What Will Change Under the Proposed Reform of the NRAU?

The Government approved, at the Council of Ministers meeting of 9 July 2026, a proposal to reform the urban lease regime. The announced measures focus primarily on contract negotiations, remedies for breaches of lease obligations, and the legal framework applicable to leases entered into before 1990.

1. Stronger remedies for tenant default

The proposal introduces amendments to the rules governing the termination of lease agreements, with the aim of making it easier for landlords to terminate leases in cases of rent arrears. Under the proposed rules, a lease may be terminated if rent remains unpaid for two months, instead of the current three-month period.

In addition, rent payments made more than eight days late may also justify termination where such delays occur:

a) more than three times, whether consecutive or non-consecutive, within a 12-month period; or

b) more than four times within an 18-month period.

The proposal also extends the period during which the landlord may exercise the right to terminate the lease in these circumstances from three to six months. This is a limitation period which, under the current regime, has proved excessively restrictive, as landlords who, acting in good faith, allowed tenants additional time to regularise the situation could lose their right to terminate the lease if they failed to do so within the three-month period.

Likewise, the proposal extends from three to six months the time limit within which landlords may exercise their right of termination in these situations. Under the current regime, this limitation period is particularly restrictive, as landlords who rely on tenants to remedy the breach voluntarily and therefore refrain from immediately terminating the lease may lose that right if they do not exercise it within three months.

2. Greater contractual freedom

a) Greater freedom to set rent

At present, the law limits the initial rent payable under a new lease where there has been a previous lease over the same property, restricting any increase to 2% above the last agreed rent. The proposal removes this restriction, granting the parties greater freedom to determine the initial rent.

It should be noted, however, that this amendment does not allow landlords to increase the rent freely during the term of an existing lease. In such cases, the rent adjustment mechanism agreed by the parties will continue to apply or, in the absence of such agreement, the annual statutory indexation mechanism will remain in force.

b) Greater freedom regarding security deposits

For future lease agreements, the parties may also agree:

a) advance payment of up to three months' rent, instead of the current limit of two months; and

b) a security deposit without the current cap equivalent to two months' rent.

This amendment also provides greater contractual freedom while offering landlords enhanced protection by allowing them to require stronger financial guarantees from tenants.

c) Greater freedom to oppose lease renewal

The proposal also provides that landlords may oppose the first automatic renewal of a lease at the end of the initial term, provided they comply with the statutory notice requirements.

Under the current regime, opposition to the first renewal only takes effect after three years have elapsed from the date the lease was entered into. The proposed amendment removes this distinction between landlords and tenants, placing both parties under the same legal framework.

3. New framework for leases entered into before 1990

For residential leases entered into before 1990, the proposed regime varies according to the tenant's age, disability status and income.

Tenants under 65 years of age

Where the household's annual income is below €64,400, the lease will transition to the New Urban Lease Regime (NRAU), but the rent will remain protected for five years.

Where the household income exceeds that threshold, the lease will also transition to the NRAU, with the rent being updated up to an annual limit corresponding to one-fifteenth (1/15) of the property's Taxable Asset Value (Valor Patrimonial Tributário – VPT).

Tenants aged 65 or over or with a disability of 60% or more

The lease will not transition to the NRAU. Where the household income is below €64,400, rent protection will remain in place, with the State expected to compensate the landlord.

Where the household income is equal to or exceeds that amount, the rent may be updated up to the limit of one-fifteenth (1/15) of the VPT, while the lease will continue to remain outside the NRAU.

4. Protection in housing emergency situations

In parallel, the Government has approved a decree-law establishing the Housing Emergency Fund (Fundo de Emergência para a Habitação), designed to support individuals and families who lose their homes due to financial hardship or who find themselves in other particularly vulnerable situations.

The support will consist of non-repayable financial assistance intended to secure temporary or permanent accommodation or rehousing.

5. When will the new rules enter into force?

The proposed amendments to the urban lease regime are not yet in force. As this is a Bill, it must still be debated and approved by Parliament, and its provisions may be amended during the legislative process. The new rules will only take effect after promulgation and publication in the Official Gazette (Diário da República).

In summary, the proposed reform seeks to strengthen landlords' position in matters such as contractual default and the negotiation of lease terms, while preserving protection mechanisms for tenants in more vulnerable circumstances.