PROPERTY PURCHASE AND BUILDING A HOUSE how to buy a house in Portugal

PROPERTY PURCHASE AND BUILDING A HOUSE
Specific precautions in the promissory contracts of purchase and sale of property being built.If the object of the contract is a property still in construction, therefore not concluded, one must pay special attention to the contents of the promissory contract. Seeing that in Portugal there does not exist specific legislation to be applied to theses situations and if a generic law is applied, in spite of allowing its performance, it leaves the promissory purchasers without guarantees in case of an eventual breach of contract by the seller. In this case, the contract's effect is conditioned by the existence of goods/assets.Furthermore, if the property is actually built, the sale conducts all its effects. If on the other hand, the property is not built, the contract is cancelled and the purchaser is discharged from the debt of the price or can recover it if it has already been paid.For the sale of property to be built, the seller is obliged to perform the necessary diligences so that the purchaser may acquire the sold goods, according to what has been stipulated or results from the circumstances of the contract. If the seller omits such diligences he is then obliged to indemnify the purchaser on damages (loss of profits and consequential/actual damage) that result from the breach.Given the aforesaid, one may easily realize that the purchase and sale of property to be built relies upon several circumstances, which may never be verified in practice.There are, however, some points that deserve to be considered by the interested parties at the moment of signing a contract that has as object a property/building to be built.

THE CONTRACT CLAUSES
The clauses of a promissory contract that have as object a non built property need to be rigorously analysed, namely the circumstances that involve the entire construction until its completion and conveyance.On one hand, specific legislation related to property contracts in general does not exist. On the other hand, the object of the contract does not exist in physical terms implicating therefore, that a group of conditions and hypotheses will have to be foreseen in the contract. Namely:The identification of the property - object of the contract- will have to be carefully detailed.Furthermore, it is necessary to preview/point out in the contract, and according to the building plan, the area, its location towards the other properties, the number of divisions, store-rooms, garage, etc.In order to confer a formal validity to the promissory contract, the construction must already be licensed at the time of acknowledging/legalizing the contract's signatures.When dealing with horizontal property (co-ownership) and if it has already been constituted or sketched out at the time of signing the contract, one should mention the corresponding fraction. In this case, it will also be convenient to identify the whole undertaking/construction, namely the characteristics publicized by the seller.The materials/fixtures and "finishings" to be used in the work, must be fully described, with reference to the description of the "invention" and caderno de encargos (list of clauses demanded in a contract by the public administration) of the construction project.The most adequate manner to settle the payment of the price of the property being built consists in coinciding the payment dates with the completion of the construction phases - duly stipulated in the clauses.This form of payment has the advantage of financing the promotor and simultaneously reduces the purchaser's risk. The possibility of reviewing or altering the price and its conditions may also be set out in the contract's clauses.The designation of the delivery date of the property by the purchaser is fundamental, and not only the vague indication of the date when the completion is likely to occur. The clauses that are going to stipulate eventual resolutory conditions are going to depend on the clause that stipulates the delivery date of the property as well as its good execution.Knowing that the use permit/license can be issued long after the completion of the works and seeing that it is necessary for the notarial act (signing the deed), the sellor must preview in the contract, an eventual temporary reception of the property by the purchaser aslong as it has already been concluded.The seller must not only bear in mind his responsibility regarding the constitution of horizontal property (co-ownership) - when it is necessary and has not yet been constituted by the time of the signing of the contract - but also must not neglect the condominium's regulations committing the promissory purchaser to collaborate when inspections to his fraction of the property need to be executed, accomplishing the documents at stake.The promissory seller must also beware of works performed by the promissory purchaser, seeing that any work he may perform and which has not been duly licensed is susceptible of creating impediments/hindrances to the entire licensing of the building.The parties interested may preview in the contract, eventually referring to modifications in the price or including a resolutory condition, the possibility of amendments to the Municipal License, by decision or imposition of the Town Hall, being able to directly or indirectly change the property - object of the contract.

DOCUMENTS TO BE ENCLOSED TO THE CONTRACT
The parties interested in effecting a promissory contract of purchase and sale of property to be built must attach to the contract all the existing documents relative to the property - object of the contract, namely:- Publicity to the undertaking- the property's/building's plan- Description of the finishing’s and the "caderno de encargos" (list of clauses demanded in a contract by the public administration)- Condominium's regulations

Collaterals/Guarantees Having in mind that the specific performance of a contract regarding a property to be built is unfeasible until the property is in fact built, the "problem" of the reimbursement of the down payment and of eventual penalties for the breach of contract by the sellor has to be dealt with more rigorously than other promissory contracts.The bank collateral is the mot chosen mean to solve the above stated issue; it is normally made at the expense of the seller and the financial institution guarantees the purchaser the reimbursement of the referred amounts.

THE DEED OF PURCHASE AND SALE
At this stage, if a loan has been requested it is necessary for two deeds to be signed: the definite contract and the loan agreement/contract. The deedThe deed of purchase and sale will have to be drawn at a notary public.The notary verifies all the legal acts of the entire transaction and witnesses the procedure. With regard to formalities the following is necessary:- for individuals: the identification of the parties, their names, identity card numbers and taxpayer numbers; for companies, their designations, corporate body numbers, certificate of the commercial registry duly updated and clearly demonstrating the powers of the person who is going to sign/execute the deed;- the caderneta predial (certificate showing the current owner of the property and confirming that it has been registered for tax purposes) or the matrix certificate issued by the tax department and which must not be over six months old;- use permit/license issued by the Town Hall;- A receipt from the tax department showing that the sisa (real estate tax) has been paid;- Certificate from the land registry proving the registration of the property in the seller's name.

AFTER PURCHASING
Registration The final step will be to effect the definite registration of the property in the purchaser's name.The certificate of registration merely has a publicity and effectiveness function for third parties, in other words it provides information on the juridical situation of the property in terms of value, ownership, mortgage guarantees, location of the building its description, etc., aiming the safety of the juridical property commerce. According to article 7 of the property/Land registry Code, the definite registration constitutes presumption that the title/right exits and that it belongs to the title holder therewith inscribed/registered.The property registration is a burden for the purchaser. If it is not executed he can incur "heavy" disadvantages, namely, with third parties that acquire the property in good faith, meaning that the referred third party may not know that the owner was not the person who proceeded with the sale. Compulsory Insurance A fire insurance on the property is compulsory. The insurance is calculated/estimated according to the location and area of the house.Contracts for the supply or render of servicesThe conveyance of the property also implicates that the contracts for the supply of services namely, water, electricity, telephone, etc. must also be changed to the name of the present/current owner.

LEGAL ADVICE ON PURCHASING YOUR HOME IN PORTUGAL

LEGAL ADVICE ON PURCHASING YOUR HOME IN PORTUGAL

Our aim is to give you a general idea about the main steps and phases involved in a Portuguese Property Purchase in an individual name as follows:

BEFORE CONTRACT/RELEVANT DOCUMENTS:

On negotiations phase the most important issues to be discussed between parties are the price, condtions of payment, deposit togheter with any special extra clause that parties agree. At this stage you should instruct your Lawyer to undertake thorough pre-contract enquiries and all the needed searches on the legal paperwork.

Relevant documentation:

a) Land Registry

This certificate is a public record for each property with details of: Ownership – (contains the property’s legal history); Title; Description of property; Mortgages or any third party interests;

b) Caderneta Predial

Every property needs to have a Caderneta Predial, which is a tax identification and sets the rateable valuation. This valuation is important for the determination of local property tax (IMI/rates).

c) Habitation License

All residencial properties constructed since 1951 need a Habitation License, which confirms that the Câmara (Town Council) has inspected the property and that it complies with planning permission and building regulations.

EXCHANGE OF CONTRACT AND COMPLETION

The parties lawyers will prepare a draft of a promissory contract, which will be signed by vendor and purchaser. At this point, the parties will agree namely on the price, details of the property, penalty clauses in the event that any of the parties do not fulfill the contract, completion date, schedule of payments, etc.
On the signature of it the purchaser will pay the agreed deposit. The purchaser should have Portuguese Fiscal number. Completion of a property purchase takes place at the offices of a Notary. The Notary records the transaction - «Escritura». The purchaser will now take possession of the property. Under the new Portuguese legislation all non residents or foreign companies that wish to purchase a property should appoint a fiscal representative resident in Portugal in order to perform all the tax duties in Portugal. You should be aware of some legal expenses connected to the purchase of a property (described in paragraph A) in Portugal as follows:

a) IMT Tax

This is the Portuguese property acquisition tax and should be paid by the purchaser prior to completion. The amount payable varies with the price of the property, if it is for habitation, on a sliding scale up to 6%, this rate is applicable to all properties with a price higher then € 532.700,00 – value reffered to 2007. If it is a plot of land for urban construction, is always 6,5% of the price, and if it is a rustic plot is 5% in both cases withouth any variation.

b) Notary and Registration Fees

These needs to be paid by the purchaser upon signature of the deeds of conveyance of purchase and sale at the Private Notary and on the Land Registry Department when the registration of the transfer of the ownership of the property is applied for. These fees includes the stamp duty and will be approximately between 1% and 1,5% of the purchase price.

c) Yearly Expenses

Per year you need to pay the rates of the property calculated at the present for the coucil of Lagos (Algarve) in 0,80% of the rateable value of the property. Usually, 50% is payable in April and the balance in September. Your fiscal representative will receive the respective payment’s notifications from the local tax department.

d) Portuguese Capital Gains Tax

On a transfer of the property ownership in Portugal all vendors must pay the Portuguese capital gains tax, which is 25% calculated on the difference between base costs (original purchase costs and IMT) and selling price.

e) Inheritance Tax

At the present moment there is no Portuguese inheritance tax between parents/children and spouses. In all other situations is 10%.
We strongly advice you to do a Portuguese Will, after the purchase of the property.

REGISTRATION AT THE LAND REGISTRY DEPARTMENT

A copy of the “Deeds” is registered at the land registry office – public record after completion.