Purchasing Property - A Checklist for vendees
Prior to the conclusion of a contract
Prior to the signing of the official Deed of Transfer (Escritura) and even before signing the Promissory Contract (Promessa de Compra e Venda) there are a few things to be considered (see our Practical Guide 2014). The vendee should especially observe the following main factors before making a decision.
- Are all necessary documents at hand?
At the time of the conclusion of the contract all necessary documents should be at hand. The conclusion should not fail because of a missing identity card or the default of tax payment. It is the duty of your lawyer to check on the documents.
- Is the vendor the proprietary?
The vendor has to be the owner of the property. The Land Register (Conservatória do Registro Predial) provides all necessary information about the ownership. Nevertheless be aware that in Portugal there is no obligation to enter new ownership in the land register. A proprietary who is not recorded in the land register, can prove his ownership otherwise. Under Portuguese law, the ownership transfers already with the conclusion of the final deed of transfer. Therefore, if you are not sure if the land register is correct, we recommend to have a look at previous deeds of transfer. It is difficult to understand these documents if you do not speak Portuguese and do not have legal knowledge of the background. Therefore you should consult a lawyer early in the process. Further attention should be paid to the fact that only the person registered as the owner in the land register can sell the property. Thus, if the actual owner is not registered as such his registration has to be carried out before going through with the purchase.
By this stage, when faced with all the paperwork, you should assign a lawyer to read through the contracts.
- Is the property encumbered with third party rights?
Rights of third parties have to be recorded in the land register (e.g. a mortgage). Therefore you or your lawyer have to check on the land register before purchasing property. If no such rights are registered but do exist they will not be transferred with the sale.
- Does somebody have the rights of first refusal?
There is always a danger that a third person has the right of pre-emption (direito depreferência). In certain cases the right of first refusal is stipulated by law. The third party is privileged to buy the property. Be aware of this fact. For instance, the neighbours of a property are entitled to first refusal. You will need the written refusal of all adjoining neighbours.
- Are there tenancies or leases?
At the time of authentication of the final deed at the latest you should be sure that there are no existing rental or lease relationships regarding the property. Otherwise you will step in as a lessor into the already existing lease contract. The lease agreement can only be terminated under strict legal requirements. Even if you have the right to give notice, you may have to take up costly legal proceedings against the leaser. Therefore check upon it in advance.
- Does the seller have debts?
If the vendor has debts, in certain legally defined cases the state has a privileged access right to the property. The attachment of the property could be carried out and entered into the land register. Consequently, such debts should be checked upon and eliminated beforehand. For instance, you should check on unpaid taxes and contributions for previous years. And although the inheritance tax has been abolished for some time now, the state can claim the previously due tax up to 20 years after an actual succession.
Also have a look at due invoices from utility companies. At the latest on the day of the signing of the final deed any due invoices should be paid. Otherwise you might have to deal with these companies later on.
- What about the authorisation of occupancy?
The vendor must provide the authorisation of occupancy (Autorização de utilização). Without this license, the property is economically worthless. The authorisation of occupancy refers to the permitted type of use of a building and enables the proprietor to inhabit the property in accordance to the license. You should also pay attention to the fact whether there were any changes made as to the kind of utilisation of the property (e.g. new rooms) and whether these changes are already considered by the actual authorisation of occupancy.
- Building land: Is the land really suitable for building?
The building permit (Licença de construção) attests whether the land is suitable for building or not - suitable in terms of whether it is legally possible to built there. Thus, the building permit is highly important.
If a building permit does not yet exist, you should pursue a preliminary building permit. This way you will have the certainty that building is actually possible.
- In what condition is the property?
An early examination of the property will prevent any unpleasant surprises. Is the building an ancient monument and is protected as such, you may have special duties of maintenance. These duties can be very expensive, time consuming and difficult. Therefore it should be paid attention. You should also be aware of the fact that according to Portuguese law the current owner of a property is the one who will be held liable for the legacy contamination.
- What do I have to consider when buying an apartment?It is important to have knowledge of the ownership structure - you should know what is part of the condominium and what would be wholly owned by you. In case of condominiums, the costs are shared according to the ownerships interest. Therefore, the size of the flat should be checked and stated correctly so that you would be able to calculate your share in the cost. Furthermore, you should also make yourself familiar with the statute of the condominium. Such a statute is obligatory when there are four or more parties sharing the ownership.
After completion of the purchase
- Did I pay the annual property taxes?
The purchase of real estate must be reported to the responsible tax authorities within 60 days. After the purchase, the buyer has to pay the annual property tax (IMI- ImpostoMunicipal sobre Imóveis). There is a tax calculator on the website of the tax authority: www.e-financas.gov.pt that will help you to estimate the annual property tax. Please pay attention to the fact that this tax is based on the tax value of the property which is estimated by the tax authorities. The tax can vary between 0,3% to 0,5%. This depends on the community where your property is located.
- Is the ownership recorded in the land register?
There is a legal deadline of 10 days for the registration of ownership in the land register. The land registry charges a fee for the registration. Belated registrations cost an additional fee. In most cases the notary or the lawyer will take care of the registration.
Especially the purchase of real estate with commercial purposes has to be notified. The vendee is legally bound to register the utilisation license (see above) in his name. The right place to do this is the public construction authority.