Portugal’s government approved a rental market reform on 9 July 2026 that shifts the balance towards landlords. The 2% cap on rent increases for new tenancies goes. The ceiling on security deposits goes. Rent arrears trigger termination after two months instead of three.
It is not law yet. The package has gone to the Assembleia da República, and Parliament can still change it. But the direction is set, and if you own a property in the Western Algarve that you let out, or you are looking at one that comes with a tenant already in it, this is the piece of Portuguese law worth understanding before September.
What are Portugal’s new rental rules for landlords in 2026?
In short: rents on new tenancies can be set freely, deposits are no longer capped, landlords can ask for up to three months upfront instead of two, arrears can trigger termination after two months instead of three, and refusing an automatic renewal gets easier. The package was approved by the Council of Ministers on 9 July 2026 and announced by Infrastructure and Housing Minister Miguel Pinto Luz. It is now with Parliament and is not yet in force.
The single biggest change is the removal of the 2% cap on rent increases when a property moves to a new tenancy. That cap was introduced to slow rent inflation and was due to run until 2029. Scrapping it three years early means that from the day the law takes effect, what you charge a new tenant is a matter between you and them.
Current rules versus the proposed reform
Here is the before and after, side by side. Remember the right-hand column is a proposal until Parliament votes.
| Letting long term | Current rules | Proposed reform |
|---|---|---|
| Rent on a new tenancy | Increase capped at 2% when the property moves to a new contract | Cap removed. Rent freely agreed between the parties |
| Rent upfront | Maximum two months | Maximum three months |
| Security deposit | Legal ceiling applies | Ceiling removed. Deposit freely agreed |
| Refusing automatic renewal | Limited grounds for the landlord | Landlord may refuse with prior notice |
| Arrears before you can terminate | Three months | Two months |
| Repeated late payment | Not a standalone ground | More than three occurrences in 12 months, or four in 18 months |
| Contract length | One to 30 years | Unchanged, one to 30 years |
| Pre-1990 leases | Rents largely frozen | Protection kept for tenants over 65 or with 60% or more disability. Rent can rise once household income passes about 64,000 EUR a year |
| Tenant safety net | Case by case social support | New Housing Emergency Fund via IHRU, payment within 10 days of application |
What it means if you own in Lagos or Praia da Luz
The practical effect is that long-term letting becomes a less risky option than it has been. The thing that puts owners off is rarely the rent level. It is getting the property back. A tenant who stops paying and stays put has historically been a slow and expensive problem in Portugal. Cutting the arrears threshold from three months to two, and adding repeated late payment as a ground in its own right, does not make eviction fast. It makes it start sooner.
The context matters here. National average asking rent reached 1,350 EUR a month in July, up 3.8% on June. Twelve month Euribor has eased to around 2.73%, down from 2.87% in mid July, so financing costs on a buy to let are drifting down rather than up. And the Algarve remains fully open for new Alojamento Local registrations, unlike Lisbon’s restricted historic centre. Owners here still have both routes available, which is not true everywhere in Portugal.
That does not automatically make long-let the better answer. Short-let usually still wins on gross yield in a coastal town with a real summer season, and I ran the actual numbers on that in Can Airbnb Pay Off Your Algarve Retirement Home?. What changes is the risk side of the comparison. Long-let has always been the lower-yield, lower-hassle option with one large tail risk attached to it. This reform shrinks that tail risk.
The part buyers should read: properties that come with a tenant
A listing that looks underpriced for its street sometimes has the reason in the small print: there is a tenant in it on an old contract. Pre-1990 leases are the extreme version. Rents on them have been largely frozen for decades, and the property is worth what it is worth minus a sitting tenant who cannot economically be removed.
The reform does not sweep those contracts away. Tenants over 65, or with a disability of 60% or more, keep their protection. What it adds is an income test: where household annual income passes roughly 64,000 EUR, the rent can be adjusted. That is a narrow change, and it will not turn a frozen-lease building into a normal asset. But it is the first movement on this in years, and on a tenanted property in Lagos old town it is now worth having a lawyer check which side of that line the tenant falls on before writing the offer off entirely.
What I would do about it now
Nothing dramatic, and nothing irreversible. This is a proposal, not a law, and Parliament has changed housing bills before.
- If you are about to sign a new long-term tenancy, it is worth asking your lawyer whether waiting for the vote materially improves your position. In many cases it will not, but it is a five minute question.
- If you have been keeping a property empty because letting it felt like a one-way door, this is the moment to revisit that decision rather than assume the old rules still apply.
- If you are selling a tenanted property, expect buyers to start asking sharper questions about the tenant’s age, income and contract date, because those now change the numbers.
- If you are pricing a property to sell rather than let, the pricing discipline has not changed. I wrote about what smarter buyers are doing to stale listings in Smarter Buyers, Stale Listings.
My honest read: this is a genuine improvement for landlords, and a smaller one than the headlines suggest. It does not fix the thing that actually deters people, which is how long a contested eviction takes once it reaches a court. It shortens the runway to starting that process, and it hands back pricing freedom on new contracts. In a market where Faro district asking prices are now second only to Lisbon nationally, at an average of 587,250 EUR and up 8.8% year on year, pricing freedom on the rental side is not nothing. Whether the wider price rise has further to run is a separate question, and I took it on directly in Portugal House Prices: How Long Can the Rise Last?
Frequently Asked Questions
What are Portugal’s new rental rules for landlords in 2026?
The reform approved on 9 July 2026 removes the 2% cap on rent increases for new tenancies, removes the ceiling on security deposits, raises upfront rent from two months to three, lets landlords refuse an automatic renewal with prior notice, and cuts the arrears period before a contract can be terminated from three months to two. It passed the Council of Ministers and is now before Parliament, so it is not yet in force.
Is the new Portuguese rental law already in force?
No. The Council of Ministers approved the package on 9 July 2026 and sent it to the Assembleia da República. Parliament has to vote on it and can amend it before it becomes law. Until then the existing rules apply, including the 2% cap on new tenancies and the three month arrears threshold.
Can I evict a tenant in Portugal for not paying rent?
You can begin termination proceedings, and under the reform the trigger drops from three months of arrears to two, with repeated late payment becoming a ground on its own. What the reform does not change is how long a contested case takes once it reaches court. Plan on it being slow, and treat tenant selection as your real protection rather than the law.
Should I let my Algarve property long term or short term?
Short-let generally still produces a higher gross yield in a coastal town like Lagos with a genuine summer season, and the Algarve remains open for new Alojamento Local registrations. Long-let produces less but demands far less of your time, and this reform reduces the main risk that put owners off it. If the property is your future retirement home rather than a pure investment, long-let is usually the more sensible holding pattern.
Does this reform affect old frozen leases from before 1990?
Only at the margin. Tenants over 65, or with a disability of 60% or more, keep their existing protection. Where household annual income exceeds roughly 64,000 EUR, the rent can be adjusted. If you are considering buying a property in Lagos with a pre-1990 tenant in place, have a lawyer confirm the tenant’s status before you assume the discount is permanent.
Thinking about whether to let, sell, or hold a property in Lagos or the Western Algarve? Start here and I will come back to you with a free market valuation and an honest view on which of the three makes most sense for your property.
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