A lawyer explains the property buying process in Portugal
Senior Associate at PLMJ
The process for buying properties (real estate) located in Portugal is simple and, once you have agreed the essential conditions with the seller, everything can be concluded in a short space of time. In most circumstances, you can buy a property by following these three steps:
Carrying out searches before you buy is essential to ensuring (i) that the property is actually owned by the seller, (ii) whether any charges are registered over the property (mortgages, charging orders, tax debts, etc.) and (iii) whether all the documentation legally necessary to sell the property is in order.
During this phase, we also normally advise our clients to arrange for an inspection of the property by a professional Chartered Surveyor.
If you are planning to buy a building plot, you will need to check planning regulations, restrictions and licenses – as well as any other regulations that affect the use of the land – with the local municipal council.
Unlike many other countries, in Portugal, municipal councils are responsible for licensing and approving any construction in urban areas. This means that, as a rule, a use license issued by the local municipal council provides a guarantee that any works have been properly completed and that the property can be used for its intended purpose and sold on freely.
2. PROMISSORY CONTRACT FOR SALE AND PURCHASE (OPTIONAL)
In Portugal, the legal process of buying the property usually begins with a promissory contract for sale and purchase (“Contract”). In it, the signatures of the parties must be witnessed, and it must certify that the property has the necessary use or construction license (if applicable).
The Contract formalises the agreement between the parties and provides for completion of the deal.
The main issues dealt with in the Contract are:
· The timing for completion of the sale – this can vary depending on whether or not it is necessary for the parties to meet any conditions before completion (obtaining any licenses or permits, or obtaining financing, etc.);
· Price and payment conditions – it is usually necessary to pay a deposit of between 10% and 30% of the price. This deposit acts as part payment but also as a guarantee that the parties will go through with the purchase and sale and as compensation if they do not (see below);
· Preemption or preference rights – depending on their location or historical or architectural significance, properties may be subject to rights that benefit, among others, the local municipal council or the Portuguese State (through the Directorate General of Cultural Heritage). They must be given prior notice of the sale and of its terms and conditions. When properties are rented out, the tenant may have a preference right; and
· Declarations and warranties – it is common for the parties to include certain declarations and warranties in the Contract about the state of the property, the absence of any legal proceedings, debts, liabilities or tax charges. If a party breaches any of these declarations and warranties, they will have to pay compensation to the other party.
As mentioned, the Contract formalises the agreement made between the parties. Payment of the deposit upon signature of the Contract is essential because, if the seller breaches the contract, the buyer has the right to double the value of their deposit as compensation. If the buyer breaches the contract, the seller has the right to keep the deposit. Besides these arrangements for compensation, the parties are free to agree any other compensation, and it is always open to the non-breaching party to demand specific performance of the contract (whereby, in summary, a Court will force the breaching party to complete the sale).
Once the Contract has been signed, the buyer can consolidate its position by applying for provisional registration of the purchase at the land registry office. This registration becomes definitive upon completion of the purchase of the property.
3. COMPLETION OF THE PURCHASE
The process of buying a property in Portugal always ends with the signature of the “definitive contract” (known in many countries as completion or closing). This contract can be signed before a notary, as a public deed of sale and purchase (escritura pública de compra e venda), or before a lawyer or legal executive as an authenticated private document (documento particular autenticado). Both these forms of contract finalise the transfer of ownership to the purchaser and make it possible for the registration of the purchase to be made definitive.
Senior Associate at PLMJ