The Funchal City Council has approved the new Municipal Regulation for the Management of Local Accommodation Establishments, which regulates the activity in the municipality with clear rules on where, how, and under what conditions it is permissible to operate local accommodation. This article explains, in practical terms, what changes for those who already have local accommodation in Funchal and what owners, managers, and investors in the sector should observe.
Those who already have a registered Local Accommodation (AL) maintain the registration.
The most important rule for those already operating local accommodation in Funchal is this: establishments licensed and registered on the date the regulation comes into force can continue operating. The regulation does not have retroactive effect on validly constituted licenses, so the new regime only applies to new registrations and some operating obligations that will now be required of all operators.
New obligations applicable to all short-term rentals in Funchal.
Regardless of whether the establishment predates or follows the regulation, there is a set of obligations that all owners of local accommodation establishments in Funchal are now subject to:
- Urban solid waste managementThe operator is responsible for the proper disposal and separation of waste produced by the activity, and must respect the times and locations defined by the municipality.
- Guest information in four languagesThe regulation mandates the provision of accessible information on waste separation and environmental coexistence rules in at least four languages, with Portuguese and English being mandatory.
- Non-domestic water tariffWater consumption in local accommodation establishments will now be charged as non-domestic consumption, under the commercial category. This has a direct impact on the cost structure of the activity and should be considered by operators.
- Mandatory identification of the registration number.The business owner must identify the establishment's registration number in all acts in which they invoke this status, particularly in advertisements and on electronic booking platforms (Booking, Airbnb, Vrbo, and others).
- Subject to inspections and auditsThe municipality retains the power to carry out inspections and audits to verify compliance with the regulations, and may coordinate with the Regional Directorate of Tourism, the Regional Authority for Economic Activities, and the police authorities.
When can you lose your short-term rental registration in Funchal?
The regulation expands the system for canceling the registration of local accommodation establishments as stipulated in the legal framework for the operation of local accommodation establishments. In addition to the grounds set out in Article 9 of the Legal Framework, the Municipal Council may order cancellation whenever false information or non-compliant documents are found in the registration, irregular installation in containment areas, or if a residential lease agreement exists in the two years prior to registration.
Since the cancellation of the registration determines the immediate cessation of operations, in cases where there are doubts about the regularity of the original registration process, the situation should be carefully monitored.
Suspension of registration for rental purposes: an option to consider.
The regulation provides an alternative for owners of short-term rental properties located in containment areas. The owner may suspend operation for a maximum period of five years, to dedicate the property to residential rental, while retaining the right to resume short-term rentals at the end of that period.
The communication to the City Council must include a copy of the lease agreement and proof of payment of Stamp Duty. For those who own property in a high-pressure area or in a unit that is not yielding as expected, this option can be a relevant strategic alternative, as it allows them to maintain the previously acquired right to register for Local Accommodation (AL).
Containment areas: what they are and where they are applied.
The regulation defines two containment zones in the municipality of Funchal:
- Containment area 1 – parish of Sé.
- Containment area 2 – remaining parishes of the municipality (Immaculate Heart of Mary, Monte, Santa Luzia, Santa Maria Maior, Santo António, São Gonçalo, São Martinho, São Pedro and São Roque).
In both areas, new registrations are prohibited, but with different regimes. In containment area 1, corresponding to the parish of Sé, the prohibition is total and covers all types of local accommodation, without exception within the general regime. In containment area 2, new registrations are permitted for houses and rooms within houses, provided that the requirements of the regulation are met.
For those who want to open a new short-term rental in Funchal
Anyone intending to start a new local accommodation business in Funchal should be aware that the regulations establish a system of qualified exceptions that allows, under specific conditions, the granting of new registrations even in containment areas. These exceptions include, in particular, buildings rehabilitated under municipal incentives, properties that have been vacant for more than three years, or buildings reconstructed by order of the city council after inspection.
For apartments and lodging establishments (including hostels), the regulations also require that the building be entirely dedicated to commercial or service use. This is the restriction with the greatest impact on new local accommodation projects in residential buildings in Funchal.
Legal monitoring of the regulation.
The entry into force of this regulation marks a structural change in the framework for local accommodation in the municipality of Funchal.
Those operating in the sector, namely owners, managers, platforms and investors, have every interest in reviewing their situation in light of the new regime, particularly regarding the regularity of registration, compliance with operational obligations and consideration of the strategic options that the regulation opens up, such as suspension for leasing.
MB Advogados has been closely monitoring the regulatory evolution of local accommodation in Madeira from the very beginning and provides legal support at all stages of the process: registration procedures, qualified exceptions, suitability inspections, cancellations, administrative litigation, and real estate transactions involving local accommodation units. For clarification on the application of the regulations to your specific situation, please contact our office in Funchal.