The Council of Ministers has approved a set of amendments to the residential lease regime which, if approved by the Assembly of the Republic, will represent a reform with significant implications for the rental market, as it addresses key issues in the relationship between landlords and tenants.
It is important to note that this is still a draft bill, so the final text may be amended during parliamentary debate.
The government’s stated objective is twofold: to increase the supply of housing in the rental market and to bolster landlords’ confidence. The underlying rationale is that many landlords choose not to rent out their properties—or to remove them from the market—out of fear of difficulties in recovering their properties. The measures aim to address this concern.
Currently, for a landlord to terminate a lease agreement due to nonpayment of rent, the law generally requires either a delay of three or more consecutive months, or four or more late payments—whether consecutive or non-consecutive—within a twelve-month period. This threshold was designed to prevent isolated instances of nonpayment from justifying immediate eviction.
The proposal lowers these thresholds, allowing a delay in payment of just two rent installments to be sufficient grounds for terminating the lease. Similarly, three delays exceeding eight days—whether consecutive or non-consecutive—within twelve months can now serve as grounds for termination, rather than the previous requirement of four.
A new criterion is also added: four late payments within eighteen months.
At the same time, the period during which the landlord may exercise the right to terminate the lease—currently set at three months for cases of termination due to nonpayment of rent—is extended to six months.
In any case, it is questionable whether this measure will be truly revolutionary and capable of changing the landscape of the rental market, and it remains to be seen whether reducing the number of rent defaults required to justify termination will make a significant difference.
For its part, extending the expiration period from three to six months will be a more effective measure for protecting landlords, helping to minimize situations in which landlords, while hoping that tenants will remedy their breach of contract, see their rights expire. It also offers the advantage of removing the urgency to terminate the lease within a short period of time, providing greater leeway to resolve situations of noncompliance.
Currently, a landlord may require, at most, the advance payment of two months’ rent upon signing the lease. The proposal raises this limit to three months. This provides enhanced security for the landlord, allowing them to increase the amount of rent available to them and offering greater protection in cases of default.
Even more substantial is the change to the security deposit regime. Article 1076(2) of the Civil Code currently limits the amount of the security deposit to two months’ rent. The proposal eliminates this limit, restoring freedom to the parties, as the amount will now be freely determined by agreement.
This change also provides greater protection to landlords, helping to mitigate risks in the event of default. Nevertheless, it is worth noting the adverse effect this could have on the imposition of more onerous conditions on tenants through the setting of security deposit amounts that are out of step with average incomes in Portugal.
Currently, landlords may object to renewal, but such objections only take effect three years after the date the residential lease agreement was signed. This measure was designed to provide tenants with stability during the first years of the tenancy.
The proposal repeals this limitation, allowing landlords to choose not to renew the lease at the end of the agreed-upon term, even if less than three years have elapsed since the lease began.
In recent years, the law began to cap the initial rent for a new lease on the same property at the most recent rent charged, adjusted by a legally defined coefficient, which, in practice, resulted in very modest increases, often referred to as a cap of around 2%.
The measure was clearly intended to prevent runaway rent increases between lease agreements and to curb the practice of entering into successive lease agreements with the aim of raising rents.
The proposal eliminates this restriction, restoring full freedom to landlords to set the initial rent amount, which, while providing an incentive to place properties on the rental market, nonetheless poses a risk of high rents in the current context.
One of the most common complaints from landlords is the slowness of the Portuguese judicial system. Eviction proceedings are currently inefficient at meeting landlords’ needs to reclaim their properties. The same is true for rent collection proceedings.
Against this backdrop, the proposal combines eviction and rent collection into a single proceeding, with the aim of speeding up decisions.
Its effective implementation will depend, however, on the regulations that are ultimately adopted and, above all, on the courts’ capacity to accommodate the new model without it becoming a new source of backlogs.
Residential lease agreements entered into before 1990 have always been a hot topic in the rental sector. Low rents—which cannot be adjusted to market rates—and their lifetime duration have created distortions in the rental market. The transition of these leases to the NRAU has never been straightforward, and the proposals now on the table introduce a two-part distinction that warrants explanation.
For tenants under 65 years of age, the rule varies depending on household income. Those earning less than 64,400 euros annually will transition to the NRAU, but with their rent frozen for five years. Those with income equal to or greater than that amount will transition immediately to the NRAU, with rent adjusted up to a limit of 1/15 of the property’s VPT, divided by 12.
For tenants aged 65 or older, or with a disability of 60% or more, the arrangement is different: the lease remains in effect without transitioning to the NRAU. Those with annual incomes below 64,400 euros will have their rent frozen; however, under the terms announced by the government, the landlord will receive financial compensation from the IHRU corresponding to the difference between that rent and 1/15 of the property’s VPT. Those with incomes above this threshold will have their rent adjusted up to the same limit, but without transitioning to the new system.
The proposal allows communications between landlords and tenants to be conducted electronically, provided there is prior and express agreement by both parties.
The requirement for prior agreement must be observed to prevent electronic communication from being imposed unilaterally or applied to tenants who lack the necessary means or ability to adapt to the use of digital communication methods.
The new rules also provide for the creation of a Housing Emergency Fund designed to provide financial support to families in situations of extreme vulnerability who are facing eviction proceedings. The support will cover accommodation or rehousing expenses. Here, too, its effectiveness will depend on the regulations and the budgetary allocation assigned to it.
In short, the measures approved by the Council of Ministers are clearly aimed at making renting more attractive to landlords by reducing the risks associated with putting properties on the market.
That said, some of the measures deserve special attention. The deregulation of security deposits and the increase in advance rent payments to three months could result in such a heavy upfront cost that, in practice, it excludes tenants with less immediate liquidity from the market.
Other measures, however, while penalizing tenants by introducing greater uncertainty regarding the duration of leases, are essential for encouraging landlords to list their properties on the rental market.
In any case, it should be noted that this is still a proposal. The text ultimately approved by the Assembly of the Republic may differ, and at that time, the points that still require greater care in balancing the interests at stake will need to be refined.