Supreme Court rules on local accommodation in Portugal

After two different rulings by the Lisbon and Porto Courts of Appeal, the Supreme Court of Justice has decided to unify the case law and the impossibility of local accommodation coexisting, in the same buildings, with permanent housing.

Supreme Court rules on local accommodation in Portugal, things get complicated

The Supreme Court ruling, reported last week by the Público newspaperAdvocatus, notes that under the "horizontal property regime, the indication in the title deed that a certain fraction is intended for residential purposes must be interpreted as meaning that local housing is not permitted there". Lawyers contacted by Advocatus believe that this decision could have several consequences, such as an increase in litigation and risks for investors.

"The Supreme Court's decision was taken in the uniformity of decisions to the contrary, so although it does not have the force of law (it's forbidden), which means that nothing prevents the Supreme Court from changing its position in the future, the normal thing is at least for a large period to maintain this jurisprudence, which implies that lower courts (although they may theoretically diverge from this decision) will tend to follow this decision," explained José Luís Moreira da Silva, partner at SRS Advogados.

Thus, local accommodations located in residential buildings that are not entirely dedicated to this purpose will find it very difficult to obtain authorization, the lawyer pointed out.

Raquel Ribeiro Correia, consultant at Antas da Cunha Ecija, explained to Advocatus that from the point of view of ongoing litigation, where the same fundamental question of law is at stake, this ruling could have several impacts.

"Regardless of the value of the case and the amount of the defeat, an appeal will always be admissible against a decision taken against now-standardized case law," she began. Raquel Ribeiro Correia also stated that "an appeal against a Court of Appeal ruling which contradicts another ruling by any Court of Appeal or the Supreme Court, against which no ordinary appeal is possible for reasons which do not fall within the Court's jurisdiction, is not admissible if it conforms to the case law which has been unified here".

Thus, Antas da Cunha Ecija's consultant believes that this decision will lead to an increase in litigation aimed at "declaring the illegality of the exploration, under the local accommodation regime, of autonomous fractions integrated into properties whose title constituting the horizontal property indicates that they are intended for residential use" and at "condemning the co-owners in question to cease this infringement.

With the increase in litigation, Raquel Ribeiro Correia also foresees consequences both in terms of reduced profitability for this sector of economic activity, and an increase in the supply of fractions for residential use.

"The implication for investments already made is enormous, as is the increase in risk for investors in these situations. In other words, this decision, as well as the limitation of rentals in various municipalities, such as Lisbon or Porto, jeopardizes rentals and all adjacent services (construction and cleaning services, etc.), thus nullifying the economic and tourist potential they increasingly had", says José Luís Moreira da Silva, partner at SRS.

The Supreme Court's decision accepted the position of the Porto courts, which in the first instance considered as "illegal" the use of a fraction of a building, located in the Sé area of Porto, for the establishment of local accommodation. This decision was confirmed by the Court of Appeal, which condemned the defendants "to immediately cease the use given" and to pay a daily penalty of 150 euros, from the date of the judgment until its effective cessation.

"This decision by the Supreme Court of Justice may result in the refusal of new applications for registration of Local housing in all self-contained fractions intended for residential use, whose residential purpose is indicated in the horizontal title deed", according to Bernardo Marques, associate attorney at RSA. "On the other hand, and although the decision does not constitute an immediate revocation of all local accommodation registrations granted to apartment units in this situation, we must expect a significant increase in the number of applications for cessation of use of local accommodation units filed by other unit holders, on the grounds that they are not being used in accordance with their destination, with the consequent economic impacts that such a limitation may cause, given the high number of licenses in the form of apartments that have been issued," he concluded. 

What does the LA association in Portugal have to say?

The president of Portugal's Local Accommodation Association, Eduardo Miranda, has already spoken out and admitted that he fears the consequences of the media coverage of this decision, but doesn't think it will provoke an avalanche of lawsuits, as current legislation already gives condominiums a simple tool.

"What the ruling says is that in disputes that end up in court, preference will be given to condominiums. But in the 2018 law, this issue has proven to be largely outdated," argues Eduardo Miranda. "The law, precisely to avoid conflicts before the courts, has created a mechanism, called opposition, which allows the condominium to apply for cancellation, which is simple, free and relatively easy," he adds.

He also claims that, despite the new legislation, there have been few requests for cancellation. "In four years, we've had around 50 applications, most of which have been resolved through mediation. The number of cases that go to court is perfectly derisory," he said. According to the association, local housing exists in around 60,000 apartments.

"Few cases are currently taken to court, as they are costly, time-consuming and the condominium has an easier way of opposing them," he insists.