Explanation of the process of completing sales of properties in Portugal

Portugal is one of the most exclusive vacation, retirement and leisure destinations in Europe. Buying a property here is easy as long as you know the correct procedure. Below is information on the contractual and legal steps taken to purchase a property, from price agreement to completion and the costs involved.

PRE CONTRACT

Once your Portuguese estate agent has successfully negotiated a deal on your chosen property, a professional company will send you a letter of intent detailing the details of the sale. This will include the price, the exchange date and the end of the contract. You must also indicate what is included in the sale (furniture and fixtures, golf membership, etc.) and any other conditions. The letter of intent is passed to the legal representative of the buyer as a reference to the terms of the sale agreed to by both parties.

CONTRACT EXCHANGE

Both parties must be represented by a local lawyer in Portugal and it is the buyer’s lawyer who will prepare the Promise Contract (Contrato Promessa de Compra e Venda). Before writing this, your legal representative will carry out all the necessary legal registrations on the property. Finally, the attorney will ensure that there are no outstanding charges against the property for utility and maintenance costs, such as infrastructure charges, property taxes, and condominium fees. His lawyer is now ready to finalize the Promise Contract, which is a legally binding contract and will be signed by both parties in the presence of a Notary in the Algarve.

A 10% non-refundable deposit must be transferred to your attorney’s clients account in time for the signing of this contract to take place. The Promise Contract will confirm who the buyers and sellers are, details of the property in the Algarve, including clear title deed, completion date, payment schedule, and if applicable, an inventory list will also be attached. It will also include standard penalty clauses in the event that either party breaches the contract. According to Portuguese law, if the seller does not fulfill the contract, he is obliged to return double the deposit to the buyer. If the buyer does not comply with the contract, the buyer’s deposit is non-refundable.

COMPLETE

There is usually a period of time between the signing of the Promise Agreement and the signing of the deeds. This will vary from purchase to purchase and depends on the agreed terms. At this stage, as a buyer, you will need a Portuguese tax number. Your tax representative should apply for one and your Algarve lawyer can help and advise you on this matter.

The Escritura is the official deed of transfer from the seller to you, the new owner. It is a document, which is signed by you or your lawyer (if you have chosen to grant them a Power of Attorney) at the Notary Public and remains in the hands of the Notary. The Notary publicly reads all the details of the deed before everyone signs it. If you do not speak Portuguese, your lawyer will verify that you understand exactly what happens at each stage. Once signed, the Deed grants you official ownership, but the property must still be registered in your name with the Land Registry (Registro Predial). Buyers should request a copy of this record for their records, this is done by their attorney. And finally, upon completion, your attorney will also change the former owners’ utility contracts into your name.

LEGAL EXPENSES

Attorneys’ fees range from 1-2% of the purchase price. There are also additional legal expenses to the transfer of ownership in the land registry and tax department related to buying a property in the Algarve, Portugal. These include notary, stamp and registry fees and will amount to around 1%; They must be paid by the buyer when signing the deeds.

IMT (SISA FORM)

This is the Portuguese Property Acquisition Tax and must be paid by the buyer prior to completion. The amount to pay varies according to the price of the property. If it is for a room, the cost is calculated on a sliding scale up to 6%. If it is a plot to build, the applicable IMT is always 6.5% of the price without any variation. Your lawyer will always inform you of these costs.

PROPERTIES OWNED BY OFF SHORE COMPANIES

Luxury properties in Portugal are usually owned by foreign companies (such as Malta or Delaware) and buyers will acquire the shares of said company. Although the transaction is taking place under the jurisdiction of the business domicile, both parties still require a local attorney to conduct searches at the property in the usual manner. The lawyer will prepare a Stock Purchase Agreement and a 10% deposit will be paid to the seller’s lawyer and a completion date will be agreed.

Depending on the location of the business, some Portuguese taxes, such as IMT, may or may not apply. It is important to check the jurisdiction in which the company is incorporated, as Portugal has compiled a list of 83 jurisdictions that the Portuguese government considers “tax havens”, to which higher annual tax rates apply. Again your lawyer in the Algarve can help you decide which is the best option for you.

NON-RESIDENT MORTGAGES

Mortgages in Portugal are available up to 80% loan to value (LTV) with some banks, with most at 75% LTV. Interest rates will vary between 0.35% on Euribor and 2.5% on Euribor. The mortgage payment periods will vary between 15 and 40 years, depending on the bank and the age of the client. The normal maximum age is 75, but one or two banks will lend up to 80 years.

Some Portuguese banks will allow interest-only periods of 3-5 years, some offer only principal and interest payments, and a smaller number of banks will offer longer interest-only payment periods. Financing is also available to build or renovate a property and three banks currently offer mortgage financing for companies in the UK, Delaware or Malta to buy a property, or for the client to buy a company that already owns a property. The interest rates are higher for this type of mortgage, normally between 2% and 2.5% above the Euribor with a maximum loan to value of 75%.

Banks charge management fees, normally up to €1,000 and if it is a business loan, there are additional bank legal fees. Banks charge commissions for early repayment, normally 0.5% of the amount returned, but this may vary if it is a business loan.

The Portuguese, particularly at the higher end of the market, have for many years considered the option of buying property through a lease-purchase scheme provided by major banks. It’s more like a car lease: during the term the property belongs to the bank, and at the end of the term, for a payment in grain, it becomes the property of the client. During the term the property is not part of the client’s assets, the benefit is that the property is not part of the client’s tax obligations. It is also not a mortgage and therefore is not part of the customer’s affordability calculations for any other loan.

The leasing company (the bank) pays the IMT with the cost integrated into the customer’s monthly lease payments. Upon sale of the property, the lease may be offered to the new buyer, subject to condition and valuation. The equity in the property and the proceeds still belong to the client and, subject to a minimum payment, the property can be sold. Leases are available up to 80% LTV for terms of up to 30 years. This is an interesting alternative to company ownership.