Rental contract during the pandemic: what has changed?
There is no doubt that the Coronavirus pandemic has brought many losses and difficulties to the lives of many people, especially in the financial sphere.
With the need for social isolation throughout the year, many people faced a significant reduction in their monthly income and, consequently, problems in covering daily expenses such as groceries and, for many, their own housing.
According to the Continuous National Household Sample Survey , rented properties represent around 18% of the country's housing, equivalent to 13.3 million rented homes.
Faced with a scenario of great instability, some of the most common questions that arise among many tenants are: What will happen to my rental agreement during the pandemic? Can I be evicted? Can I renegotiate the contract?
We know how these questions can cause great concern, but we are here to help you! In this article, we will explain how the rental agreement works, how it is provided for by law, and how this document has been affected by the pandemic, so that you do not suffer greater losses during this difficult period.
First, we separate the topics that will be covered. See:
● What is the rental agreement?
● What does the law say?
● What are the tenant’s rights and duties?
● What changes have been made to the rental agreement due to the pandemic?
● How to renegotiate the rental contract during quarantine?
Now, let's get started!
What is the rental agreement?
The rental agreement is a physical document that legalizes the process of renting a property, establishing the agreement that will be made between the landlord and the tenant. In other words, it establishes the following relationship: in exchange for use, the tenant (who rents) pays the landlord (owner of the property) the stipulated rent amount.
That's why this document is so important: its main objective is to serve as legal security for the parties involved in the property rental process.
To this end, it has a series of items and rules that range from fines in the event of termination, to guarantees and the rights and duties of each of the parties, as a way of ensuring the contractual relationship that will be established.
We have a full text on our blog with everything you need to know about this document! Just click on the following link and access: Rental agreement: find out how it works!
Now that we understand what a rental agreement is, let’s see what our law says about this document. But don’t worry! The next topic won’t be that difficult-to-understand “legalese” text.
Our mission is to help our citizens in the process of renting their perfect property and in the day-to-day lives of tenants after signing this contract. Therefore, it is important to know what our legislation says on this subject. So, let's go!
What does the law say?
The rental agreement is governed by Federal Law No. 8,245, which establishes all the rules for preparing this document.
But in addition, this law also determines the rights and duties of tenants and owners so that the lease of urban properties can be signed in Brazil, which is why it is also popularly known as the Tenancy Law.
Created in the 90s, some of its rules were modified to keep them up to date and not harm any of the parties involved in the property rental process.
We have set aside a special topic to talk about the rights and duties of tenants provided for in this law. But first, let's highlight the main items that must be present in the rental agreement, and that every tenant should pay attention to, especially if they are moving in for the first time.
They are:
- Term: normally, a rental contract has a term of 30 months, and can be negotiated for shorter periods;
- Fine: serves as security for the landlord in case of termination of the rental agreement. It is normally applied when the tenant decides to leave the property before the agreed 30 months. Its value is calculated based on the following formula: Fine = (3 x rent value) ÷ months of contract x months remaining on the contract;
- Adjustment: a change in the rental value, which must be specified in the contract. Its value is calculated based on one of the inflation indexes available on the market, such as the IGPM (Inflation Price Index), one of the most widely used today;
- Fee: it is very common for landlords to establish some fees or requirements when the tenant leaves, such as a fee for painting/renovating the property, for example.
What types of leases are provided for by law?
Another important item that every tenant should know is the types of leases provided for by law. Basically, there are three rental possibilities available on the market: residential; non-residential and seasonal.
Residential leases are one of the most common types of leases seen on the market. They can be agreed verbally or in writing, for a fixed or indefinite term, and for a term of less than or more than 30 months. Furthermore, their main advantage is that the termination of this document can occur by mutual agreement between the parties.
Non-residential leasing, as its name suggests, is that related to any type of activity that is not residential, such as commercial, industrial and office activities, for example.
In this case, its main characteristic is to allow the tenant to renew the contract for the same period, as long as it has been signed in writing and for a specific period.
Seasonal rentals, on the other hand, are nothing more than temporary residences for the tenant, whether for leisure activities, courses, health treatments, construction work on the property, or any other purpose. Here, the maximum term of validity is 90 days.
For any of these types of leases, every tenant must comply with all the obligations set forth in the Tenancy Law, as well as receive their rights. Let's look at each of them in detail in the next topic!
What are the rights and duties of the tenant?
According to the Tenancy Law, all tenants have the following rights: to receive the property in perfect condition for use; to be exempt from paying any additional condominium expenses; and to have first refusal to purchase.
In relation to their duties, this law determines that tenants must be responsible for the maintenance of the property; for keeping payments up to date; for all renovation costs if they wish to carry them out; and to comply with a prior notice if they decide to leave the property.
Much more than just being legal requirements, knowing and complying with each of these duties and rights is essential not only for the property rental process, but mainly for the relationship between the parties on a day-to-day basis to be as transparent as possible, avoiding conflicts or misunderstandings that may occur.
Therefore, let’s better understand each of these rights and duties.
Tenants' Rights
The first fundamental right of every tenant is to receive the property in perfect condition for use. To do this, the owner must carry out a detailed inspection and analysis of the property, and attach the verification report with all the information to the rental agreement.
In addition to ensuring that the property is in perfect condition when it is handed over, this inspection will also serve as a basis for the tenant's commitment, who will be responsible for maintaining its preservation during the time they remain in the property.
During your stay, all ordinary expenses of a property that is part of the condominium, such as routine maintenance costs, salary payments, cleaning and caretaking, must also be paid by the tenant.
Finally, every tenant has the right of first refusal in the process of selling a property. This means that when the landlord decides to put the property up for sale, he is obliged to inform the tenant of his intention to sell.
From the moment of notification, the tenant has 30 days to state whether or not he wishes to purchase the property, and to carry out all procedures of the rental process.
Tenants' Duties
The first and most important duty of every tenant is to maintain the property. According to the law, if a tenant is careless and damages the property, he or she must bear all the costs necessary to repair it. If the damage was not caused by the tenant, the landlord will be responsible for repairing it.
The second duty provided for by law is in relation to the payment of rent. Every tenant is obliged to keep up to date with the payments of rent, condominium fees and other expenses established in the rental agreement. If this rule is not complied with, the tenant may be punished with an eviction action.
Next, another very important duty to be highlighted is in relation to renovations. The Tenancy Law allows the tenant to carry out renovations in the rented property, as long as it is previously authorized by the owner and is even provided for in the rental agreement.
All renovation costs are the sole responsibility of the tenant. The landlord is only required to pay for such changes if they are essential to ensuring the habitability of the property, one of the main rights of the tenant as mentioned above.
Finally, if the tenant wishes to leave the property, the law states that he must notify the owner of his decision at least 30 days in advance. If this notice is not given, the landlord has the right to charge a fine equivalent to one month's rent for failure to notify the owner.
These are the main rules you need to know about the rental agreement and the main duties and rights of every tenant. But we still haven't answered the big question in this text: how has the pandemic affected the property rental process?
Let's find out!
What changes are there to the rental agreement due to the pandemic?
The economic losses caused by the pandemic were one of the main concerns for many people who rent in the country. After all, with the reduction in financial income, many worried about how they would continue to pay their rent without being evicted.
One of the ways our government found to help the population in this time of crisis was the proposal of Bill 1179/2020, which was later approved and transformed into Ordinary Law 14010/2020 .
This law establishes several temporary and emergency rules for the regulation of Private Law legal relations due to the coronavirus pandemic. In other words, it temporarily suspends some Private Law laws while the Covid-19 epidemic lasts in Brazil.
But after all, how does this law influence rental contracts in Brazil?
While it was still being processed as a Bill, its main proposal in relation to these contracts was to make some of their rules involving the payment of rent more flexible, if the tenant proved that they would not be able to meet this obligation due to the financial consequences caused by the pandemic.
After being reviewed and edited, Law 14,010 made it possible for rental contracts to be renegotiated during the pandemic, since this was already provided for in the Tenancy Law in its art. 18. See:
Art. 18 - The parties are permitted to set, by mutual agreement, a new value for the rent, as well as to insert or modify a readjustment clause.
This change was essential to allow many tenants who were financially harmed by the pandemic to remain in their properties without suffering any of the penalties and fees for late rent payments.
We will explain how to renegotiate the contract with the owner in the next topic. But first, it is worth mentioning that all rental price adjustments are calculated based on one of the inflation indexes available on the market, such as the IGP-M (General Market Price Index) and the IPCA (Broad National Consumer Price Index).
According to a survey released by the Economics and Statistics department of Secovi-SP, since December 2019 the adjustments applied to rental contracts have been lower than the values defined in the IGP-M.
The data released show that between December 2019 and November 2020, the increase in the value of residential rents in the city of São Paulo was 1.71%, a percentage well below the IGP-M, which registered 24.52% in the same period.
“Both landlords and tenants are still recovering from the most critical period and both sides are trying to find a financial balance for the contracts. The transfer of the correction index [IGP-M] occurs punctually, varying on a case-by-case basis and, in exceptional situations, when the current rent is very outdated” , explained the vice-president of Asset Management and Leasing at Secovi-SP, Adriano Sartori, in an interview with G1 .
This renegotiation process can seem confusing and complicated, especially for first-time tenants, but don’t worry. We’ve put together some tips to help you through this process! Check out the next topic.
How to renegotiate a rental contract during quarantine?
The best way to renegotiate a rental agreement during this pandemic is to have a direct conversation with the property owner. Explain your financial situation and propose reasonable adjustments so that neither party is harmed.
If this agreement is not possible and the parties do not reach an agreement, it is possible to take the case to court. In São Paulo, for example, a survey by the Association of Real Estate and Condominium Administrators of São Paulo (AABIC) revealed that at least one in five residential leases has undergone a renegotiation process in recent months in the state.
In an interview with Jornal da USP , Professor Eduardo Tomasevicius Filho, from the Department of Civil Law at the university's Law School, stated that most of the results of these cases led to a 50% reduction in the value of rent while this pandemic period remains.
“We had, therefore, a myriad of decisions both to suspend the rent and to maintain the rent, but predominantly it was to reduce it to 50% or order the judge to require more evidence to decide whether or not it was a case of reviewing the rent, also to prevent people from not paying by blaming the pandemic,” he said.
But be careful! It is important to note that this renegotiation only covers the rent itself, and does not include condominium fees, property tax , and water and energy bills, for example.
What happens in case of termination of the contract?
Although renegotiating rental contracts was the most sought-after solution by tenants during the pandemic, another measure that can also be adopted by those who have been financially harmed is to resort to terminating the lease.
In this case, it is important to remember that the Tenancy Law determines that the tenant must comply with the 30-day notice period before definitively leaving the property.
After this notice, the owner must schedule an inspection of the property to verify that the place is in the same conditions of use as when it was handed over.
What if the tenant leaves the property before this period?
In this case, the tenant will have to pay a fine established at the time of signing the rental agreement. Its value is calculated based on the remaining months of the agreed term.
See this example to better understand it in practice: imagine a rental contract signed for 30 months for R$2,000.00, and the tenant decides to leave the property with 18 months left on the contract. To calculate the value, simply use the following formula:
● Fine = (rent amount x 3) ÷ months of contract x months remaining on contract
● Fine = (2,000 x 3) ÷ 30 x 18
● Fine = (6,000 ÷ 30) x 18 = R$3,600.00
To avoid having to pay this amount during this pandemic, remember to comply with the notice period required by law. This way, you will not suffer greater financial losses resulting from the termination of the rental agreement.
Conclusion
The crisis caused by the Coronavirus pandemic has affected the lives of many people, causing serious financial losses for many.
If you live in a rental property, it is important to pay attention to the measures approved by our government to help you in this scenario, with the possibility of renegotiating the rent amount to avoid a possible eviction.
Therefore, in this text we explain the main changes that this document has undergone due to the pandemic, and the solutions that can be taken by tenants to deal with this difficult time for everyone.
If you liked this text, continue your visit to our blog and see our full articles! There we also talk about other types of housing , and much more about property rentals .