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Portugal: Conveyancing & Legal Issues for Homebuyers

Overview

Conveyancing is the legal term for processing the paperwork involved in buying and selling property and transferring the deeds of ownership. In Portugal, some aspects of conveyancing, such as drawing up the deeds and witnessing the signatures, can be performed only by a public notary (notário). A notário represents the Portuguese government and one of his main tasks is to ensure that all state taxes are paid on the completion of a sale. He doesn’t verify or guarantee the accuracy of statements made in a contract or protect you against fraud! Many Portuguese estate agents will also undertake the conveyancing, although this can be risky and it’s essential to engage your own lawyer (advogado). You should never allow an agent to do the conveyancing if he’s acting for both the seller (vendedor) and buyer (comprador). Conveyancing should include the following checks:

• Verifying that a property belongs to the vendor, as shown in the deed (escritura) and listed at the land registry (conservatória do registro predial) or that he has the legal authority to sell it. The owner should produce a certified notarial copy of the escritura and a land registry certificate (certidão de registro). The description of the property at the land registry and the tax office (see below) should be identical.

• Checking that the owner has an official tax document (caderneta predial) issued by the local tax office and showing the fiscal value (valor trubutável) of the property, and that the property description agrees with the land registry certificate.

• Checking that there are no pre-emption rights over a property and that there are no plans to construct anything which would adversely affect the value, enjoyment or use of the property, such as roads, railway lines, airports, shops, factories or any other developments.

• Ensuring that all building permits and planning permissions are in order (e.g. building licence, water and electricity supply, sewage connection) and are genuine, and that a property was built in accordance with the plans. Any extensions or additions such as a swimming pool must be included on the plans and be authorised. A new building must have a habitation certificate (cédula de habitação or licença de habitabilidade) certifying it can be lived in, issued when a building conforms with the building standards and codes. If a building was constructed before 1951 the owner should have a certificate from the land registry verifying this.
Before buying land for building you should obtain a certificate (parecer camarário) from the local town hall stating what can be built on it. Obtain a copy of the usage licence (licença de utilização) from the local town hall which shows what a property or land can be used for. A non-residential licence must also state the permitted commercial or industrial use of a property. It’s important to check the size of dwelling that can be built on a plot or how far an existing building can be extended.

• Checking that there are no encumbrances, e.g. mortgages or loans, against a property or outstanding debts (see below). It’s important to obtain a certificate (certidão de registro) from the local land registry confirming that the property is free from encumbrances, which is required by the notary (notário) when the deed is signed at the completion of the sale. You must ensure that any debts against a property are cleared before you sign the deed of sale (escritura). There can be a delay of up to a year between charges being registered in the registry ‘log’ book and charges actually being entered into the main land registry (and showing up on the certificate). It’s therefore important for you or your lawyer to go to the land registry and check all entries on the day of the completion (this could be done a few days earlier and then you only need to examine entries since the last check on the day of completion). Other checks include:

– enquiring at the town hall whether there are any unpaid taxes such as property tax or other charges outstanding against a property;

– checking that there are no outstanding community charges for the last five years (it may be possible for a vendor to pay the last year and ignore previous bills) and obtaining copies of the co-ownership rules and the latest accounts of the community of owners (which should state whether there are any impending expenses for which you would be liable);

– checking that all bills for electricity, water, telephone and gas have been paid for the last few years. Receipts should be provided by the vendor for all taxes and services.

If you buy a property on which there’s an outstanding loan or taxes, the lender or local authority has first claim on the property and has the right to take possession and sell it to repay the debt. All unpaid debts on a property in Portugal are inherited by the buyer.

The cost of conveyancing for a property in Portugal depends on whether you employ a foreign or Portuguese lawyer or both. If you employ a foreign-based lawyer, you should expect to pay €150 or more per hour for his services plus additional fees for the work of his Portuguese partners or associates. The fees may be stated as a percentage of the purchase price, e.g. 1 to 2 per cent, with a minimum fee of around €1,000. Before hiring a lawyer, compare the fees charged by a number of practices and obtain quotations in writing. Check what’s included in the fee and whether it’s ‘full and binding’ or just an estimate (a low basic rate may be supplemented by much more expensive ‘extras’). You should also employ a lawyer to check the contract (see below) before signing it to ensure that it’s correct and includes everything necessary, particularly regarding any necessary conditional clauses.

In Portugal, the sales contract (escritura pública de compra e venda, commonly referred to simply as the escritura) is prepared by a public notary (notário), who’s responsible for ensuring that it’s drawn up correctly and that the purchase price is paid to the vendor. He also certifies the identity of the parties, witnesses the signing of the deed, arranges for its registration (in the name of the new owner) in the local property register and collects any fees or taxes due. The notário represents the state and doesn’t protect the interests of the buyer or the seller and will rarely point out possible pitfalls in a contract, proffer advice or volunteer any information (as for example, an estate agent usually will). Don’t expect a notário to speak English or any language other than Portuguese (although some do) or to explain the intricacies of Portuguese property law.

Anyone buying (or selling) property in Portugal shouldn’t even think about doing it without taking expert, independent legal advice. You should certainly never sign anything or pay any money before engaging a lawyer. Your lawyer should also check that the notary does his job correctly, thus providing an extra safeguard. It isn’t recommended to use the vendor’s lawyer, even if this would save you money, as he’s primarily concerned with protecting the interests of the vendor and not the buyer.

PURCHASE CONTRACTS

The first stage in buying a property in Portugal is usually the signing of a promissory contract (contrato de promessa de compra e venda), which sets out the details of the contract such as the identity of the owner, a detailed description of the property and land boundaries, registration and tax numbers, purchase price, deposit and date of completion. It may be possible to obtain a draft in English. It’s also possible to have a notary draw up the deed of sale (escritura) without having a promissory contract. However, when you’re paying a deposit, which is usual, it’s necessary to have a promissory contract drawn up.

Buying ‘Off-plan’

When buying an unbuilt property ‘off-plan’, i.e. a property still to be built or which is partly built only, it’s usual to pay a small holding deposit, e.g. €750, to reserve a property until a promissory contract is signed (usually around four weeks later). When buying off-plan, payment is made in stages. Stage payments vary considerably and may consist of a 20 per cent deposit; 20 per cent on completion of the roof; 20 per cent on tiling the bathroom and kitchen (or when the doors and window frames are installed); 20 per cent when the building is complete; 10 per cent when the exterior work is completed (such as the patio, pool and landscaping); and the remaining 10 per cent on completion (which may be withheld for 6 or 12 months as an insurance against defects, provided you can get the builder to agree to this in the contract). An alternative may be 15 per cent on signing the contract, 20 per cent on the completion of the foundations, 20 per cent on completion of the walls, 30 per cent on the completion of the roof and 10 per cent at completion. If a property is already partly built, the builder may expect a higher initial payment, depending on its stage of completion.

The contract must contain the timetable for the property’s completion; stage payment dates; the completion date and penalties for non-completion; guarantees for building work; details of the builder’s insurance policy (against non-completion); and a copy of the plans and drawings. The floor plan and technical specifications are signed by both parties to ensure that the standard and size of construction is adhered to. The contract should also contain a clause allowing you to withhold up to 10 per cent of the purchase price for 6 to 12 months as a guarantee against the builder not correcting any faults in the property. The completion of each stage should be certified in writing by your own architect before payments are made. It’s important to ensure that payments are made on time, otherwise you could lose all previous payments and the property could be sold to another buyer. It’s important to verify that the builder or developer has an insurance policy (or ‘termination’ guarantee) to protect your investment in the event that he goes bust before completing the property and its infrastructure. If he doesn’t then you shouldn’t buy from him!

Buying a New Completed Property or a Resale Property

When buying a resale or a new finished property (i.e. not off-plan) it’s usual to sign a promissory contract (contrato de promessa de compra e venda) and pay a deposit (sinal). Before signing a contract, it’s important to have it checked by your lawyer. One of the main reasons is to safeguard your interests by including any necessary conditional clauses (see below) in the contract. The deposit is usually equal to 10 to 20?? per cent of the agreed purchase price (the actual amount may be negotiable), the balance being paid at the completion when the deed of sale (escritura) is signed. A deposit is refundable under strict conditions only, notably relating to any conditional clauses such as failure to obtain a mortgage, although a deposit can be forfeited if you don’t complete the transaction within the period specified in the contract. If you withdraw from a sale after all the conditions have been met, you will not only lose your deposit, but may also be required to pay the estate agent’s commission. On the other hand, if the vendor withdraws he must repay you the amount of the deposit plus compensation, which is usually equal to the amount of the deposit (you therefore receive double the amount of the deposit). It’s possible to include a clause in the contract for ‘specific performance’, which means that you can insist on a sale being completed rather than be compensated for breach of contract.

Make sure that you know exactly what the conditions are regarding the return or forfeiture of a deposit. Many Portuguese estate agents or lawyers don’t have the legal authority to hold money on behalf of their clients and deposits should be deposited only in a separate (preferably bonded) account. It isn’t recommended to make out cheques for deposits or other monies in the name of an estate agent. Note that it’s quite usual in Portugal for a deposit to be given to the vendor, although this should be avoided because if there’s a dispute and the purchase isn’t completed, it can take some time to get your deposit returned.

More pages

Page 1: Overview
Page 2: Conditional Clauses
Page 3: Final Checks

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