1 Background – raids on rentals

THIS IS the first in a seven part series on licensing requirements for holiday lets.

1. Background – raids on rentals

2. Tourist lodgings – A casa turística
3. Licensing requirements – presenting a plan
4. The guest house – A hospedagem
5. Renting – o arrendamento urbano
6. Compliance – getting it right
7. Conclusion – not so bad after all

In the summer of 2005, Inspectors from the Inspecção-Geral das Actividades Económicas (IGAE) raided rental agencies in the Algarve, demanding to see letting permits. These permits/licences should have been issued by the local council in order for the accommodation to be rented to tourists, as required by law since 1997. Those practising this letting activity were often unaware of any such prerequisites and the inspectors proceeded to fine both agents (between 2,500 and 30,000 euros per infraction) and owners (from 500 to 3,740.90 euros). One agency was fined a total of 150,000 euros. These investigations were part of an overall strategy to tighten up procedures and law enforcement. According to the Direcção Geral de Turismo (Tourism Bureau), approximately 4,000 notifications were sent out to update registries, in addition to parallel inspections like those that occurred in the Almancil area. Throughout the 16 councils of the Algarve– the official entities charged by law to regulate and license the holiday letting practice – one would be hardpressed to count on the fingers of one hand, the licences actually issued since the current legislation came into effect in 1997. Owners and agents now find themselves penalised for not having a licence, which, in many câmaras, does not yet even exist. Given the “Catch 22” nature of the whole affair, confusion and consternation abound. Naturally, these events have brought an upsurge of alarm to the foreign resident community in the Algarve, reminiscent of the shock waves sent out when property reform legislation attacked offshore companies several years ago. Once again, understandable and necessary changes have been brought into place in a rather clumsy and poorly thought out process that rapidly turns intoa nightmare for all concerned.

The industry

Foreign investment in Portuguese real estate has been both popular and lucrative in recent decades. Over the long term, property is almost always an appreciating asset. Unless you buy at an overly inflated price, let the place fall into disrepair, or some kind of disaster besets the structure of the property, then you should eventually end up with a property worth considerably more than your purchase price. With foreseeable demographic pressures in Portugal over the coming years, demand for housing is set to boom. There is no reason to suggest that this long-term appreciation trend will change.

Income

Once purchased, many people manage to make a tidy income from renting out property. In popular tourist areas such as the Algarve, one or two week lets to tourists during the high season can prove a profitable enterprise. Often, it essentially becomes a business, and business activity has different regulations, as well as a specific tax regime. Unfortunately, over the years, the overwhelming majority have disregarded their compliance obligations. Whether due to ignorance (never an excuse) or greed, most fail to register their activity, license their property or declare and pay tax on the income.

Conflicting Legislation.

Unfortunately, current legislation does not contemplate precisely the arrangement that matches the most common practice: short-term furnished lets that occur sporadically during the year, with private usage during the remaining months. Nor is it easy to distinguish clearly the line between what constitutes a let to holidaymakers, falling into the category of property rental income, and tourist activity l