Are Portugal's "Alojamento Local" holiday rentals coming to an end?

In recent years, until the pandemic, Portugal's short-term rental market (known as Alojamento Local or AL) had been a strong driver of the national economy and of the rejuvenation of the housing stock. This was especially true in the large urban centres of Lisbon and Porto, along with the more touristy regions such as the Algarve and Madeira.

However, at the same time, holiday rentals in Portugal have also been the target of criticism by neighbours and politicians. Recently, the Supreme Court of Justice (STJ) declared that it would no longer be possible to have short-term rentals in residential buildings in Portugal. Now what? Is this the end of AL short-term rentals in Portugal? We have the details, looking at things on a legal basis.

"The STJ standardised jurisprudence for AL installed in private apartment blocks in the sense that these cannot operate there if the unit is intended for housing", begins the analysis of the law firm Lamares, Capela & Associados in this article prepared for idealista/news, stressing that, according to the ruling of the Supreme Court of Justice, "in the regime of horizontal property, the indication in the constitutive title that the block is intended for housing should be interpreted in the sense that it cannot be used for AL holiday rentals".

Short-term rentals in Lisbon have been a strong economic activity Unsplash

What is the standardisation of jurisprudence?

On the same legal issue there may be contradictory decisions from higher courts - called conflicts of jurisprudence - judgements that decide in opposite directions on the same issue. Thus, when discussing the legality of installing and operating a holiday rental in a residential unit, there may be opposing decisions if an appeal is lodged with the various Courts of Appeal or even in a decision handed down after an appeal to the STJ.

The appeal for the standardisation of jurisprudence, which can be requested by the President of the STJ, the parties or the Public Prosecutor's Office, seeks to put an end to the divergence of opposing decisions, guaranteeing the principle of equality and thus ensuring stability and harmony in judicial decisions (that when faced with judicial decisions involving the same law and the same point of law, the parties are not faced with different solutions depending on the region of the country).

What is at stake?

The question of law that gave rise to the Uniform Court Ruling is neither new nor is it uncontested by the courts.

The legality of a short-term rental in an autonomous building used as a housing in a block subject to horizontal property has long been questioned, knowing that the AL rental may be associated with: 

• frequent entry and exit of guests at various times of the day and night
• noise or gatherings
• the use of lifts
• the dragging of suitcases in the common areas of the building during the night.

AL in Porto attracts tourists and has generated discord Unsplash

The right to rest and tranquillity of the condominium members is considered, on the one hand, and the right of the owner of the apartment to monetise their apartment by allocating it to the exercise of holidays, by having an AL license, on the other.

• In 2016 the Porto Court of Appeal found the accommodation activity compatible with the use of a buildings for residential housing purposes. It understood that the accommodation, even if for a short duration, does not cease to be qualified as housing.
• In 2018 the same Court had already decided differently, claiming that the exercise of the activity of short-term rental accommodation in a unit intended for residential purposes by the constitutive title violated the purpose that had been given to it.
• In 2016 the Lisbon Court of Appeal decided that the holiday rental apartments installed in residential units did not comply with the law because they implied a use different from the purpose for which the unit was initially intended. But this decision would be overturned by the STJ in 2017, upholding that the use of the building by tourists does not remove the allocation to housing, not qualifying this activity as commercial.

What effects does the ruling have for the activity of AL short-term rentals?

It only applies to the case in which it was issued. Yes, because although it is a case of standardisation of jurisprudence, it does not have the general mandatory force that the law attributes, for example, to some of the rulings delivered by the Constitutional Court, so it has no applicability outside the specific case and is only binding to the parties of the case.

However, it should be stressed that in the future standardised jurisprudence will end up having a persuasive and guiding effect on all courts whenever the same question is raised, in order to guarantee some harmony within the judicial system and to avoid once again contradictory decisions by courts on the same issue.

The Algarve is one of the regions that most fears the effects of the STJ ruling Unsplash

The standardised jurisprudence by the STJ ruling on short-term rentals (AL) will not apply, for example, to:

• single-family dwellings (the concept of which is set out in Article 3(2) of DL 128/2014 of 29th August 2014)
• buildings containing several independent units belonging to a single owner 
• to units used for commerce or services.

What can we expect from the future?

This ruling does not mean the immediate illegality of the ALs that currently exist in residential units in Portugal.

Without wanting to attempt to predict the future, the judgement of the STJ does not mean the end of the activity of holiday rentals, as some media are reporting.

This is because it is not up to the courts to reduce to illegality all the local accommodation in the country, being rather the legislator's role to set the conditions for the registration of local accommodation (AL does not need a licence, prior notification with a deadline is enough for its registration), the requirements for exploitation and operation and the supervision of local accommodation in order to be able to operate regularly.

Secondly, since judicial decisions are only valid in the specific case, the unifying judgement can only be applied to short-term rentals in residential units if in relation to all of them the illegality and consequent annulment of the establishment's registration is requested by a dissatisfied condominium member, before the judicial courts.

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What are the solutions?

1. The most obvious solution is to avoid recourse to the courts and consequently subjection to the position of the unifying judgement by maintaining good neighbourly relations and obtaining compromises between the owner of the AL and the other owners. This will avoid recourse to courts in which the legality of the establishment may be raised. It should be noted that the short-term rental legislation already provides since 2018 for the possibility of setting an aggravated condominium fee for the AL to compensate for the wear and tear of the common areas generated by guests and which has served to avoid conflicts (art. 20-A of DL128/2014, of 29 August).
2. In case of dispute, alternative solutions such as mediation may also put an end to the issue in a faster way and without the same costs of the judicial courts.
3. Changing the allocation given by the constitutive title to the unit where the AL operates is a possibility, although subject to administrative procedures and costs, as well as the necessary unanimous approval of the condominium owners. This means, for example, changing the use of the unit from housing to services.
4. It is considered that the appeal of constitutionality of the judicial decision applying the uniform jurisprudence is also open, namely for offending the material content of the right of ownership.

The judgement therefore has not lead to the end of Alojamento Local in Portugal and it is up to the legislator to change the law in the same sense of the judgement or in a sense different from the judgement, foreseeing the possibility of the functioning of AL in fractions allocated for housing, there already being at least one bill in that sense and presented in the Parliament by the political party Iniciativa Liberal after the decision of the STJ was known.

*Article written by André Gomes Dias, real estate lawyer at Lamares, Capela & Associados