Short-term residential leases in Portugal: A legal alternative to Alojamento Local?
Tomás Melo Ribeiro | Lawyer
In recent years, growing regulatory pressure on the Alojamento Local (AL) regime, particularly in Lisbon, Porto and other high-density urban areas, has led property owners to explore alternative ways of legally renting out their properties. Among these alternatives, short-term residential lease agreements have gained relevance as a means to secure rental income without being subject to the stricter rules applicable to tourist accommodation.
Under Portuguese law, short-term leases are a valid contractual model for meeting temporary housing needs, provided they meet specific legal and factual requirements. According to Article 1095(2) of the Civil Code, leases with a duration of less than six months (or up to one year in specific situations, such as temporary professional, academic or training assignments) are permitted and subject to less rigid formality than long-term contracts. Unlike AL, which requires prior registration with the local municipality, is regulated under Decree-Law no. 128/2014 and is subject to zoning restrictions, a short-term lease does not require municipal licensing. However, it must be formalised in writing, registered with the Portuguese Tax Authority through Form 2, and the income must be declared under Category F (property income) for IRS purposes. This makes the short-term lease a simpler and lighter instrument from an administrative and tax perspective, but only when used properly and for its intended purpose.
The key legal distinction lies in the purpose and nature of the stay. Alojamento Local refers to the provision of short-term accommodation for tourists or other non-residents, often including services such as cleaning, linen changes, or guest reception. These features are central to classifying an activity as AL. If such services are offered, or if the lease is clearly aimed at tourists, even without formal AL registration, the authorities may treat the activity as undeclared AL. To avoid this, landlords must ensure that the tenant has a legitimate reason for temporary residence, such as work relocation, study, training, home renovation or waiting to move into a permanent residence. The lease agreement must clearly describe the temporary and non-touristic purpose of the stay, and no hospitality-style services should be offered. Supporting evidence of the lease and related tax documentation must be available if requested by the authorities.
With many municipalities in Portugal currently suspending the issuance of new AL licences, short-term leases have emerged as a practical and lawful alternative for property owners who wish to continue monetising their assets. By offering furnished accommodation under fixed-term agreements, landlords are able to sidestep the current AL moratorium while still attracting professionals, digital nomads, and other tenants with temporary housing needs. Even in municipalities that may eventually lift the AL restrictions, short-term leases remain strategically useful. In low season periods, when tourist demand declines, landlords can adapt by targeting new profiles, such as telecommuters, researchers and foreign students, who seek flexible and comfortable residential solutions.
Although the law does not impose an express limit on how many short-term leases may be signed per property per year, repeated or consecutive contracts, especially with multiple unrelated tenants, may be subject to analysis by the relevant authorities. Some municipal and tax authorities have taken the view that this practice constitutes disguised tourist accommodation, which may result in fines, reclassification of the property as AL, and retroactive tax obligations. Therefore, this model should be used occasionally, with a justified purpose and proper documentation. It is not a substitute for AL licensing and should never be used as a systematic workaround to avoid legal requirements.
In the current legal and regulatory context, a carefully drafted and properly registered short-term lease can be a valuable instrument. It offers flexibility, legal protection, and tax compliance for both landlords and tenants. However, professional legal advice is highly recommended to structure this type of rental in line with applicable law and municipal practice. Used correctly, short-term residential leases provide a legitimate and lower-risk alternative to Alojamento Local and may play an increasingly important role in the evolving Portuguese rental market.
