Manuel Bragança Santos and Gonçalo Rodrigues write on the energy transition in the real estate sector

Manuel Bragança Santos and Gonçalo Rodrigues sign an opinion article in Vida Imobiliária magazine on the challenges the energy transition poses to the real estate sector, with particular focus on the legal obstacles arising from Portugal's horizontal property regime.

In the article, titled "The Energy Transition in the Real Estate Sector and the Challenges of Horizontal Property," the authors point out that the main challenge of the energy transition lies not in new construction, but in renovating the vast existing housing stock, mostly made up of aged, poorly energy-performing buildings that will remain in use in 2050.

EPBD recast and the EU Taxonomy: the regulatory framework

Manuel Bragança Santos and Gonçalo Rodrigues begin by framing the topic in light of the EPBD recast and the EU Taxonomy, the main European regulatory instruments applicable to the energy transition in real estate. They note that buildings account for 40% of final energy consumption and 36% of energy-related greenhouse gas emissions in the European Union, and explain that the directive sets a national trajectory for reducing average primary energy consumption in the existing residential stock: at least 16% by 2030 and between 20% to 22% by 2035, compared to 2020. The authors also highlight that at least 55% of this reduction must be achieved through the renovation of the 43% worst-performing residential buildings.

For new construction, the authors explain that the directive introduces the concept of a "zero-emission building," defined as a building with very high energy performance that produces no on-site carbon emissions from fossil fuels and consumes only energy equal to or below the nationally set threshold. This standard will apply to all new buildings from 2030 onward, and as early as 2028 for those owned by public entities.

Energy performance as a factor in market value and financing

The article also addresses the relationship between the EPBD recast and the EU Taxonomy, explaining that building renovation is eligible for taxonomic alignment when it results in a reduction of at least 30% in primary energy demand, or when it meets the requirements applicable to major renovations under the EPBD recast. The authors emphasize that a property's energy performance has ceased to be a merely technical or regulatory matter and has become a determining factor in its market value and financing eligibility: an asset that is not aligned with the Taxonomy degrades the financing bank's Green Asset Ratio, becoming progressively less eligible for ESG investor portfolios and sustainable financing, with direct consequences for owners, developers, and financial institutions.

The horizontal property regime as an obstacle to energy renovation

In the second part of the article, the authors focus on the national context and identify the horizontal property regime set out in the Civil Code as a potential obstacle to carrying out the necessary interventions. They explain that most of the interventions relevant to improving buildings' energy efficiency, namely façade insulation, replacement of common window frames, installation of solar panels on the roof, or renovation of central HVAC systems, affect common areas of the building, which fall under the management of the condominium.

While extraordinary conservation works are approved by a simple majority of the condominium owners present, innovations, meaning the introduction of new elements into the building, a category covering most of the interventions related to the energy transition, require a qualified two-thirds majority under Article 1425 of the Civil Code. The authors add that works that alter the building's architectural line or aesthetic arrangement, common in façade insulation interventions, likewise require authorization by a two-thirds majority under Article 1422(2)(a) of the Civil Code.

Compounding this deliberative obstacle, according to Manuel Bragança Santos and Gonçalo Rodrigues, is the structural insufficiency of the common reserve fund, to which each condominium owner contributes only 10% of their share of the remaining condominium expenses.

Our lawyers conclude that this qualified-majority requirement, combined with the high cost of the interventions and the structural insufficiency of collective financing mechanisms, creates conditions conducive to the horizontal property regime becoming a practical obstacle to achieving the European Union's energy renovation objectives. With the transposition of the EPBD recast still pending, the authors leave open the question of how Portuguese law will come to accommodate these requirements.

Read the full article in the attachment below.