2% INCREASE ON NEW RENTALS: TRUE OR FALSE?

by | Oct 3, 2023 | Fiscal, Mais Habitação, Rentals

A lot has been written about a measure in the new Mais Habitação package limiting new long-term rental contracts to 2%, but very little about the specifics of this measure.

For instance, many people don’t know that the 2% limit does not apply to all new contracts, and even when it does, there are other increases possible within the law.

QUICK SUMMARY:

  • new rental contracts can also be increased by official inflation rates, if not previously applied in the last 3 years
  • certain new contracts are excluded from the 2% increase limit, depending on the price & purpose.
  • the 2% limit applies only to residential rental contracts initiated between 08/10/2018 and 07/10/2023

THE DETAILS:
The text of the law passed by Parliament last month and approved by the President on Saturday 30th September, indicates that the monthly rent of new rental contracts can not be increased by more than 2% compared to the most recent monthly rent from the five years previous to the date the law comes into effect.

However, if the official rental increase coefficients published each year in late Autumn by INE, the National Statistics Institute, weren’t applied to the previous rental contract, and the first possible increase could have been applied less than 3 years ago, then these inflation rates can be applied to the new one, with the coefficient for 2023 stipulated as the official INE rate of 5.43% and not the Government imposed limit of 2%.

Also, even if the property has been rented in the last 5 years, if the start of the contract was before the 8th October 2018, then the limit does not apply.

It is also possible to be exempt from the 2% increase limit on new contracts if the rent of the new contract isn’t greater than the amounts set out in the tables of Annex I of ordinance Portaria n.º 176/2019, de 6 de junho.

These tables show what are called “general rent limits per property type” and are divided into progressive rates according to different regions of the country, which are shown in the first table:

Tabela 1

Taking each “Escalão” or level, denoted by the letter “E”, we can then see the accepted general rents for the different types of property by region in the second table, the types indicating the number of bedrooms (e.g. T0 = Studio, T3 = 3-bedroom property, T5= 5-bedroom property, etc):

Tabela 2

Thus, taking into account all the above information, we can give the following examples for new rental contracts starting on 1st January 2024, after the law almost certainly comes into effect:

  1. T0 (studio apartment) in Alcochete, last rented in 2022 for €350/month, having always applied the official rental increase coefficients
    • €350/month is above the general rent for Alcochete (line E3, €325): increase limited to 2% (= €357/month)
    • INE coefficients have been applied, so can’t be applied again: no increase
    • Maximum rent for a new contract: €357/month
  2. T2 (2 bedrooms) in Porto, last rented in 2019 for €950/month, without the rent ever being increased on renewal.
    • €950 is less than the general rent for Porto (line E5, €1000), so the 2% doesn’t apply, but the limit remains at €1000/month, according to the general rates indicated.
    • INE coefficients have never been applied, but the first possible application was more than 3 years ago: no increase
    • Maximum rent for a new contract: €1000/month
  3. T3 (3 bedrooms) in Lisbon, last rented in 2021 for €1500/month, with the lease termination on 31st December 2023, and without the rent ever being increased on renewal.
    • €1500/month is above the general rent for Lisbon (line E6, €1375), so the maximum rent for new contracts is 1500 + 2% = €1560.60
    • INE coefficients have never been applied: increase on €1560.60 of 0.43% for 2022 (= €1567.31) and 5.43% of €1567.31 for 2023
    • Maximum rent for a new contract: €1652.42