In Portugal, it is extraordinarily common to carry out home improvements without a municipal building permit. An enclosed balcony, an annexe built in the garden, an added floor, a kitchen extended onto the terrace — modifications that appear harmless but which, from both a legal and an insurance perspective, can have devastating consequences.
The reality is this: when you take out home insurance, the insurer is covering the property as described in the tax registry (caderneta predial) and the official documentation. If your home contains elements built without a licence or in non-compliance with the approved project, you are creating a situation where, at the very moment you need insurance most — when a claim arises — you may discover that coverage does not exist or is severely compromised.
What it means to have a “legalized” property
A property is fully legalized when all its structural elements comply with the licences issued by the municipal authority and are correctly reflected in the official registries. This requires:
- Valid usage licence (licença de utilização): the document certifying that the property may be used for its intended purpose (residential) and that the construction complies with the approved project
- Updated tax registry (caderneta predial): the record held by the Tax Authority must accurately reflect the total construction area, number of rooms, floors and the property typology
- Compliant property registry: the entry at the Land Registry Office (Conservatória do Registo Predial) must correspond to the physical reality of the property
- Licensed works: any structural alteration, extension, change of use or work that modifies the exterior configuration must have a licence or prior communication to the municipal authority
When any of these elements does not match reality, the property has an illegal component that can directly affect insurance coverage.
How illegal construction affects home insurance
The implications of having unlicensed elements in a property are serious and varied. Understanding each scenario is essential to assess the real risk.
1. Incorrect risk declaration
When you take out or renew home insurance, you are declaring the property’s characteristics to the insurer: area, type of construction, materials, use. If the reality of the property differs significantly from what was declared — for example, because there is an additional unlicensed floor or an extension that increased the area by 30% — you are facing an incorrect risk declaration.
Article 24 of the Legal Framework for Insurance Contracts (Decreto-Lei n.º 72/2008) is clear: if the policyholder does not accurately declare the circumstances they know and should reasonably know to be relevant for risk assessment, the insurer may reduce compensation proportionally or, in cases of wilful misrepresentation, void the contract entirely.
2. Claim refusal based on causal link
If the claim is directly related to the illegal construction, the insurer has solid grounds to refuse compensation. Concrete examples: an unlicensed enclosed balcony that collapses in strong winds; an electrical installation carried out without an approved project that causes a fire; an annexe built without a permit that floods because it does not comply with drainage standards.
In these cases, the insurer argues — and courts tend to agree — that the claim is a direct consequence of the illegal construction and therefore of a risk the policyholder voluntarily created.
3. Application of the proportional rule
Even when the claim is not directly linked to the illegal construction, the insurer may invoke the proportional rule. If the insured value corresponds to a 120 m² property, but the reality is a 180 m² home (with 60 m² of unlicensed extensions), the insurer may calculate compensation proportionally based on the declared value versus the actual value. In practice, the policyholder receives only two-thirds of the compensation they would have been entitled to had the declaration been correct.
4. Exclusion of undeclared components
The parts of the property that do not appear in the property description and were not declared to the insurer are, naturally, excluded from coverage. The annexe, the enclosed balcony, the additional floor — if they do not officially exist, they do not exist for insurance purposes. Damage to those areas, including the contents within them, is not covered.
Paying insurance premiums for years only to discover, at the moment of a claim, that coverage does not apply is one of the most frustrating and financially damaging situations a property owner can face.
Common situations in Portugal that compromise coverage
These are the scenarios we encounter most frequently, and they represent real risks for property owners:
- Enclosed balconies (marquises): one of the most common alterations in Portuguese apartments. If the balcony was enclosed without a licence, it constitutes an illegal extension of the habitable area
- Converted annexes and garages: spaces that have been transformed into living accommodation (bedrooms, offices, kitchens) without proper licensing
- Added floors: a second floor or habitable attic built without an approved project fundamentally alters the property’s characteristics
- Unlicensed swimming pools: pool construction requires a municipal building permit in many municipalities. Without a licence, damages related to the pool may not be covered
- Structural alterations: removal of load-bearing walls, opening of voids, alteration of roofing — works that affect the building’s structure and require engineering design and licensing
- Irregular technical installations: electrical, gas or plumbing installations carried out without certification can be the direct cause of claims and grounds for refusal of compensation
- Change of use: using a residential property as an office, short-term rental (alojamento local) or commercial space without the proper authorisation can invalidate residential insurance coverage
Steps to regularize the situation
If you recognise any of these situations in your property, the path to regularization exists and should be pursued before it is too late.
1. Legal audit of the property
The first step is to compare the physical reality of the property with the official documentation: tax registry, Land Registry entry, usage licence and approved project at the municipal authority. Any discrepancy identified is a potential risk to insurance coverage.
2. Legalization of existing works
Many alterations can be legalized retroactively through an application for licensing of already completed works. The process requires hiring a qualified professional (architect or engineer), preparing a project, paying municipal fees and, potentially, paying a fine for carrying out the work without prior licensing. It is a cost, but incomparably less than that of an uncovered claim.
3. Updating the tax registry and property records
After legalization, it is essential to update the tax registry at the Tax Authority and the entry at the Land Registry Office so they reflect the new reality of the property. Only with these documents updated is it possible to correctly declare the risk to the insurer.
4. Reviewing your home insurance
With the documentation regularized, the final step is to review the insurance: update the insured value to reflect the actual area and current characteristics of the property, verify that all coverages are adequate and confirm that no applicable exclusions remain.
The importance of correct insured values
Even with the property fully legalized, another frequent mistake compromises coverage: outdated insured values. The insurance value should correspond to the cost of rebuilding the property (for the building) and the actual value of the belongings (for the contents).
If you carried out renovation works that increased the property’s value, acquired equipment of significant worth, updated the kitchen or bathrooms — the insurance must reflect these changes. A policy with values from ten years ago for a home renovated two years ago is protection that exists only on paper.
Legalizing the property and keeping the insurance up to date is not unnecessary bureaucracy. It is the difference between having real protection and having an illusion of protection that collapses at the worst possible moment.
Condominium responsibility
In a horizontal property regime (condominiums), the situation becomes considerably more complex. Illegal works in one unit can affect the insurance of the entire building. If a co-owner carried out structural alterations without a licence and those alterations compromise the stability or safety of the building, the resulting damage may not be covered by the condominium insurance — affecting all owners.
Diligent condominium management boards should ensure that no unit has illegal alterations that could compromise collective coverage. It is a shared responsibility that protects all co-owners.
The role of the specialist broker in real property protection
At Adler & Rochefort, when we analyse a client’s home insurance, we do not simply compare premiums. We ask questions that others do not: does the property have works carried out without a licence? Is the tax registry up to date? Do the insured values match reality? Because we know that a cheap insurance policy that does not pay when needed is the most expensive insurance there is.
Our analysis identifies vulnerabilities, alerts to risk situations and guides the property owner towards protection that truly works. Where necessary, we recommend regularization before taking out or renewing insurance, because we would rather the client invest in legalization than discover its importance after a claim.
Adler & Rochefort is a registered insurance broker, authorised by the ASF — Autoridade de Supervisão de Seguros e Fundos de Pensões.