The Portugal Cabinet has finalized a sweeping rental market reform that removes most rent controls and accelerates eviction procedures, triggering a fierce standoff between landlord associations, who call the changes insufficient, and tenant advocates, who warn of a coming wave of displacement and unaffordable housing.
Why This Matters
• Rent caps lifted: New leases no longer face the 2% annual increase limit—landlords can now set any price they negotiate.
• Faster evictions: Missing two monthly payments (down from three) or repeated late payments can now trigger legal eviction.
• Old contracts at risk: Pre-1990 lease protections remain only for tenants over 65 or households earning under €64,400 annually; others face rent hikes after a 5-year grace period.
What the Government Approved
On July 9, the Portugal Council of Ministers greenlit the "Construir Portugal" housing strategy, a legislative package that fundamentally rewrites the Urban Lease Regime (RAU). Although approved by the executive, the reforms still require parliamentary passage and presidential signature before taking effect.
The centerpiece is the abolition of rent control for new contracts, ending three years early a cap that limited rent increases to a 1.02 coefficient relative to the previous tenant's rate. Landlords and new tenants may now freely negotiate monthly payments, with no ceiling.
For security deposits and advance payments, the government raised the limit from two to three months' rent upfront and eliminated any cap on the size of deposits. Proponents argue this will reassure property owners reluctant to list vacant units; critics counter it prices out middle- and lower-income renters entirely.
Eviction timelines have been shortened significantly. Landlords can now initiate contract termination after two months of unpaid rent, rather than three. A new "repeated lateness" clause also permits eviction if a tenant is more than eight days late on three occasions within 12 months, or four times within 18 months—even if all payments are eventually made.
Finally, landlords gain the right to block automatic lease renewals at the end of the first contract cycle, provided they give proper notice, a shift that reduces long-term tenancy security.
The Old-Lease Question
Portugal's rental market has long been split between post-1990 contracts, which operate under relatively standard terms, and pre-1990 "frozen" leases, some of which still charge tenants as little as €30 per month. Decades of "vinculismo" (lifetime tenancy with minimal rent updates) left thousands of properties economically unviable for landlords, who abandoned maintenance and kept units off the market.
The new law reactivates a transition mechanism calibrated by tenant age and household income:
• Under 65 and earning less than €64,400/year: The contract migrates to the modern RAU framework, but the existing rent is protected for five years. After that window, landlords may raise it in line with market conditions.
• Under 65 and earning above €64,400/year: Immediate transition to the NRAU, with rent adjustable to one-fifteenth of the property's taxable patrimonial value (VPT).
• 65 or older (or disability rating ≥60%) and earning under €64,400/year: The old contract remains untouched—lifetime tenancy and frozen rent continue.
• 65 or older (or disability rating ≥60%) and earning above €64,400/year: The contract does not transition, but the rent may be updated to 1/15 of the VPT.
According to government data cited in the legislative dossier, median rents have climbed 68% since 2020, while an estimated 250,000 residential properties sit vacant nationwide.
Landlord Groups: "Timid and Deceptive"
The Lisbon Landlords' Association (ALP) and the Portuguese Confederation of Property Owners (CPP), which represents more than 20,000 members, have issued sharply critical statements, calling the package "timid, partial, and deceptive."
Their primary objection centers on the €64,400 income threshold. The ALP argues that classifying a household earning just over €5,350 per month as economically vulnerable—and therefore deserving of rent protection at the landlord's expense—constitutes "institutionalized injustice." Many property owners, the association notes, earn less than their long-term tenants yet bear the cost of frozen rents and deferred maintenance.
The ALP views the old-contract freeze as the "central blockage" strangling Portugal's rental supply and describes the reform as merely an "attenuation" of the previous "Mais Habitação" law, not the full market liberalization they sought. Still, landlord associations welcomed the shortened eviction timelines, praising any measure that accelerates property recovery in cases of non-payment.
Union and Tenant Advocates Sound Alarm
On the opposite end, the General Confederation of Portuguese Workers (CGTP), the Lisbon Tenants' Association (AIL), and the Northern Tenants and Condominium Association (AICNP) have condemned the reforms as a "rollback of tenant rights" that will unleash a surge in evictions and rental inflation.
In a statement released this week, the CGTP accused the government of handing landlords "total negotiating power" and leaving tenants in a position of "greater fragility." The union federation argued that workers already face an "impossibility of bearing housing costs" and warned that deregulation will "aggravate the situation even further."
The Bloco de Esquerda (Left Bloc) characterized the two-month eviction trigger as "total cruelty," predicting a "pandemic of evictions" when tenants fall behind by as little as eight days multiple times in a year. The party and allied groups also criticized the removal of the deposit cap—previously limited to two months' rent—as a barrier that will lock out younger and lower-income renters.
The CGTP also questioned the government's transparency around protections for elderly, disabled, and economically vulnerable tenants, noting that such safeguards vanish if the landlord undertakes renovation work or if the contract post-dates 1990.
Emergency Housing Fund: Unclear Details
Alongside the rental law changes, the Cabinet created a Housing Emergency Fund (FEH), designed to provide direct, non-reimbursable financial aid to families displaced by economic hardship or domestic violence. The state will also cover rent payments that fall due after a tenant applies for legal aid in eviction proceedings, shielding landlords from involuntary non-payment.
However, the CGTP pointed out that the government has not disclosed how much assistance the fund will provide, for how long, or what standard of accommodation it guarantees. Without those details, tenant advocates argue, the fund may function more as political cover than genuine safety net.
Tax Incentives to Sweeten the Deal
To encourage landlords to list properties, a separate decree-law (DL 97/2026) enacted in May introduced a suite of fiscal measures:
• 10% IRS rate on rental income for residential leases with monthly rents up to €2,300, valid through December 31, 2029. For landlords operating as companies or professionals with organized accounting, only 50% of rental income is taxable under these conditions.
• Capital gains exemption for sellers who reinvest proceeds into rental housing, provided the new property is leased within six months and remains rented for at least 36 of the first 60 months.
• IRS deduction ceiling for tenants rises to €900 in 2026 and €1,000 from 2027 onward.
• 6% VAT on construction of primary residences and rehabilitation of buildings destined for rental.
Historical Context: From Freeze to Flux
Portugal's rental legislation has seesawed between tenant protection and market liberalization for decades. The vinculismo regime in place before 1990 effectively froze rents at nominal values, disincentivized maintenance, and contributed to urban decay in Lisbon and Porto. The 2006 NRAU reform and the landmark 2012 overhaul (Law 31/2012) sought to break the cycle of "virtually eternal contracts and virtually frozen rents," introducing limited rent updates and streamlined eviction procedures.
According to the National Association of Landlords, in the 15 months following the 2012 law's entry into force, average updated rents in tracked cases reached €131 per month in Lisbon and €116 in Porto—still far below market rates but a significant jump from the €30–€50 range common in frozen leases.
The "Mais Habitação" package introduced in 2023 by the previous government reimposed rent caps and extended protections for vulnerable tenants, but was criticized by property owners as "onerous" and blamed for keeping supply off the market.
What This Means for Residents
If the reform clears Parliament and receives presidential assent, tenants in Portugal will face:
• Higher rents on new leases: With the 2% cap abolished, expect market-rate pricing in competitive areas like Lisbon, Porto, and the Algarve.
• Larger upfront costs: Three months' rent plus an uncapped deposit could require €5,000–€10,000 or more to secure a property in urban centers.
• Reduced tenancy security: Automatic renewals become optional for landlords; missing payments by even a week on multiple occasions could trigger eviction proceedings.
• Grace period for older contracts: If you hold a pre-1990 lease and are under 65 with household income below €64,400, you have five years of rent stability before potential increases.
For landlords, the reforms promise faster legal recourse, higher potential yields, and tax relief, though associations insist the changes fall short of a true market reset.
Parliamentary Battle Ahead
The CGTP has called for the "immediate repeal" of the rental and eviction law, citing violations of the constitutional right to housing. Left-wing parties, including the Livre party, are expected to mount parliamentary resistance, framing the reforms as favoring real estate speculation over social welfare.
The government maintains that restoring confidence in the rental market is essential to unlocking the estimated quarter-million vacant homes and easing Portugal's acute housing shortage. Whether that calculation proves correct—or whether deregulation accelerates displacement and inequality—will depend on how quickly new supply enters the market and whether the Housing Emergency Fund can genuinely buffer the most vulnerable households.
For now, tenants, landlords, and advocacy groups are bracing for a legislative fight that will shape Portugal's housing landscape for years to come.
