The Portuguese government is seeking to increase the supply of homes available on the market in response to the housing crisis. Building more housing is one strategy, though not the only one.
Reviving the rental market also remains on the agenda, and the government approved a proposal to reform the urban rental system at the Council of Ministers meeting of 9 July 2026.
The announced measures focus mainly on negotiating agreements, responding to breaches of contract, and the rules for rental agreements dating from before 1990.
The changes are set out below, based on an article prepared for idealista/news by Manuel César Machado and Diana Longarito, associate lawyers at Dower Law Firm.
1 – Stronger mechanisms for dealing with breaches of contract
The proposal includes changes to the rules governing the termination of rental agreements, intended to make it easier to end a contract when rent payments are overdue. A contract could therefore be terminated once rent arrears have continued for two months, rather than the current three.
Delays of more than eight days could also justify termination if they occur:
- a) more than three times, consecutively or intermittently, over 12 months; or
- b) more than four times over 18 months.
The period within which a landlord may exercise the right to terminate in these circumstances is also expected to increase from three to six months. This is a limitation period which, under the current rules, is excessively restrictive.
Landlords who give tenants more time to settle arrears in good faith may lose the right to terminate the agreement if they do not exercise it within three months.
The proposal also extends this period from three to six months. Under the current rules, a landlord who waits for a tenant to voluntarily regularise the situation, rather than terminating the agreement immediately, may lose that right after three months.
Greater freedom when entering into rental agreements
Greater freedom to increase rents
At present, the law limits the starting rent for new agreements where there was a previous contract for the same property, restricting any increase to 2% above the last rent charged. The proposal removes this restriction, giving the parties more freedom to set the initial rent.
It is worth noting, however, that this change would not allow landlords to raise rent freely during an existing agreement. In those cases, the regime agreed by the parties remains in force, or, where no specific agreement exists, the annual statutory adjustment coefficient applies.
Greater freedom to set deposits and advance payments
For future contracts, it could also be agreed that:
- a) up to three months’ rent may be paid in advance, instead of the current limit of two months;
- b) a deposit may be set without the current cap of two months’ rent.
This change also gives the parties more freedom, while giving landlords greater protection by allowing them to request more guarantees from tenants.
Greater freedom to oppose renewal
The proposal also states that a landlord may oppose the first automatic renewal of an agreement once the initial term ends, provided they give the legally required notice.
Under the current system, opposition to the first renewal only takes effect three years after the contract was signed. The proposed change removes this difference between landlords and tenants, meaning both parties would be subject to the same rules.
A new framework for agreements entered into before 1990
For residential agreements signed before 1990, the proposed system will vary according to the tenant’s age, disability status and income.
Tenants under 65
Where the household’s annual income is below €64,400, the agreement will move to the NRAU (Novo Regime do Arrendamento Urbano, Portugal’s New Urban Rental Regime), but rent will remain protected for five years.
Above that income threshold, the agreement will also move to the NRAU. Rent may then be updated up to an annual limit equal to 1/15 of the property’s Taxable Asset Value (VPT).
Tenants aged 65 or over, or with a disability of at least 60%
The agreement will not move to the NRAU. Where annual income is below €64,400, rent protection will remain in place, with the state expected to compensate the landlord.
Where income is equal to or above this amount, rent may be updated up to a limit of 1/15 of the VPT. The agreement would nevertheless remain outside the NRAU.
Protection in housing emergencies
Alongside this, a decree-law has been approved creating the Housing Emergency Fund. It is intended to support people and households who lose their home because of financial hardship, or who face other particularly vulnerable circumstances.
The assistance will be non-repayable financial support to secure temporary or permanent accommodation or rehousing.
When will the changes take effect?
The changes to urban rentals are not yet in force. As this is a proposed law, it must still be debated and approved by the Assembly of the Republic, and its content may change during the legislative process. It will only take effect after being promulgated and published in the Diário da República, Portugal’s official gazette.
In summary, the proposed reform seeks to strengthen landlords’ position in matters such as contractual breaches and negotiating rental terms, while retaining protections for tenants in more vulnerable situations.
