Local Lodging (AL) in Funchal: Exceptions to License Suspensions, Alternatives, and Legal Safeguards
- Filipe Ferreira Correia
- Nov 21, 2025
- 5 min read
Updated: 2 days ago
The Madeira real estate market is highly attractive to investors, whose demand has led to intense real estate pressure within the city and the municipality, substantially affecting property acquisition and rental prices.
Accordingly, under the terms of Public Notice No. 757/2025 (September 3rd), the Funchal Municipal Assembly approved by majority vote the Proposal for the Deliberation of the Suspension of Authorizations for New Local Lodging Establishment Registrations, with immediate effect.
In light of these changes, although the issuance of licenses is suspended for a period of only 6 months, it is natural for entrepreneurs and real estate investors to question the scope of the new rules.
In this article, we share several considerations on the subject, aiming to clarify common doubts, suggest alternatives, and emphasize the importance of following legal certainty criteria in your investments.
What is Foreseen with the Suspension of New Local Lodging Licenses in Funchal?
The suspension of new licenses, in the words of the current Mayor of Funchal (CMF), Cristina Pedra, is based on the need to review the municipal local lodging regulations, aiming to define "clear limits and criteria", with the Mayor further stating that the approved suspension is "provisional, proportional, and preventive".
Naturally, the subject has generated concern, particularly among investors with ongoing approval processes, as well as those with established plans to invest in Local Lodging in Funchal.
It is important, first of all, to clarify the following: under the principle of non-retroactivity of norms, these changes do not have retroactive effects. This means that all applications submitted to the CMF until September 2nd of 2025 must be analyzed, based on the rules in effect at the date of their submission.
Let's now look specifically to the planned limitations and the exceptions.
Affected Investments vs. Exceptions: The Critical Distinction
1. Who is Directly Affected? (The Rule)
Apartments in Collective Housing Buildings: Any autonomous fraction (apartment) located within a multi-family building (apartment block/condominium) is barred from obtaining a new license;
Hostels / Guesthouses in Buildings: The opening of new establishments of this type within fractions of residential buildings;
Rooms in Apartments: The registration of rooms for tourism exploitation within apartments in collective housing buildings is also covered, given the nature of the building restriction.
2. Who is Not Affected? (Exceptions)
Single-Family Homes: Independent houses (detached, semi-detached, or terraced) that do not share common parts of a collective residential building;
Rooms in Houses: The registration of rooms, provided they are located within independent houses (and not in apartments);
Pre-existing Licenses: The measure has no retroactive effects. Those who already hold a valid license (even in apartments) maintain the right to operate;
Ongoing Processes: Applications submitted to the Municipal services before the effective date of the suspension continue to be analyzed and decided upon based on the previous rules.
Local Lodging legislation in Madeira thus allows, despite the temporary restrictions in force, for the continuation of investment.
Impact Analysis: The "Before" and "After" for the Investor
The scenario has changed, and with it, the legal risks. Real estate profitability in Funchal is now intrinsically linked to a deeper and more cautious prior legal analysis.
The Risk to Vested Rights and Ongoing Contracts (CPCV)
1. "Is my current license at risk?" Owners with valid and active AL licenses maintain, for now, their vested rights (direitos adquiridos). However, it is expected that they will become subject to increased inspection and license reassessment.
2. The Promissory Purchase and Sale Agreement (CPCV): This is currently the greatest legal risk. Many investors signed a CPCV in recent months with the expectation of obtaining an AL license after the deed.
With the suspension, this expectation was frustrated. This may constitute a situation of supervening impossibility of performance or, more frequently, a change in the circumstances upon which the business was based. A rigorous analysis of this CPCV is urgent to determine if there are grounds for termination (resolução), negotiation, or if the risk falls entirely on the buyer.
The New Map of Opportunities: Legal Alternatives to Local Lodging in Funchal
The restriction on AL does not eliminate real estate profitability in Funchal, it merely redirects it. For the strategic investor, three clear paths emerge.
1. The Rental Market (Traditional and Medium-Term)
With the pressure on AL, demand for traditional rentals will tend to increase significantly.
Traditional Rental (Residential): Now benefits from strong IRS (Personal Income Tax) incentives for landlords who place properties on this market (including exemptions for those transitioning from AL). Profitability is lower, but legal and tax certainty is much higher.
Medium-Term Rental (Digital Nomads): This is the more sophisticated alternative. Funchal is a hub for digital nomads, making it possible to sign temporary lease agreements under the New Urban Lease Regime (NRAU).
Legal Advantage: This is not Local Lodging. It does not require registration, does not provide "accommodation services" (such as included cleaning), and is not subject to the suspension.
Tax Advantage: Income is taxed as rental income (Category F) and not as business income (Category B), which is often more advantageous.
2. Investment in Typologies Excluded from the Suspension
As mentioned, the suspension does not affect all properties. The investor's focus should now center, for example, on the acquisition of:
Houses/Villas for full AL exploitation;
Small vacant buildings for rehabilitation and conversion into AL units (under full ownership/single title).
How to Protect Your Investment in Madeira in 2025/2026?
Faced with this new paradigm, real estate due diligence in Funchal has become more complex and absolutely essential.
On this topic, see also our article: Real Estate Market in Funchal: The Legal Perspective that Secures Your Investment.
The Critical Importance of Post-2025 Due Diligence
Before proceeding with any acquisition, our recommendation focuses on three essential verifications:
Analysis of the Utilization License (LU): More than ever, the LU (or its waiver, if prior to 1951) is the key document. The property's designated use (housing, services, etc.) dictates what is legally possible;
Prior Consultation with the CMF: It is imperative to verify the property's framework in relation to the PDM (Municipal Master Plan) and, specifically, the new Funchal AL Regulation (and respective containment zones);
Strengthening the CPCV: Never sign a CPCV that depends on a future AL license without including clear suspensive or resolutive clauses. The contract must stipulate who assumes the risk if the license is not (or cannot be) obtained.
We are, therefore, facing changes that significantly impact entrepreneurs and investors in the Funchal real estate market, or those with such a future perspective, but which do not constitute absolute restrictions on their investments.
Essentially, it has become imperative to combine strategy with reinforced legal security, thus allowing for the continuity of your projects and investments in the Funchal real estate sector.
Filipe Ferreira Correia, Lawyer
Email: geral@ffc-advogado.com
Telf: 291 618 920 | Tel: 935 893 791
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