The Right of Preference

The right of first refusal is essentially the right of certain people to have priority in concluding a deal.

It does not create an obligation to conclude a deal, but rather to enable them to exercise the right to conclude a deal under the conditions in which a deal would be concluded with a third party.

In the event of a breach, the would-be preferred party may demand compensation or the annulment of the deal concluded, with a view to adopting the position of purchaser under the same conditions.

There is a wide range of situations in which this right can be found, and the preferent is often “harmed” (or “not benefited”) due to ignorance of this right.

We will now highlight some specific situations:

1 - LEASING

1.2 - RURAL RENTALS

2 - HISTORIC STORES

3 - TOWN HALLS, AUTONOMOUS REGIONS OR STATE

4 - TRESPASS

5 - RURAL BUILDINGS

5.1 - BY AREA

5.2 - BY INTERLOCKING

6 - HERITAGE

7 - COMPANIES

8 - CONVENTIONAL

9 - SURVIVING SPOUSE

10 - Final Note: Brief distinction regarding the Right of Remission

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1 - LEASING

Under the terms of Article 1091(1) of the Civil Code, the tenant has the right of first refusal in the following situations:

a) In the purchase and sale or transfer in lieu of payment of the premises leased for more than two years, except in the case of a lease relating to part of a building not constituted as horizontal property;

b) In the case of a rental contract for residential purposes relating to part of a building not constituted as horizontal property, the right relates to the share of the building corresponding to the permilage of the leased premises by the proportional value of that share in relation to the total value of the transfer and the acquisition by the preferent is made with the exclusive use of the share of the building to which the leased premises correspond.

c) When entering into a new lease, in the event of the expiry of the lease due to the termination of the right or the expiry of the legal powers of administration on the basis of which the lease was entered into.

- cfr. art. 1091 of the C.C:.

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1.2 - RURAL LEASE

Pursuant to Article 31(1) and (2) of Decree-Law 294/2009 of October 13 (NRAR), in the case of rural leases, when the lease is terminated for reasons not attributable to the lessee, the lessee has the right of first refusal on leases entered into within the following five years.

In the case of the sale or transfer in lieu of payment of agricultural or forestry leases, where the contract has been in force for more than three years, the lessees will have the right of first refusal.

In accordance with the provisions of paragraphs 4 and 5 of the aforementioned article, if the tenant decides to exercise the right of first refusal, he will have to operate the building as its owner for at least five years, unless there is a case of force majeure, failing which he will be obliged to pay the previous owner an amount equivalent to five times the last rent due and to transfer the property to the person who has not exercised the right of first refusal, if the latter so wishes, for the purchase price of the building.

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2 - HISTORIC STORES

In accordance with Law no. 42/2017, of June 14, which determines the regime for the recognition and protection of establishments and entities of local historical and cultural or social interest, in addition to the other applicable general rules,

a) The tenants of a property in which an establishment or entity recognized as being of local historical and cultural or social interest is located enjoy a right of first refusal in the transfer of real estate, or parts of real estate, in which they are installed, allowing the right of first refusal to be obtained in respect of the property/building as a whole; and

b) municipalities have the right of first refusal in the transfer for consideration of real estate, or parts of real estate, in which an establishment or entity recognized as being of local historical, cultural or social interest is located.al

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3 - MUNICIPAL COUNCILS, AUTONOMOUS REGIONS OR THE STATE

Municipalities, Autonomous Regions or the State may have the right of preference if the properties are in the following circumstances:

a) In an urban pressure zone, delimited on the grounds of a lack or inadequacy of supply, under the terms of article 2-A of Decree-Law no. 159/2006, of August 8, in its current wording;

b) In territories identified in the National Housing Program based on the lack or inadequacy of the supply referred to in the previous paragraph.

(cfr. art. 6 of Decree-Law no. 89/2021, of November 3rd)

To do this, the announcement must be published on the online site of the “Casa Pronta” platform, via the link https://www.casapronta.pt/CasaPronta/preferencias/PrePasso1.jsp.

After publication (and payment of the respective costs, which currently amount to €15.00), the entities benefiting from the right of first refusal may exercise it within 10 days. - cfr. no. 2 of art. 7 of Decree-Law no. 89/2021, of November 3rd.

It should be noted that, under the terms of Article 37(4) of Law no. 83/2019, of September 3 (Housing Framework Law) “The right of first refusal of public entities does not affect the right of first refusal of housing tenants in the purchase and sale or sale in lieu of payment of the property where they reside, and the law shall establish the respective classification.”

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4 - TRESPASSING

In the case of trespass - generally defined as the definitive, global or unitary, total or partial transfer of the commercial or industrial establishment, the landlord has the right of first refusal on trespass by sale or transfer in kind, unless otherwise agreed. - cfr. n.º 4 do art. 1112.º do C.C.

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5 - RUSTIC BUILDINGS

5.1 - BY AREA

In accordance with the provisions of Article 1380(1) of the Civil Code, in the case of adjoining land with an area less than the cultivation unit, the owners of the adjoining land have the right of first refusal in the case of sale, payment in kind or leasing of any of the buildings, over anyone who is not an adjoining owner.

If there are several owners with pre-emptive rights, in the case of a landlocked building, this right goes to the owner with a right of way and, in all other cases, to the owner who, through pre-emption, obtains the area closest to the cultivation unit established for the respective area.

In the event of equality, bids will be opened between them, with the excess reverting to the seller.

- see Article 1380(2) and (3) of the Civil Code.

To understand the unit of culture to be taken into consideration, Annex II of Ordinance no. 219/2016, of August 9, in its current wording, should be considered.

In this context, it should be noted that, in general terms,

a) in relation to rainfed land, this is land that does not have any irrigation system, i.e. water use, including rainwater.

b) Irrigated land, on the other hand, is land that has such systems, which make it possible to use both its own water and water from third parties.

c) in order to determine the classification to be assigned/considered, the predominant crop practiced on the land at the time of the legal transaction must be taken into account.

This provision should be combined with Article 18(1) of Decree-Law 384/88 of October 25, so that the right of preference is essentially dependent on one of the buildings having an area smaller than the cultivation unit.

This right will not apply if any of the plots of land is part of an urban building or is used for a purpose other than cultivation or if the sale involves a group of buildings which, although dispersed, form a family farm. - cfr. als. a) and b) of art. 1381 of the Civil Code.

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5.2 - BY ENCLOSURE

Under the terms of Article 1555(1), the owner of a building burdened with a legal right of way has a right of first refusal (already constituted, even through the usucaption institute!) in the event of the sale, transfer in lieu of payment or leasing of the dominant building.

Under the terms of paragraph 3 of the aforementioned article, if there is a plurality of preferential bidders, a bidding process will be opened between them, with the excess reverting to the seller.

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6 - HERITAGE

Under the terms of Article 2130(1) of the Civil Code, in the event of the sale or gift of a hereditary share to strangers, the co-heirs enjoy the right of pre-emption under the same terms as the co-owners (with the difference that the time limit for exercising the right, which, under the terms of Article 2130(2), is 2 months).

It should be noted, however, that this right relates to a hereditary share (fraction of the share to which the heir is entitled) and not to the sale of a specific asset included in the undivided inheritance.

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7 - COMPANIES

With regard to private limited companies, in the event of the sale or judicial adjudication of a share, the other shareholders and, subsequently, the company or the person designated by it, will have preference.

As for limited liability companies, under the terms of Article 367(1) of the C.S.C., in relation to the subscription of bonds convertible into shares in the company (see Article 365 of the C.S.C.), the shareholders have pre-emptive rights; and under the terms of Article 458(1) of the C.S.C., with regard to capital increases, in each capital increase by cash contributions, persons who, on the date of the capital increase resolution, are shareholders may subscribe to the new shares with preference over those who are not shareholders.

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8 - CONVENTIONAL

In addition to the situations provided for by law, which have been briefly mentioned above, it is also possible to agree on a preference pact, whereby someone assumes the obligation to give preference to another in the sale (or de facto provision) of a certain thing (cf. art. 414 C.C.).

In this way, one party may oblige itself to give preference to another in the sale of a certain good or provision of a service.

This convention/agreement must be in the form of the business to be carried out (e.g. in the case of the purchase and sale of immovable property, it must be granted by means of a public deed or a notarized private document.

In principle, it will only be of an obligatory nature, generating the liability to pay compensation, and cannot be relied upon by third parties. However, if the right of first refusal relates to immovable property subject to registration, has been agreed to be effective in rem by express declaration, and the right has been registered in accordance with the legal terms, then it may be of a real nature (with regard to the last of the three conditions, in relation to immovable property, see Article 2(1)(f) of the Land Registry Code).

There are also situations in which, under the terms of the law, the express possibility of establishing pre-emptive rights is opened up, as is the case, for example, within the scope of the articles of association in which the pre-emptive rights of the other shareholders can be established in the event of the sale of registered shares (see Article 328(2)(b) of the Civil Code).

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9 - SURVIVING SPOUSE

Under the terms of Article 1707(9) of the Civil Code, the surviving spouse has the right of first refusal in the event of the sale of the property - the family home while the deceased spouse was surviving - and for as long as he/she inhabited it, regardless of the title.

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10 - Final note:

Brief distinction from the Right of Remission

Although relatively similar, the right of pre-emption differs from the right of remission, one of the main differences being that, in the latter, there is no obligation to give notice in order to exercise this right.

Thus, with a view to protecting family assets, this right of remission belongs firstly to the spouse, secondly to the descendants and thirdly to the ascendants of the debtor, taking precedence over the right of preference (see Article 844(1) and Article 845(1), both of the Civil Code).

It will therefore be up to the redeemer to inform the court that he intends to exercise the right of remission within the following time limits:

“In the case of sale by sealed bids, by the time the title deed for the transfer of the goods is issued to the bidder or within the time limit and under the terms of Article 825(3);

In the case of other types of sale, until the goods have been delivered or the title documenting the sale has been signed.”

(cfr. art. 843 C.C.)