In the real estate sector, there are various legal structures that allow people to use a property, with rental agreements being the most common. However, a lesser-known structure is the long-term lease (emphyteutic census), a type of contract that has been in use for centuries and can still be a viable option in certain situations, even though it may seem somewhat outdated.
The long-term lease is a contract or legal structure in which the owner of a property (the censualist) grants the useful domain of the property to another person (the leaseholder) in exchange for a fixed annual payment or rent. Unlike a rental agreement, where the tenant only acquires temporary usage rights, long-term lease grants the leaseholder a real right almost equivalent to ownership, allowing them to use, benefit from, and improve the property, provided they fulfill the agreed payments and any other obligations.
This right does not involve the full transfer of the property’s ownership, as the censualist retains the direct domain (or naked ownership). Thus, the leaseholder can use the property practically as an owner and may even transfer their right to others or pass it down to heirs.
Characteristics of the Long-term Lease and Differences with Rent
Below are the main differences between long-term lease and rental agreements to better understand their nature and the advantages or limitations of each.
- Nature of the Right:
- Long-term lease: It is a real right, granting the leaseholder a status close to ownership;
- Rent: It is a personal right, limited to the temporary use and enjoyment of the property without powers of disposition.
- Duration:
- Long-term lease: It can be indefinite and transferred to heirs;
- Rent: It has a specific duration, limited by law, which depends on the contract, and parties can renew or terminate it when the term expires.
- Canon vs. Rent:
- Long-term lease: The annual payment or canon is typically a fixed amount and is often not adjusted;
- Rent: The rent is usually updated according to market indexes and annual variations.
- User’s Rights over the Property:
- Long-term lease: Allows the leaseholder to make modifications and improvements with fewer restrictions, and these improvements often revert to the censualist at the end of the contract;
- Rent: Generally, permanent modifications are not allowed without the owner’s permission.
Currently, the Long-term Lease is More Common in Rural Properties
In the past, long-term lease was used for all types of properties, both rural and urban. This option was particularly appealing to those who wanted to exploit agricultural land or use urban properties without purchasing them. However, with the evolution of urban planning laws and the current preference for other contract forms, such as rental and sale, long-term leases are now almost exclusively used for agricultural properties.
Urban properties are less suited to long-term lease due to regulations. Municipal authorities often prefer rental contracts with limited durations, as these facilitate urban planning and property mobility. Additionally, the possibility of redeeming the long-term lease and converting the leaseholder into the property owner may discourage censualists from using this contract in urban areas. In such areas, property values tend to increase, and owners prefer to maintain full control over their assets.
Mª Dolores García Santos