Algarve, South of Portugal, has been for several years one of the most desirable places in Western Europe to buy Property for holidays or to live permanently by foreign citizens.
The buying and selling of a Property in Portugal is relatively straightforward providing the ownership of the property is clear and the purchase laws are strictly adhered to. However it is advisable that both parties appoint a Lawyer to prepare and execute all the process.
The main stages of the process are:
1 – Negotiation;
2 – Signature of the Promissory Contract;
3 – Final Deeds;
4 – Registration of the new ownership;
There is a further way to buy property in Portugal, which is buying the Shares/interest of a Company that owns the property.
1 – NEGOTIATION
As soon as the purchaser finds a property that he would like to purchase (usually through a real estate agent or other contacts that he may have) negotiations with the Vendor start. At this stage the most important issues to be discussed is price and deposit to pay at the time of the signature of the Promissory contract together with any special clauses that parties would like to see in the promissory contract. Afterwards should instruct your lawyer, to whom you may grant a Power of Attorney to allow him to act in its behalf, to undertake thorough pre-contract enquiries and all the needed searches on the legal paperwork. In addition to this searches, the legal representative will also ensure that there are no outstanding charges against the property for maintenance costs as Infrastructure charges, Property tax, Condominium fees, etc. The Vendor should have a complete set of Title Deeds showing that he is the person legally entitled to sell and the property details. It is also important at this stage to check if there is any charge, mortgage, encumbrance etc registered on the property. The property, if the construction is made after 1950, should have a valid Habitation Licence, which is similar to planning permission and confirms that the local authorities have approved the construction of the property.
2 – SIGNATURE OF THE PROMISSORY CONTRACT
Usually the appointed Purchaser’s lawyer will prepare a draft of a Promissory Contract of Purchase and Sale of the property, which is signed by the Purchaser and the vendor.
The contract will show the price, the price’s terms of payment, completion date, details of the property including the clear title of the ownership, penalty clauses in the event that any of the parties do not fulfil the contract (by default under the Portuguese Law if the Vendor does not fulfil the contract he is liable to pay back the deposit in double to the Purchaser. If the Purchaser does not fulfil the contract he forfeit deposit in favour to the Vendor), any other special clauses, etc. On the signature of the Promissory Contract the Purchaser will pay the agreed deposit (normally 10% of the agreed purchase price).
During this first two stages some important legal documents have to be checked by the lawyers and used to draft the contracts. The most relevant ones are:
a) – Land Registry
The Land Registry is a public record. Each property has a unique certificate. On it you may find the details of Ownership – (contains the property’s legal history); Title – (Identifies the current legal ownership); Description of property; Mortgages; Charges; Third party interests.
b) – Caderneta Predial
Every property has also to have a Caderneta Predial, which is a taxation identification and sets, among other things, the rateable valuation. This valuation is important for the determination of local property tax (IMI payable every year) and, if the property is owned by an offshore company, it is also important to calculate the presumed net income of the offshore company that owns Property in Portugal, as better explained below.
c) – Habitation Licence
All residential properties constructed since 1951 need a Habitation Licence, which confirms that the Câmara (Council) has inspected the property and that it complies with planning permission and building regulations.
3 – FINAL DEEDS
The period between Promissory Contract and completion will vary from purchase to purchase and depends on the particular circumstances of the parties. At this stage and before the signature of the deeds of conveyance at a public Notary, the Purchaser should have a Portuguese Fiscal number, and if he does not have one already, he should appoint a fiscal representative (usually an accountant) in order to him get one and represent him in future for all taxes payments affairs. Just before the deeds the Purchaser should pay the IMT – this is the Portuguese Property Acquisition Tax. The amount payable varies with the value of the property on a sliding scale up to 6% (this rate is applicable to all properties with a price higher then €500,000.00 – value referred to the year 2004. From €80,000.00 to €500,000.00 a sliding scale is applicable and it will always be lower then 6%. This amount increases every year on a very similar percentage of the inflation). Your Lawyer will advise you of this figure before you incur any expenditure. The Purchaser, on the signature of the deeds of conveyance of purchase and sale at the public Notary, has to pay the notary expenses and stamp duty and afterwards Land Registry costs when the registration of the transfer of the ownership of the Property is applied for. As a rule, these fees will be approximately 1.8% of the purchase price.
Completion of a property purchase takes place at the offices of a Public Notary. The Notary records the transaction, which is often referred to as the Escritura. From this moment onwards the Purchaser is the owner of the property and may take possession of the property.
4 – REGISTRATION
After completion the transfer of ownership has to be registered at the Land Registry. This formally notes the Purchaser’s legal ownership of the property in a public record. The completion of the registration may take several months from its application depending how busy the local Land Registry is.
In circumstances where a company already owns the property, your lawyer will certify the title of the company to the property in the usual way. He/She will then prepare an agreement to transfer either the shares or the beneficial ownership in the company to the Purchaser. A conveyance on the company is carried out in addition to the property conveyance. On completion the ownership of the property will not have changed, only the ownership of the company. Of course that the Purchaser is able to decide to purchase the property in his/her individual name from a Company. In this eventuality all the issues above mentioned are applicable.
The Portuguese laws enforceable from 2002 have changed considerably the situations where a property is owned by an offshore company (meaning companies incorporated in a list of 83 countries/jurisdictions) penalizing this structure. Therefore it is strongly recommended to get professional advise prior to agree in buying Shares of an offshore company that owns property in Portugal.