New jurisprudence on short-term rentals in Portugal
The Portuguese Supreme Court of Justice issued a Jurisprudence Uniformization Decision dated March 22nd, 2022, increasing the likeness of litigation for both individual property owners and companies operating in the short-term rental sector (Alojamento Local), usually based on platforms (but not limited to) Airbnb or Booking.
Under this ruling, most of the apartments or units in Portugal will not be eligible to foster new short-time rentals. The existing ones may be terminated by any of the other homeowners of the building.
THE CASE
During the year 2016, a couple filed a lawsuit against a short time rental business requesting it to be declared illegal, as the unit in question should be affected for residential purposes only, and further petitioning the business owners to be fined € 150,00 for each day of noncompliance to the court ruling.
The plaintiffs saw their petition approved by the Court of First Instance, and the short-time rental owners were forced to close doors. The business owners were not happy with this decision and appealed to the Court of Second Instance, but the previous ruling was confirmed. Finally, the business owners appealed to the Supreme Court of Justice, but the original decision was again confirmed.
In a typical case, this Supreme Court Decision would be final. However, because the issue being discussed was highly debated in the Portuguese society, and court rulings used different legal interpretations in relation to short-time rentals, the business owners filled a special appeal established in the Portuguese Civil Procedures Code requesting the issuance of a Jurisprudence Uniformization Decision, to try to clarify the legal framework and interpretation that court must follow when assessing the legality of short-time rental.
Unlike regular Supreme Court of Justice decisions, which are usually taken by three seating judges and only impact a particular case, a Jurisprudence Uniformization Decision is issued by all competent seating judges of a Court section and will set in stone an interpretation for lower courts to follow.
THE ISSUES
Since 2008, short-time rentals have been perceived to harm the personal relations between neighbors.
This new reality has almost created two opposing factions between homeowners and businesses exploring short-time rentals, each one having its specific legal grounds to defend its position.
To understand each side’s arguments and the issues under discussion in the ruling, it’s essential to understand that all buildings under the horizontal property regime have rules governing the use of a specific unit and common areas such as stairs, elevators, and balconies, etc.
The horizontal property title may also define the type of use of a given unit, which in most cases will be residential or commercial. The definition established in the horizontal property title will condition the use of a specific unit.
The main issue being discussed in the court case relates to whether or not units that are registered as residential can or cannot be used for short-time rentals.
In this regard, the court’s interpretation is clear: “In the regime of the horizontal property, the indication in its title that a certain unit is destined for residential purposes, should be interpreted in the sense that it does not allow its use for short time rentals.”
The aforementioned interpretation will soon trigger new friction between homeowners, condominiums, and short time renters because other courts will widely adopt it when ruling on other cases.
THE AFTERMATH
Considering the new jurisprudence’s originality, it is still early to draw projections of what may happen in the future. However, there is no doubt that this legally binding interpretation has significantly tilted the balance in favor of homeowners.
The potential for future litigation is intensified by the fact that the court did not limit the possibility of filing lawsuits against short-time rentals to the condominium, allowing any individual homeowner to request the termination of a short-time rental.
Considering the turmoil created by this decision, one will wait to see if the Portuguese government will try to amend in law to safeguard some of the current short-term rental businesses.
For unit owners to operate a short-term rental and be fully compliant, they must amend the horizontal property title, deemed a challenging feat because such amendment requires unanimity under the provision set in the Portuguese civil code.
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