Promissory Contract

General information

In a Promissory Contract (contrato de promessa de compra e venda) the parties legally bind themselves to conclude the main sales contract soon. Therefore, the Promissory Contract secures the purchase until the main sales contract is concluded.

The Promissory Contract can be recorded in the land register. In this case the promissory contract also applies to third parties and prevents a bona fide purchase. The registration is valid for six months and can be extended for another six months.

The Parties

The parties of a real estate sale contract are the vendor (vendedor) and the vendee (comprador). In Portugal only an unmarried or divorced vendor can sign the preliminary contract by himself. Is the vendor Portuguese and married under the Portuguese subsidiary matrimonial property regime (comunhão de adquiridos) or under the matrimonial property regime of community of property (comunhão geral), then both spouses have to sign the contract. If the vendor is married under the matrimonial property regime of separate property (separação de bens), his or her spouse has to agree to the sale if the sold property used to be the family residence. If the property is owned by several persons (e.g. common ownership, community of heirs), then all the owners have to sign the contract. 

In a Portuguese company (limitada), the chief executive can sign the contract alone, when he has the express authorization to do so. Otherwise the meeting of shareholders has to decide upon the contract.

Drafting the Contract

A Promissory Contract does not require a specific form and is effective without a notarial authentication. But in terms of Promissory Contracts concerning the sale of buildings or parts of such the law requires the signatures to be authenticated. This also applies to vacant properties, if there is already an effective building project for this property. The building license or license of occupancy has to be attached to the Promissory Contract, depending on whether the building process is already finished or not. This regulation protects the vendee from buying a non-licensed building. In practice, the parties often agree to dispense with the authentication and not to invoke the ineffectiveness of the promissory contract because of the lack of authentication.

Every year, the Portuguese courts have to decide lots of cases about the validity of promissory contracts. Unfortunately, many parties sign the promissory contracts without a previous consultation of a lawyer. This can lead to very unpleasant consequences. In regard to its importance, the promissory contract can be compared to an English or German sale contract; both legal acts are basically definitive in a property sale.    

At the time of the conclusion of the Promissory Contract, all necessary documents should be at hand. The property acquisition tax and the stamp tax are due later, during the authentication of the sale contract.

When a house is sold with furniture the parties can agree that a part of the purchase price is assigned to that furniture. This may reduce the property acquisition tax, the stamp tax and the capital gains tax.

A certificate regarding the pay-off and the extinguishment of any mortgages on the property usually will not be added to the promissory contract. But the promissory contract should have an indication that by the time of the final sale the property will be without any legal duties.

Deposit money and down payment

Usually with the conclusion of the Promissory Contract the parties pay a down payment (sinal) in the amount of a minimum of 10 % of the purchase price. The down payment serves to prevent one party from breaching the contract. In case of a culpable breach of major contractual obligations, the vendor party is allowed to keep the down payment. If it is the vendor who breaches the contract, the vendee can request the down payment back and another payment in the same amount.  

The vendee can also sue for performance of the sales contract. In this case the promissory contract should always contain a specific clause of execution (execução específica). Without this clause the vendee cannot take legal proceedings against the vendor, he can only retain the down payment. Therefore, in order to have the choice between performance or the down payment, it is important to include an execution clause.