On 26 March 2020, the Portuguese Government passed Decree-Law 10-J/2020, which approves exceptional measures to protect families, companies, private charitable institutions and social economy entities in connection with the Covid-19 crisis, including a moratorium on credits.

In this newsletter, we describe the main conditions for the application of the moratorium.

Protection measures:

  • Prohibition of the cancellation, in whole or in part, of credit facilities and loans;
  • In relation to bullet loans, extension of the maturity as well as of any ancillary obligations, including interest;
  • In relation to other loans, suspension of payment of instalments, rents and interest and automatic extension of the payments schedule.

Moratorium period:

Until 30 September 2020.

Eligible entities / persons:

  • Companies that:

(i)     have their head office and perform their economic activity in Portugal;

(ii)    are classified as micro, small or medium-sized enterprises;

(iii)   as of 18 March 2020, were not in default of cash payments towards financial institutions for more than 90 days or, if they were, did not meet the materiality threshold established in the Bank of Portugal Notice 2/2019 and Regulation (EU) 2018/1845 of the European Central Bank of 21 November 2018;

(iv)   as of 18 March 2020, were not in an insolvency, suspension or cessation of payments situation or subject to an enforcement proceeding; and

(v)    are not in default towards the Tax Authority and Social Security.

  • Other companies, regardless of their size, who meet conditions (i), (iii), (iv) and (v) above, excluding those of the finance sector;
    • Individual entrepreneurs, private charitable institutions, non-profit organisations and certain social economy entities who have their domicile or head office in Portugal and fulfil the conditions (iii), (iv) and (v) above;
  • Natural persons, in relation to primary residence mortgage loans only, who reside in Portugal, fulfil the conditions (iii), (iv) and (v) above and fall in one of the following circumstances:

(i)     prophylactic isolation or disease situation;

(ii)    assistance to children or grandchildren;

(iii)   reduction of normal working period or suspension of the employment agreement due to business crisis;

(iv)   unemployment situation registered with IEFP;

(v)    are eligible for the extraordinary support for the reduction of the economic activity of self-employed workers under Decree-Law 10-A/2020, of 13 March 2020;

(vi)   are employees of entities whose establishment or activity has been closed or suspended during the state of emergency period pursuant to Decree 2-A/2020, of March 2020.

Eligible transactions:

Credit transactions carried out by:

  • Credit institutions;
  • Financial credit companies;
  • Investment companies;
  • Leasing companies;
  • Factoring companies;
  • Mutual guarantee companies;
  • Branches of credit and financial institutions operating in Portugal.

Excluded transactions:

  • Credits or financing for the purchase of securities or the acquisition of stakes in other financial instruments;
  • Credits granted to beneficiaries of schemes, subsidies or benefits (e.g. tax benefits) to establish their head office or residence in Portugal, including for investment activities, with the exception of citizens covered by the Return Programme (Programa Regressar); and
  • Credits granted to companies for the individual use of credit cards by members of board, supervisory bodies, employees or other workers.

Interest capitalisation:

The extension of the payment of principal, rents, interest, fees and other charges (where applicable) will not prevent the accrual of interest which shall be capitalised in the value of the loan.

Moratorium application:

The moratorium must be requested before the relevant financial institution. The eligible entities and persons may request the suspension of the repayment of principal only (or a part thereof).

Today, the Portuguese Energy Secretary of State announced in an online session that the first 2020 solar auction will be, on the whole, similar to the 2019 solar auction. Despite the announcement, there is no date for the auction’s launch, due to the Covid-19 pandemic’s effects on the market.

The injection capacity to be auctioned will be of 700 MW, all in the Alentejo and Algarve areas.

The promoters may apply to the following remuneration schemes:

  • a market scheme without storage where the promoters bid for a contribution made to the National Electric System (“SEN”), in €/MWh. The Promoters available to pay larger contributions will be awarded with the capacity title;
  • a fixed guaranteed tariff structure, where the bids will express a discount to the reference feed, to be announced (in 2019, was 45€/MWh);
  • a market scheme for power plants incorporating a storage system. A value of an annual payment to be made to SEN, in MW, will be announced and the promoters interested in this new option offer a discount to this value.

The obligations for the awarded bids in the auction will be similar to those of the 2019 solar auction and they include a performance bond (60.000€/MWh) to guarantee the compliance with a tight schedule to connect the plant to the grid.

A few days ago the Portuguese government also enacted  Decree 80/2020, of 25 March initiating the simplified licensing for small production units (up to 1 MW). Through this proceeding, the Promoters may apply for a guaranteed remuneration for 15 years. On a monthly basis, until offering a total of 20 MW, the Portuguese Energy Authority (“DGEG”) will organize sessions where the Promoters bid among themselves. The Promoters will offer a discount to the reference feed (45 MW/h). The first session is scheduled to June of 2020, however due to the Covid-19 pandemic’ effects, there is some uncertainty regarding this date.

new law (Portuguese only) was enacted creating a fast track process for the Lay Off, which now includes cases of suspension of the employment contract and reduction of the normal work period provided for in the Labor Code. The new rules are as follows:

Who can access it: private sectoremployers, including employers in the social sector affected by the epidemic and who are in business crises.

Business crises: companies that find themselves in one of these situations:

  • total or partial closure of the company or the establishment as a result of the obligation to close installations and establishments,
  • total shutdown of the company's or establishment's activity resulting from the interruption of global supply chains, suspension or cancellation of orders; or
  • an abrupt and sharp break of at least 40% of the billing in the period of 30 days prior to the application with the social security, with reference to the monthly average of the two months prior to that period, or compared to the same period of the previous year.

Documents to apply:

  • Simple statement issued by the employer, announcing there’s a business crises,
  • Certificate from the company's certified accountant attesting to the crises situation,
  • The employer should have his tax and contribution situation up to date before the competent authorities.

Amount of salaries:

  • If the employment contract is suspended, the employee stays at home and receives 2/3 of the salary, up to a maximum of 3 RMMG (€1905,00), with the State paying up to 70% of this amount, up to a maximum of €1.333,5
  • If the normal working period is reduced to more than 66% of the normal period (for example, the worker works 80% of the normal working time), the worker receives the number of hours worked (80%), but the State only contributes up to 2/3 (66%) of the salary.

Prohibition of dismissal: the employer financially supported is prohibited to dismiss the employee covered by the State support through collective redundancy or dismissal based on the extinction of a job position, up to 60 days after the conclusion of the State support.

It is estimated that about one billion people are under voluntary confinement in their homes in order to halt the spread of the current pandemic, which explains the significant increase in the amount of data moving across fixed and mobile networks when combined with services like Netflix, HBO, Prime Video, Instagram, Facebook and Youtube and practices such as telecommuting and homeschooling.

Netflix was invited by the EU to reduce its streaming quality in Europe, a public call that Netflix attended to, but others such as YouTube, Apple TV+, Amazon Prime and Disney Plus are also committing to tone down the image quality of their streaming applications in order to free up bandwidth space.

The Portuguese government, in its turn, has set out temporary and exceptional measures regarding the telecommunications sector in order to prevent a network overload. According to Decree Law 10-D/2020, telcos must ensure the provision of the following services, which are deemed key telecommunications services:

  • Ininterrupt voice chat and text messaging under fixed and mobile networks;
  • Ininterrupt access to the emergency services, including geolocation and ininterrupt availability for public warnings to be sent to the population;
  • Sufficient data under fixed and mobile network that ensure access to a set of essenial services, such as email, search engines, news, homebanking, financial and insurance services, both in fixed and mobile broadband; and
  • Analog and digital television signal.

These services must be provided to prioritary clients such as healthcare providers included in the national health service, security forces and Home Affairs, both in continental territory and Madeira and Açores.

In view of ensuring these services, telcos may take exceptional measures regarding network and traffic management, prioritizing voice chat and text messaging traffic, while limiting video streaming, online gaming or other categories of data transfer, provided that limitations are only to ensure the integrity and safety of the networks.

Network repairing is also going to be a priority, since compliance with obligations usually applicable to the telecommunications sector will be simplified and/or suspended.

The new legal framework is already in force and will be until the measures for the prevention, containment, mitigation and treatment of the pandemic are waived by the national public health authority.

DGEG, the Portuguese energy authority, brought, at last, long expected news for solar energy promoters: Decision 27/2020 suspends the licensing deadlines for all electrical projects.

As we had alerted, the first measures announced by the Portuguese Government did not protect the Solar promoters from the Covid-19 pandemic’ effects. The promoters would be forced to continue complying with  their permitting obligations until DGEG would close to the public.

Following the Portuguese Government’s measures driven by Covid-19 pandemic emergency, DGEG  closed to the public on March 16. Despite DGEG continuing to operate online, this decision suspends all deadlines linked to licensing procedures with effects from that date.   

This suspension comprehends the deadlines for all actions and formalities regarding any administrative proceedings run by DGEG, including, but not limited to:

  • the deadline for obtaining the relevant operation license (both to promoters who obtained the production license prior to the approval of the Decree-law 76/2019 as well as promoters awarded on the first Portuguese solar auctions in June 2019); and
  • the deadline to complete the request for an agreement for the expansion of the public grid, with the corresponding Operator.

The suspension of the deadlines lasts until DGEG announces the end of the suspension, or, if it occurs first, on the date from which the Covid-19 exception situation is withdrawn by the Portuguese Government.

In addition, this decision establishes that new requests, including those to obtain a grid capacity reserve title through an agreement with the Grid Operator, will not be received until the end of April 2020.

Decree-Law 107/2019, of December 4, granting powers to the Council of Ministers to establish the main terms and conditions of the public-private partnerships (PPP), has been terminated with effect from 19 March 2020 by way of the Portuguese Parliament Resolution 16/2020.

The Portuguese Parliament decided to revoke the new PPP law and to restore the previous framework, returning the decision-making powers to the finance minister together with the minister with powers in each PPP project area.

Municipalities and autonomous regions lose again the freedom to set up their own PPPs without government supervision.

It is worth remembering that the PPP regime was enacted last December under great deal of criticism from left and right wing of the Parliament, because it was said to grant discretionary powers to the Council of Ministers to set up new PPPs and to modify the existing ones.

We cannot speculate that Covid-19 was the cause of this change: the Parliament did not want to make sure the Government and the municipalities focus their efforts on the Covid-19 pandemic economic contingency measures; or to avoid unnecessary Council of Ministers meetings. There were other reasons, certainly political ones, coming from the left wing of the Parliament (and in this case somehow strangely supported by the social democrats) where the animosity against the healthcare PPP model is growing, notwithstanding the good results of most healthcare concessions now being terminated.

In February 2020, ANACOM issued a draft regulation that would allow it the 5G auction to occur as of April.

The regulation, under public consultation, aims at providing Portuguese operators, both incumbents and new entrants access to 5G frequencies. The most interesting feature of the draft regulation is the attempt by ANACOM to level the playing field for new entrants by reserving to them certain lots in the 900MHz and 1800MHz frequency bands, instituting national roaming, limitations on the acquisition of certain frequency bands and discounts.

ANACOM’s intention is to ensure the commencement of 5G network roll out by the end of 2020 and achieve full coverage by the end of 2025.

According to the initial schedule, the consultation would be concluded in the end of March and the final allocation to occur in August 2020.

However, due to the outbreak of the COVID19 pandemic, for the first time in half a century, in 20th March 2020, the State of Emergency was decreed imposing severe restrictions on population movement and economic activity.

Following a series of requests by operators and considering the terms of the Presidential decree, ANACOM decided to suspend the consultation procedure while the State of Emergency is in force. In the same decision the Regulator also suspended the refarming of spectrum currently used by Terrestrial Digital Television (DVB-T standard), a measure designed to release further 5G frequencies.

The Portuguese Government approved a set of rules to enforce the state of emergency (Portuguese only) which will be in force in for a period of at least 15 days.

The new rules are extraordinary and result in proportional and appropriate restrictions of citizens' rights and freedoms, in particular with regard to the rights of movement and economic freedoms.

Among the approved rules, the following should be highlighted:

  • Restriction of citizens' freedom of movement, only being possible to move on public roads for one of the following reasons:

a)      The purchase of products and services;

b)     Performance of professional activities that are not possible to carry out from personal domicile by teleworking;

c)     Acquisition of necessary supplies considered essential to the exercise of the professional activity, the activity being exercised by telework;

d)     Displacements for health reasons, namely to transport people who need health care administration;

e)     Urgent journeys, namely transportation of victims of domestic violence or veterinarian medical doctors;

f)      Travel to care for vulnerable family members, children, seniors, among others, or for fulfilling parental responsibilities;

g)     Short travels for physical activity, excluding the practice of exercise in collective modalities;

h)     Short-term travels for pets; and

i)      Returning home.

  • Prohibition of religious celebrations and other worship events involving a crowd of people and establishing that the holding of funerals is subject to the adoption of measures to ensure the absence of crowds and the control of safety distances, including the establishment of a maximum limit of attendance, to be determined by the local authority.

The Government has also opted for not promoting the suspension of the following activities:

a)     Catering activities carried out in canteens or canteens that are in regular operation and in other collective catering units whose catering services are carried out under a continuous performance contract;

b)     E-commerce activities, activities for the provision of services which are provided at a distance, without contact with the public, or which develop their activity through an electronic platform;

c)     Retail trade activities or service activities located along the highways network and within railway, airport, inland waterway and hospital stations, unless such infrastructure has been or is foreseen to be closed.

In establishments of physical retail or service establishments, certain measures must be taken to ensure a minimum distance of two meters between persons, a stay for the time strictly necessary for the purchase of the products and a ban on the consumption of products inside them.

In addition, all citizens under surveillance by health authorities, under penalty of a crime of disobedience, must remain at home.

All the new measures also establish the need for employers, irrespective of their public or private nature, to promote, where possible, the provision of teleworking facilities to enable employees to carry out their work from their personal home.

The rules are applicable from March 22nd throughout the national territory.

As Portugal and the world prepare for difficult times, tourism takes a break, the economy slows down, orders are cancelled, people worry about those close to them, fear takes hold of many and everyone tries to see an end to the crisis. The coronavirus is today’s subject for all of us.

And in the middle of the crisis, legal issues are beginning to arise.

How does my job situation look now that the company for which I work has suspended its activities? What about the mortgage loan instalments due to the bank to pay off the mortgage? Can I suspend payment of rent of the shop or office that is now closed? Can I cancel the order I placed for delivery in April? What can I do if I don't have staff to complete the contract or the service? What if I don't have materials and equipment that should come from China?

In this first article we address some of these issues, with the promise that over the coming weeks Macedo Vitorino will provide more detailed information on the legal impact of the coronavirus crisis on the lives of companies and individuals.

Employment contracts

The Portuguese Government approved a "Simplified Lay Off" scheme that allows the company to suspend employment contracts for up to six months, during which the employee receives 2/3 of his/her gross salary, of which 70% will be paid by the Social Security and 30% by the employer.

Financial support is granted for a period of one month, renewed monthly, up to a maximum of six months, only when the company's employees have enjoyed the maximum annual vacation leave days and when the employer has adopted the working hours flexibility mechanisms provided for by law.

For more information on this topic read our Newsletter: Covid-19 and Employment Support .

Loan contracts for home purchase

As a rule, these contracts will remain unchanged unless the Government approves a bill suspending payment of bank loans or interest on housing mortgages.

We expect that, as in Italy, the Government will introduce specific legislation allowing for a total or partial suspension of loan repayments and possibly interest relief. However, as long as no such measure is approved, contracts will have to be honoured.

House rental contracts

Medium or long-term rental contracts will remain unchanged. Tenants who continue to use the leased properties will be required to continue to pay their rent on time.

In some cases, the present crisis may imply a loss of interest in the lease. For example, in temporary leases of students who leave the apartment or leased residence may invoke a "change of circumstances" to end the lease under Article 437 of the Civil Code.

Article 437.1 of the Civil Code states that "If the circumstances on which the parties based their decision to contract have undergone an abnormal change, the injured party has the right to terminate the contract, or to modify it according to fairness judgments, provided that the requirement of the obligations assumed by him seriously affects the principles of good faith and is not covered by the risks inherent in the contract".

It seems clear to us that in the case of student rentals or other short-term rentals, the tenant, who no longer has an interest in or can no longer use the rented property, may put an end to the lease.

There are two conditions for invoking this rule:

(a)         First, the tenant ceases to use the rented accommodation during that period;

(b)        Second, the contract must be of short duration and severely affected by its interruption for a period that is expected to last from three to six months.

For longer contracts the question no longer arises. The loss of interest in the dwelling will be temporary, so the tenant might be interested in not paying rent, but not in terminating the contract. The longer the contract the less reason the tenant will want to stop paying the rent and still keep the contract in place when the crisis is over.

Commercial leases

For commercial leases the situation is similar, but not identical.

In commercial leases there will be some cases where the suspension of the tenant's activity was decided by it as a response to the crisis, such as service companies that started working remotely, and others where it was or will be imposed by the Government, such as restaurants, hotels or street shops.

In both situations, the public health crisis is the same and the material reasons for the suspension of activity are the same: the emergence of the situation, its unavoidable nature and the need to protect its workers and the community in general. Even so, in the second case, the closure of the establishment will result from an administrative order and therefore legally stronger than the first, but in substance they are identical and should receive the same treatment.

In these cases, the duration of the contract is key. In long and medium-term contracts, there is no reason to terminate the contract because of the “change in circumstances”, but there may be a reason to revise the contract in accordance with fairness.

In our opinion, in long-term contracts of three or more years, there does not seem to be any doubt that the risk of business interruption should be entirely at the tenant's expense. After all, the interruption is not caused by an earthquake or any other natural cause preventing the use of the property, so the risk of the business is the tenant's, in the same way that economic crises, long or not so long, more or less severe, do not justify the cessation of payment or the revision of rents.

For contracts with a term of less than three years, a six-month interruption is equivalent to a significant part of the contract duration, which may justify a partial reduction in rents or even suspension of payment during the period of inactivity.

The best solution will be to negotiate with the landlord because failure to comply with the contract carries the risk of the landlord filing an eviction suit, in which case he will most likely be right. To continue to fulfil the contract and ask in court for compensation from the landlord for the time of closure based on changed circumstances seems possible to us. In some cases, it would even be possible to file an injunction to suspend payment of the rent, but the court's decision may be delayed because of the disruption to the functioning of the courts caused by the crisis.

Construction contracts

Despite the closure of trade, we still see many construction works taking place in Lisbon and in other cities of Portugal. For the time being, there does not seem to be much disruption, but as time goes on, contractors may find it difficult to keep the works going at the same pace or be forced to stop work due to a lack of manpower, epidemic outbreaks among their workers or failures in their suppliers of equipment and materials. It is even possible that if the crisis worsens the Government will order all people to stay at home with the exception of certain essential services such as the supply of water, electricity, gas or the transport and sale of food and basic necessities.

The outbreak of an epidemic can thus cause significant delays in the performance of works contracts or even their interruption for a long period.

These situations are called "impossibility of performance" and are regulated in the Civil Code. Paragraph 1 of Article 790 establishes that the obligation is extinguished "when the service becomes impossible for reasons not attributable to the debtor", that is, the debtor is not obliged to perform the contract when performance becomes impossible. In most contracts, however, it will not be a “definitive impossibility”, but temporary because the contractor will still be able to fulfil when the situation is normalised.

Therefore, in the vast majority of situations Article 792 of the Civil Code will apply, which will allow the contractor to delay performance on the assumption that the owner of the work maintains interested in the completion of the works even if with delay. In these cases, there will be a justification for the delay, which will have to be demonstrated in each case for the reasons described above.

In these cases, a "change of circumstances" may require the revision of the contract terms. For instance, if an equipment, which is to be installed on the site, is no longer available and has to be replaced by another, or the equipment price increases significantly, which justifies an increase in the final price of the work.

Service contracts

The regime of "impossibility" of compliance foreseen in articles 790 et seq. of the Civil Code or the change of circumstances foreseen in Article 437 also of the Civil Code may be applied to service contracts.

The application of either scheme depends on the specific circumstances of the case. For example, if a single service is provided by a self-employed person who falls ill, the situation may be one of "subjective impossibility", since the debtor is no longer able to do what he committed to. In such cases, the creditor may no longer have any interest in the service, for example a lawyer’s legal opinion or a medical consultation. The contract will be terminated without the service provider having any obligation to pay compensation.

In others, the service may become objectively impossible because there is no access to the place where it is to be provided, closed because of the epidemic outbreak, as will be the case with equipment maintenance contracts.

In other cases where the change of circumstances will require a price revision or a change of the contract object in favour of the service provider (debtor) or whoever hired it (creditor).

In long-term contracts, such as regular maintenance or cleaning services, the creditor may lose interest in the provision. Compliance may still be possible and the service provider may want to maintain the service, but the creditor may no longer need the service because it is not justified in the current circumstances. For these cases Article 437 of the Civil Code will apply and the creditor may request the termination or the amendment of the contract on equitable terms, i.e. balanced and fair conditions for both parties.

Supply contracts

It is to be expected that the crisis will affect many supply contracts. There will be delays in the supply of goods and materials, disruptions in transport within and from out of Portugal which will cause a domino effect on distribution chains, etc. All these situations may justify the termination or revision of the contract by "objective impossibility" or "change of circumstances" as explained above.

In addition to these situations, there will be many cases where buyers will lose interest in the supply and will want to terminate or suspend the contract while the crisis lasts. For example, closed hotels and restaurants will no longer be interested in receiving the food, hygiene products and all the others that support their day-to-day activities.

In those cases, the 'change of circumstances' rule in favour of the purchaser applies, which may require the revision of the contract, postponing or suspending the supply, or even its termination.

The Portuguese President has declared today a state of emergency due to public disaster, following countries such as Spain, France, Italy and the United States, that adopted the same measure to fight the current Covid-19 pandemic.

This exceptional measure may imply strong restrictions to some constitutional rights, reason why it is limited to the indispensable in harmony with the principle of proportionality.

The most severe restrictions may occur to the freedom of movement and settlement in any part of the national territory. With the expected exceptions of certain professional activities such as health care or food supply, the Portuguese Government will specify in which terms citizens will no longer be allowed  to use their right to free movement according to the evolution of the Covid-19 pandemic.

Compulsive confinement at home or in a health establishment can be imposed, as well as the setting of sanitary fences (which is already taking place in the municipality of Ovar).

International movement is limited, border controls (including sanitary ones) on people and goods can be imposed, and compulsory confinement also applies. Travelling ban from and to Italy and Spain is already in place.

Property rights and private initiative may also suspended or otherwise limited, as well as the provision of any services. The use of any health care units, commercial and industrial establishments may be demanded.

Employees may be required to perform functions under different working conditions, particularly in the health, civil protection, security and defense, distribution and supply of basic goods and services and critical infrastructure sectors.

According to today’s presidential decree, which may be read here, under no circumstances will the rights to life, integrity and personal identity, civil capacity and citizenship, as well as freedom of expression and information be compromised, well as the principles of criminal law.

The state of emergency shall remain in force until April the second and may be renewed if normality has not yet been restored.