Real Rights – emphyteutic lease
Ablation of the right to property;
Right to compensation.
RULING No. 786/14
12 of November of 2014
A normative act established a regime under which emphyteutic leases were created by adverse possession. When conjugated with a regime governing the consolidation of the so-called ‘useful’ and ‘direct’ forms of domain that resulted from the abolition of the legal ‘institute’ of emphyteusis, the norms caused the transfer of full title to the property in question, without any compensation under the general terms of the law.
The court a quo (the Supreme Court of Justice) in the present case found that the norms were in violation of the protection which the Constitution affords to the right to property, because the right of the holder of the direct domain (the emphyteutic landlord or lessor) was eliminated when the holder of the emphyteutic useful domain (the emphyteutic tenant or lessee) acquired title to the land and the emphyteutic lease had itself been constituted by a process of adverse possession without any compensatory consideration.
The Constitutional Court said that the institutional dimension of the constitutional guarantee of the right to property includes a number of commands to the ordinary legislator. The latter is not allowed to eliminate, or affect the essential core of, the infra-constitutional ‘institute’ known as ‘property’ or ‘ownership’; but it is also required to shape this ‘institute’ in the light of the need to harmonise it with the principles derived from the constitutional system as a whole; and although the text of the Constitution does not say so explicitly, this system does include an implicit legal clause which means that property and ownership are subject to inherent social limits.
While the Constitution does seek to consolidate full title in the hands of the holders of useful domain over property, with the ensuing elimination of the correlative right of the holder of the direct domain, this deprivation must necessarily be accompanied by the award to the latter of due and appropriate compensatory payment. One can deduce from the key structural principle that the state must be democratic and based on the rule of law that there is a general right to reparation for damages, one particular expression of which are the various rights to compensation, and namely those which the Constitution lays down with regard to the right to private property.
The Court said that if one takes due account of this constitutional requirement for fair compensation, one can say that without the latter, the situation in the present case would involve a true confiscation.
The flaw of the absence of compensation for extinction of the landlord’s property right was already present in the 1976 legislation that abolished emphyteutic leases, inasmuch as the conditions to which it subjected recognition of a right to compensation were very restrictive and meant this was only awarded in a tiny number of cases. This legislation was amended in 1997, but the compensatory regime was not changed, and so the Constitutional Court found the norms in question unconstitutional.
In this concrete review case the Public Prosecutors’ Office brought a mandatory appeal against a decision in which the Supreme Court of Justice refused to apply a legal norm on the grounds it was unconstitutional.
The question before the Constitutional Court was whether or not the normative content of norms that, when taken together, established a regime under which emphyteutic leases were constituted by adverse possession complied with the Constitution. When this regime was in turn combined with the abolition of emphyteutic leases and the ‘useful’ and ‘direct’ forms of domain over real property were consequently merged, this resulted in the transfer of full title to the land in question and, under the law containing the contested norms, did so without any compensation under the general terms of the law.
The Court began by describing the more recent legislative evolution of the ‘institute’ of emphyteutic leases, which had existed for more than a thousand years. The 19th century Seabra Civil Code defined it as a right whereby the owner of any piece of land (rural or urban) transferred the useful domain over it to another person, who undertook to pay the owner a fixed annual rent. The emphyteutic lease thus took the shape of the division of the right of ownership into two types of domain over the same asset – the direct domain, and the useful domain – each of which was autonomous and possessed its own content.
The 1966 Civil Code maintained this ‘institute’. The emphyteutic lease was a real right (not an obligational one), and was perpetual, albeit it could be remitted. Contracts with a limited term were instead seen as rentals. The useful domain was indivisible unless the landlord agreed otherwise, as was the direct domain. The ground rent (paid annually in cash or kind by the emphyteutic lessee) could be remitted if the lessee exercised the option that was available to him/her under certain conditions to buy the direct domain.
Emphyteutic leases could be entered into by contract, bequeathed in a will, or acquired by adverse possession. The latter case could involve acquisition of the direct domain, of the useful domain, or of both at the same time by different people.
After the Revolution of 25 April 1974, the legislator put an end to the legal emphyteutic lease relationship, abolition of which was sanctioned by the Constitution itself. In 1976, emphyteutic leases of rural property and of urban property were abolished by two separate Executive Laws. At the time, the state alone was still the holder of around 400,000 rural direct domains valued at more than a billion escudos.
In the case of rural emphyteutic leases, the principle was established that full title should be concentrated solely in the hands of the emphyteutic lessee. The state undertook the obligation to compensate a restricted subjective universe of holders of the direct domain over these properties, but the remaining holders were not entitled to any indemnity. The legislator opted for a different solution in relation to urban emphyteutic leases, under which all holders of direct domains were compensated.
A number of different legislative acts regulated the formation of emphyteutic leases (of rural properties) by adverse possession. One of them recognised the possibility that adverse possession be constituted ex lege. However, legal doctrine considered this possibility to be in breach of the 1976 Constitution and a distortion of the notion of adverse possession.
The Constitution guarantees the right to private property and says that requisition and expropriation in the public interest must give rise to payment of fair compensation.
In its jurisprudence the Constitutional Court has taken the position that although the right to property is covered in the Title of the Constitution on “Economic, social and cultural rights and duties”, there is a dimension to this right that enables it to be seen as analogous to the so-called constitutional rights, freedoms and guarantees themselves.
The Court has repeatedly found that the civil-law concept of property and ownership and the corresponding constitutional-law concept are not exactly the same thing.
It has also held that the constitutional guarantee of the right to property encompasses the dimension whereby no one may be deprived of their property except by means of an appropriate procedure and in return for fair compensation.
The particular issue in the present case was the right not to be deprived of one’s assets.
When the 1976 Executive Law came into force, full title was consolidated in the holder of the useful domain over the type of property in question, and the landlord’s right was lost. The 1997 Law introduced a regime under which it was possible to recognise that emphyteutic leases had been constituted by adverse possession, solely in order for this to be used as a stepping stone to full title.
Given that the right to property is guaranteed "in accordance with the Constitution", the ordinary legislator’s freedom to shape legislation in this area is especially strictly bound by the need to comply with constitutional limits. In previous cases the Court had taken the view that the Constitution not only permits the deprivation of ownership by expropriation or requisition, for which it makes express provision, as well as other forms of deprivation undertaken in the name of a necessary public interest, but also other more or less intrusive limitations and restrictions on the right to property. Some of these result from solutions adopted in order to resolve conflicts of rights in the field of private-law relations, under which it may even be possible for one of the opposing positions to be sacrificed in its entirety. The decisive factor in deciding whether such restrictions are permissible is whether they possess constitutional coverage or justification.
In the case of the abolition of emphyteutic leases, the deprivation of the right of the party with direct domain over the property by the consolidation of ownership in the holder of the useful domain does possess a constitutional justification, which is derived from a relative weighing up of the various constitutional commands regarding the country’s agricultural policy. However, this justification does not extend to any interpretation that would legitimate a transfer of ownership without providing for compensatory rules.
The Court therefore found that the norms before it were unconstitutional.
One Justice dissented from the Ruling.
Constitutional Commission Opinion no. 32/82 of 16.09.82 (available in Portuguese at http://www.tribunalconstitucional.pt/tc/content/files/biblioteca/cc/cc_volume_21.pdf)
Rulings nos. 14/84 (08-02-1984); 404/87 (29-07-1987); 44/99 (19-01-1999); 329/99 (02-06-1999); 331/99 (02-06-1999); 517/99 (22-09-1999); 205/00 (04-04-2000); 215/00 (05-04-2000); 263/00 (03-04-2000); 425/00 (11-10-2000); 57/01 (13-02-2001); 187/01 (02-05-2001); 391/02 (02-10-2002); 491/02 (26-11-2002); 139/04 (10-03-2004); 360/2004 (19-05-2004); 159/07 (06-03-2007); 444/08 (23-09-2008); 496/08 (09-10-2008); and 421/09 (13-08-2009).