TRIBUNAL CONSTITUCIONAL Portugal

RULING No. 583/16

3 of November of 2016

Headnotes:

The Constitutional Court (TC) found no unconstitutionality in a Civil Code (CC) norm that attributes a preferential purchase right to tenants who have been party to an urban rental contract for more than three years, when interpreted to mean that if the rental only encompasses part of the building and the latter is not subject to a multiple-unit / common property regime (so-called ‘horizontal ownership’), that right does not extend to the whole of the property.

The Court rejected the appellants’ allegations that when interpreted in this way, the norm violated the principle of equality, the right to property and ownership, the right to housing of one’s own and the principle of the protection of legitimate expectations.

One of the constitutionally guaranteed aspects of the right to property is the freedom of transmission, be it inter vivos or mortis causa, and there can be no such thing as property whose disposal is prohibited. This right does not preclude legal limitations on the freedom to transmit which do not affect the essential content of the right to property – a preferential right is an example of such a limitation – and which exist solely in response to the need to protect other types of interest. The only thing a preferential right does is to oblige the owner, if he/she decides to sell, to give the right-holder (in the present case, the tenant) the first option to buy under the same terms as another offeror.

The jurisprudence on rented places that only form part of a property which is not subject to a ‘horizontal’ regime is divided. Some courts have held that such tenants are entitled to a first option on the whole of the property (so-called ‘expansive theory’), while others have limited the right to the concrete rented place, with no preference existing if that place cannot be transacted autonomously (‘location theory’).

Constitutionally, the ordinary legislator is as entitled to extend this preferential right in accordance with the expansive theory as it is to restrict it under the location theory. In practice, successive polysemic legal texts have been interpreted as supportive of both theories, which are constructs made by the interpreter.

The distinct regimes that result from the decision to opt for the location theory and thus differentiate between situations is neither arbitrary, nor lacking in rational grounds. The position of someone who is confronted with a preferential right of a tenant who wants to exercise that right solely in relation to his/her ‘rented place’ is not the same as that of one faced with a tenant who wants to exercise it with regard to a broader space from which the rented space cannot be legally detached. This situational diversity can lead the legislator to impose a differentiated legal treatment without any breach of the principle of equality.

It is stabilised constitutional case law that the Constitution only prohibits the differentiated treatment of situations when there are no material grounds for that differentiation; the Constitution does forbid negative forms of discrimination which injure the equal dignity of human persons, and differences of treatment for which there is no justifiable reason.

The Court had also already said that the functions of the principle of equality do not include guaranteeing that the legislator’s choices are rational and coherent or represent the best solution. Constitutional Justices are only required to prevent legal norms from establishing rules which differentiate between persons or situations that warrant equal treatment or which, on the other hand, equate persons or situations that deserve to be treated differently.

Nor does the norm violate the constitutional right to property and ownership. One cannot deduce from that right an imperative requirement for legislation which allows someone who already has rented housing to use a preferential right to acquire the right to ownership of the whole of the property – i.e. a whole that is larger than just the rented space. In addition, that which was at stake in the normative interpretation before the Court was not the original provision of housing (because tenants already have it), but rather whether housing should be made more stable via the right to property and at the cost of a certain degree of sacrifice of the autonomy to negotiate in relation to a part of a property that is not even rented out, which is a very different situation.

The Court also said that it was not possible here to argue a breach of the right to one’s own housing, because the Constitution does not require that that right be fulfilled by means of a transformation, via a preferential right, of rented housing into owned housing. What the Constitution does seek to guarantee is access to a dignified place in which to live – an access that can be ensured as much by renting as by the right to ownership of property.

Nor did the Court accept the allegation of a breach of the principle of the protection of legitimate expectations. The democratically legitimated legislator must be recognised to possess the lawful ability – and perhaps even the duty – to try to suit legal solutions to existing realities. There must be a fair balancing of the subprinciple of the protection of citizens’ expectations derived from the principle of a democratic state based on the rule of law on the one hand, and the legislator’s freedom to create and shape legislation on the other. It is only in cases in which, by changing existing regulations, new legislation makes intolerable and excessively burdensome changes to pre-existing legal relations and situations which citizens and the community could not have been expected to foresee, that that subprinciple imposes itself in such a way as to prevent the new law from failing to respect the minimum degrees of certainty and security which every social actor must take into account.

Summary:

When the owners of a building sought to dispose of it, the long-term tenants of a legally non-autonomous part of it claimed a preferential right to buy the whole property.

In 2000, the Constitutional Court (TC) had already pronounced itself on a tenant’s preferential right (right of first option to buy, or right of first refusal) within the scope of a housing-rental relationship. That decision was handed down in relation to the Urban Rental Regime (RAU), and in it the Court took a position on the constitutional conformity of the same basic situation as the one before it here, but from the inverse perspective. The issue in the present concrete review case was the conformity of an interpretation of a Civil Code norm that was introduced as part of the New Urban Rental Regime (NRAU), according to which the tenant of a non-autonomous part of a property cannot exercise a preference in relation to the whole of the latter. In its earlier Ruling, the Court did not reject the opposite interpretation – i.e. that the tenant of part of an urban property which was not subject to a ‘horizontal’ ownership regime was entitled to first option to buy the whole of the building, even though the landlord had argued that the attribution of such a right to the tenant violated her own right to property and ownership.

In the present case, the Court took the view that although the ways in which the preferential right was addressed in the two interpretations were different, the right itself was substantially the same one. In its 2000 case law, it limited itself to saying that the Constitution takes a neutral stance on whether the spatial extent of a tenant’s preferential right is greater or smaller. In this domain, the legislator’s freedom to choose solutions tends not to be conditioned by the projection of constitutional values. In the absence of an express legislative choice, this same idea of the issue’s neutrality on the constitutional plane also applied to the question before the Court in the present case, where the current interpretation does not recognise a broader preferential right. It is debatable which of the two interpretations more closely represents the applicable legis artis, but the various constitutional norms and principles do not provide decisive arguments either way.

Over the years, the legislator has chosen to give tenants a preferential right to buy when the place they are renting is available for sale. It has done this using a variety of legislative solutions, the first of which (in relation to urban rentals) was only available in the case of commercial rentals.

When it passed the NRAU in 2006, the ordinary legislator gave urban-regime tenants a right of first option to buy in the event of the sale or surrender in lieu of payment of the place they had been renting for more than three years.

The current norms on this preferential right express the principle that it refers to the object of the pre-existing right which justifies it. In the present case, the preferential right is limited to the ‘rented place’. If what is to be sold is an overall thing – e.g. a building – within which that rented place does not possess legal autonomy, the preferential right cannot be exercised.

The situation of the tenant of part of a building in which the part is legally autonomous and that of the tenant of part of a building which has not been divided into legally autonomous units are not the same. In the first case, the nature of the rented thing makes it possible for the physical reality that is the object of the transaction in which possession and use of that reality passes from one party to another to match the physical reality of the object of the rental, whereas in the second case that match-up is impossible.

The Constitution does not enshrine a principle whereby the legislative choices made at a given moment in time must be obeyed forever. In the event of a conflict of interest between landlord and tenant, the protection the Constitution affords to the right to housing means that the degree of protection available to the tenant must be greater when what is at stake is the effective elimination of that right, whereas in relation to other aspects of the conflict, the legislator must be allowed to legislate more freely.

As such, the Court rejected all the allegations of the normative interpretation’s unconstitutionality and denied the appeal.

Supplementary information:

One Justice dissented from a section of the Ruling in which the Court decided not to hear a part of the appeal lodged before it because that part did not meet the requisite for admission of an appeal on the grounds of a norm’s alleged unconstitutionality. He did, however, concur with the majority in relation to the part of the appeal that was heard (and denied).

Cross-references:

Rulings nos. 346/93 (12-05-1993); 156/95 (15-03-1995); 225/00 (05-04-2000); 465/01 (24-10-2001); and 187/13 (05-04-2013).