Buying Property in Portugal
When buying a property in Portugal, the most common preliminary agreements are (i) a Reservation Agreement in which the seller agrees to take the property off the market for a certain period of time under some specific conditions and (ii) the Promissory Contract of Purchase and Sale in which both parties enter into an agreement to sell. Make sure that a binding offer is in place, and should you require an immediate binding document, the signing of a Promissory Contract of Purchase and Sale is the more secure legal instrument.
Due Diligence on The Contract
Through a Due Diligence on the contracts you can avoid future problems. The advice of a qualified lawyer regarding the terms of the contract you are about to sign and the compliance of these terms with the Portuguese law will make the purchase much more secure, not only at the time of signature, but also for the future.
A due diligence on the title is of fundamental importance when acquiring a property. This is aimed at ascertaining whether the seller has full ownership of the property and/or if there are any charges registered over the property or restrictions on title. This assessment is based mainly on the property details filed with the Land Registry Office and the Tax Department. Any charges or encumbrances registered over the property must be cancelled prior to completion.
When signing a Promissory Contract of Purchase and Sale, the buyer is normally expected to advance a payment on account of the purchase price. It is a proportion of the total selling price, which is negotiable (10% to 30% is common practice).
In case of breach of contract, this payment can be used as penalty. If the seller breaches the contract, they have to return this deposit in double. If the buyer breaches the contract the seller keeps the amounts deposited.
Foreign citizens can apply for mortgages in the same conditions as Portuguese citizens as long as the bank requirements are fulfilled.
When acquiring a property, it is also important not to forget the need for the necessary licences. Different uses of land require different licences and it is essential that you have the full background on this subject before completion to avoid unpleasant surprises in the future. The Licence for Use, for instance, is a mandatory document required for the acquisition of urban property – except in case of construction prior to 7th August 1951.
When purchasing a property, there are certain taxes that need to be paid. The Property Transfer Tax (IMT) is paid by the buyer upon completion and it varies between 0% and 8% of the value of the purchase. Stamp Duty is another tax to be paid and is charged at a rate of 0.8% of the declared value of the purchase. Should the buyer apply for a mortgage, there will be an additional Stamp Duty of 0.6% which will be charged over the value of the loan.
In Portugal, the transfer of property can be processed in two ways: (i) through the signing of a Deed of Purchase before a Notary or (ii) through a certified private document signed before a Lawyer, a Legal Executive, Chamber of Commerce and Industry or a Registrar. This is the document that gives the purchaser proper title to the property.
After the signing of the Deed, it is mandatory to register the purchase with the Land Registry Office and the Tax Department. Without registration you will be unable to enforce the purchase against third parties.
The seller may be liable for construction defects within 5 years after the sale/construction of the property. However, this guarantee will be waived by the parties if they specifically agree to sell/purchase the property in its current condition.