The Portuguese Government’s ban on short-term rentals: A breach of the Services Directive?
The Portuguese Government has announced a package of legislative measures to alleviate the country’s housing shortage. However, these measures seem to constitute a disproportionate limitation on the freedom to provide services.
On 16 February, the Portuguese Government announced a package of legislative measures that intends to alleviate the country’s housing shortage. One of the proposals put forward by the Government is a ban on ‘new licences for Airbnbs and other short-term holiday rentals’. According to the Government’s plan, the issuing of new licences will be prohibited, ‘with the exception of rural accommodation in inland municipalities where there is no urban pressure and where they can contribute to the economic dynamism of the territory’. The Government has also announced that current licences on short-term rentals will be reassessed in 2030, and that thereafter there will be periodic reassessments. The Government has not yet formalised its plan as an official legislative proposal. However, the measures that the Government has presented thus far are worrying since they seem to constitute a disproportionate limitation on the freedom to provide services as established under European law.
As interpreted by the European Court of Justice (henceforth ECJ) in Cali Apartments, the Services Directive (Directive 2006/123/EC) is applicable to legislation of a Member State relating to activities consisting in the repeated short-term letting (para 45). On the other hand, as stated in Visser Vastgoed, Articles 9 to 13 of the Services Directive are applicable to ‘purely domestic situations’ (para 110).
Therefore, national legislation which makes the exercise of short-term rentals subject to prior authorisation – such as the plan proposed by the Portuguese Government – is covered by the concept of ‘authorisation scheme’, established under Article 4 of the Services Directive (para 53) and should consequently comply with Articles 9 and 10 of said Directive.
Article 9 of the Services Directive
According to Article 9 of the Services Directive, an authorisation scheme: a) cannot discriminate against the provider in question; b) it must be justified by an overriding reason relating to the public interest; and c) the objective pursued cannot be attained by means of a less restrictive measure.
With regards to the requirement under Article 9(1)(b), in Cali Apartments, the ECJ identified ‘at least three public interests that Member State authorities can invoke in relation to the short-term rental market’: the protection of the urban environment (para 67); social policy objectives (para 67); or ‘[r]equirements relating to public housing policy and seeking to combat land pressure’ (para 68).
The Portuguese Government’s proposal invokes social policy objectives and has the objective of combating housing shortages. Therefore, it could be considered as justified by ‘an overriding reason relating to the public interest’, as required under Article 9(1)(b) of the Services Directive. However, under Article 9(1)(c) of the Services Directive, authorisation schemes must also be proportionate to the objective pursued.
In Cali Apartments, the French authorisation scheme was ‘(materially) limited to specific rental activities and was (geographically) limited to densely populated municipalities experiencing tensions on the rental market’, and therefore, the ECJ considered that this requirement was complied with (para 75).
The French legislation excluded from its scope housing which constituted the lessor’s main residence (para 72) and it was limited to a number of densely populated municipalities which were experiencing, as proven by studies presented by the French Government, tensions on the rental housing market following an increase in the repeated short-term letting of furnished accommodation to transient clientele which did not take up residence there (para 73).
In comparison, the Portuguese Government’s authorisation scheme is not limited to housing that is not the lessor’s main residence and it is also not limited to densely populated municipalities that are experiencing tensions on their housing markets. Taking into consideration the official documents released so far, the Government’s authorisation scheme will cover all of the current short-term rentals, since it has announced that in 2030 all licenses will be reassessed. On the other hand, new licenses in the areas of the country that are not currently subject to housing pressure will also require an authorisation from the Government.
In contrast to French legislation on this matter, the Portuguese Government’s authorisation scheme on short-term rentals is therefore neither materially nor geographically limited to accommodations that could be considered as exacerbating the current problems in the housing market. Therefore, this authorisation scheme seems to be in breach of Article 9(1)(c) of the Services Directive, since it is not proportionate to the objective pursued.
Article 10 of the Services Directive
As stated above, the conditions put forward by the Portuguese Government for new short-term rental accommodations to be authorised are the following:
a) They must be rural accommodations;
b) They must be located in inland municipalities;
c) There must be no urban pressure in these inland municipalities;
d) And they must ‘contribute to the economic dynamism of the territory’.
Now, under Article 10(1) of the Services Directive, ‘authorisation schemes shall be based on criteria which preclude the competent authorities from exercising their power of assessment in an arbitrary manner’. The requirement put forward by the Portuguese Government that short-term rentals must ‘contribute to the economic dynamism of the territory’ is particularly opaque, and seems to conflict with Article 10(1), since it allows for arbitrary action by public authorities. It is also a contradictory requirement. Short-term rentals are considered as a ‘service’ under European law, since this concept encompasses ‘any self-employed economic activity, normally provided for remuneration’ (para 33 of Cali Apartments). How could a short-term rental not contribute to the ‘economic dynamism of the territory’?
In light of the above, the Portuguese Government’s proposal does not seem to comply with Articles 9(1)(c), Article 10(1) and 10(2)(c) of the Services Directive. The authorisation scheme presented by the Government is not proportionate to the objective pursued. On the other hand, its criteria do not preclude the competent authorities from exercising their power of assessment in an arbitrary manner.
The rise in property prices across the European Union has put pressure on national governments to act. However, the fundamental freedoms established by the Treaties should not be compromised by the haste of the legislator.