessing the terms of any payment agreements or addenda to the store use contracts that the store tenants and owners/managers of shopping centers entered into is now important, as they may have safeguarded the suspension of their effects or adjustment in light of the Constitutional Court’s recent ruling.