Local Lease, will this be your end?

This is related to the ruling issued by the Supreme Court of Justice (STJ), reported today, which cancels the possibility of coexisting, in the same building, permanent and temporary housing . In other words, the Local Lease no longer has a legal framework that supports it, if the property targeted by the AL License does not provide for its use for tourist purposes.

The purpose for which a property is intended, under a horizontal property regime, is defined when the Constitutive Deed is drawn up and is normally the same for all fractions of the building, although fractions destined for commercial activities (stores) may coexist with the others that are intended for housing purposes, provided that this is stated in the Articles of Incorporation. What is not normal, and has now been confirmed by the STJ, is that a fraction destined for housing purposes is converted to other purposes, without the condominium approving it unanimously , and the City Council is called to inspect the process, authorizing the change. of the horizontal property status.

And what can happen to properties that have been granted an AL License?

This is the big question that will dominate the coming times, and this decision introduces yet another controversy together with those that have recently reached this economic activity. If it is a house, the future will not be so dark , as long as the Chamber does not raise obstacles in the renewal of the license , as has recently started to happen, namely through the exercise of the legal right of preference by the Chambers, which are desperately trying to generate new housing supply, in a market hit by severe shortages.

With regard to apartments, a strong headache is ahead for many entrepreneurs and owners who are now at the mercy of a simple decision by a court, just for any dissatisfied owner to invoke this legal decision under the guise of jurisprudence. The AL License issued by the Chamber thus ceases to be a defense and a guarantee.

There is the possibility for the owner to obtain the unanimous authorization of the condominium for the change in the horizontal property regime of the fraction , changing it from housing purposes to tourist purposes, which does not seem easy, especially since the Chambers are in a moment of opposition cycle with regard to supporting and encouraging this activity.

Local Lease the new villain of cities

Here and in many cities in Europe, AL is the new villain to be shot down. They are blamed for the high price of the rental market and the sale of houses . They are blamed for the dirt and noise pollution that invades hitherto quiet neighborhoods. They are blamed for the exponential growth of mass tourism . It's unfair? Partially yes, because the story is not just about these criticisms.

It is good not to forget that for many years, it was these entrepreneurs who, with their own funds or using credit, helped to recover many vacant properties or in a state of danger and abandonment , washing the face of historic neighborhoods and beautifying the cities. It was a brutal urban rehabilitation effort that Local Arrendamento entrepreneurs managed to do in just half a dozen years and that City Councils were unable to do for decades.

But it wasn't just. Tourism growth in recent years has been overwhelming. Traditional hospitality did not have, and does not have, the capacity to respond to this wave that invaded the main European cities. AL has imposed itself as a decompression force, compensating for the lack of supply and generating business around it that went beyond the mere income from accommodation . Many areas of Lisbon and Porto, which were abandoned, gained a new soul. New businesses and new stores emerged, creating a new generation of entrepreneurs. All this in just half a dozen years. It's work!And not to mention the increase in tax revenue that the State and Municipalities collected from the associated real estate businesses.

Local Lease, past, present and future

The decision of this judgment puts an end to a period of contradiction and legal uncertainty that has lasted for almost 10 years. The Local Lease operating regime was approved by Decree-Law No. 128, of August 29, 2014. Since then, mostly in large cities, new tourist businesses have emerged in a cascade (licensed by a simple AL License issued by the chambers) that have imposed themselves as strong competitors in relation to the traditional hotel activity.

This was never welcomed by the sector's industrialists, who complained of being subject to very strict restrictions and rules, unlike the tourist offer of local accommodation , where inspections and operating rules were frankly less demanding. The recipient of the service was the same as for traditional hotels: accommodation for tourist purposes, but the costs associated with LA were clearly lower, diverting revenue from the sector and exercising unfair competition, according to these entrepreneurs.

But the controversy did not end there. Behind the wave of properties that saw their housing purpose converted to tourist purposes, accusations arose from the mayors and the population regarding the de-characterization of the buildings and neighborhoods affected by this activity , which saw their residential characteristics change overnight. , to the detriment of its original purpose. Residents complained about noise, language barriers for short-term residents, etc. etc. The Chambers, on the other hand, were faced with housing supply problems , as the owners who adhered to this regime were no longer available for long-term rentals, and the relationship between residential versus tourist supply changed very quickly depending on to the tourism side.

This has contributed to an increase in house prices, particularly in the historic areas of large cities , "expelling" their inhabitants to the periphery and de-characterizing their neighborhoods.The AL regime then began its period of contraction: the Councils, namely those of Lisbon and Porto, began to restrict the number of licenses in certain parishes , creating maximum quotas, whenever the ratio between the number of these units and the number of dwellings was equal to or greater than 2.5%. More recently, many of the LA licenses have stopped being renewed , in order to further reduce their impact.

Thus, it is easy to guess that the future of this type of investment is seriously compromised , not only by the obstacles that have been imposed on it, but fundamentally by the hostile climate that the majority of the mayors have voted for them. Now, investment does not like the risk involved in a hostile legal environment, where tomorrow is a big question mark. In Lisbon alone, there are currently almost 20,000 AL licenses granted , of which 3,500 are inactive (mostly because of the pandemic and the tourist break). What is destined for them?

The Local Lease will certainly suffer immensely from this set of limitations and legal attire. On the other hand, the hope of many politicians who think that these restrictions will be able to channel many of these properties to the residential market, at prices accessible to the purchasing power of residents and their families (giving continuity to the neighborhoods and their traditions), may be dashed . . The investments that were necessary to put this activity on its feet will more easily be channeled into the sale of these houses to foreigners, than investing in long-term leases, or in the devaluation of sales prices.