Pre-sale contract: how to avoid headaches and protect your rights when buying a new home in Portugal

Here's how a prepurchase agreement can help ensure the purchase or sale of a home in Portugal / SHTTEFAN/Unsplash
Here's how a prepurchase agreement can help ensure the purchase or sale of a home in Portugal / SHTTEFAN/Unsplash
4 September 2019, Redaction

Buying a new house is as special and exciting as it is complex and frustrating. To make sure everything goes well, there’s nothing better than being properly informed. It’s very important that you have a clear notion of several concepts linked to the process of buying a house in Portugal and one of them has to do with the so-called Pre-sale agreement, known in Portuguese as the Contrato de Promessa de Compra e Venda or CPCV. This is an extremely useful tool for those who sell property in Portugal, and also the weapon that best protects property buyers. Here we look at what the CPCV is, what advantages and disadvantages it has and how it affects real estate transactions in Portugal.

From the moment you first visit the property until the completion of the public deed, a fair amount of time elapses and things can unexpectedly get in the way of you buying the home of your choice. So, and in addition to stopping possible competitors from purchasing your dream home, a CPCV helps you to legally ensure yourself in relation to other possible contingencies, delays or breaches of contract.

Frequently used in Portugal, the drafting of this contract is not mandatory by law. Even so, as Doutor Finanças explains today for idealista/news, it can be very important and useful to make one when purchasing property or land.

And why is that? For several reasons, namely because it is a written document with a legal value (article 410 no. 1 of the Civil Code), drawn up and signed between the person who promises to sell the property (the promising owner) and the person who promises to buy the same property (the promising buyer).

In this way, and so that you know how to defend your rights and interests and how to make the process of buying your home run smoothly, the best thing is to be well informed.

What a pre-sale and purchase contract should include

The CPVC should comply with certain rules and should contain some key elements and information, including:

  • Identifying who is selling and who intends to buy, with their full names, addresses, marital status, ID card numbers and Portuguese tax identification numbers (número de identificação fiscal or NIF);
  • Identification and characteristics of the property, like the address, type of property, property description, matrix inscription, and other features it may have such as a swimming pool, garage or storage space;
  • Habitability or construction license (licença de habitação ou de construção), or proof that it was requested from the City Council;
  • Sale price of the property and means of payment;
  • Value of the deposit given by the promising buyer, as well as the date of payment. This deposit is usually 10% to 20% of the sale value of the property, paid as an initial guarantee of compliance with the contract and as evidence of the seriousness and real intention of the buyer to go through with the purchase. This amount is delivered at the same time as the CPCV is made;
  • Indication that the property has no encumbrances or charges at the time of signing the CPCV;
  • Expected date for the signing of the public deed and respective consequences or sanctions, possibly to be applied, if it is not carried out by that date;
  • Assurance that the property is in a habitable condition, with all that this implies: internal networks and installation of water, electricity, sewage and gas facilities in normal working condition.

What things could come up to stop a CPCV from taking effect?

The CPCV, although not mandatory, has some specificities which you should be aware of and informed about before signing it, especially because there are external factors which may influence its outcome and its formalisation – the so-called contingencies – that you should know about and know how to protect yourself from, if the public deed of purchase and sale is not carried out. It is therefore important to know that:

  • When the buyer doesn’t have enough money for the purchase and needs to get a mortgage, the approval of this credit is a factor that can interfere negatively in the purchase of the property. You should ensure in advance that the bank is willing to lend you the amount you need. Alternatively, you should include a clause in the CPCV, which cancels the contract if you end up not getting the mortgage and so you won’t have to give up the deposit.
  • Another important aspect which is external to the prospective buyer is the valuation of the property – if the valuation is more than the money you’ve got available to purchase the property, you should be cautious and try to create a clause in the pre-purchase agreement to mitigate this drawback.
  • If you want to acquire a house that is still under construction, and if the builder or owner does not comply with the agreement due to the work not being completed, for example, in this case the promising buyer can legally demand that twice the value of their deposit be refunded. This law also holds if the owner ends up not selling the property for any other reason.
  • Another important aspect that should be considered as an impediment is the change of property owner. For this purpose, the law provides for two forms:
    1. The so-called ‘Real Effectiveness’, a law that allows the CPCV to be given increased effectiveness, not only for the two parties to the contract but also any third parties involved. With the signatures of these third parties included in the pre-purchase and sale contract, the promising purchaser acquires the right in rem to buyer the property in question, regardless of who the owner is at the time. This must be registered and included in the public deed.
    2. Another example is the fact that the execution of the deed of sale may be compromised by the death of the seller, the refusal of the seller to sign the deed or some other reason. For cases such as this, the law provides for a compulsory award action which allows the replacement of the seller's signature by judicial authorisation in the deed of purchase and sale, thus enabling the buyer to complete the deal.
  • Another external factor to take into account is the fact that a housing permit may not be granted. If you are unable to obtain this document from the municipal council, you will not be able to apply for a mortgage loan or complete the final deed of purchase and sale. Only after a successful inspection, carried out by the municipality, of four key areas (sanitation, water, gas and electricity), can this license be granted for the property.

These are some of the most important external contingent factors to consider when making a preliminary sale contract before the final public deed of ownership.

In short, buying a house is a very important financial decision in people's lives and so protecting yourself as a consumer/buyer is fundamental. For this reason, even if it’s not mandatory, it’s always a good idea to draw up a CPCV pre-sale agreement to clear up any potential issues that may arise when you want to buy a home in Portugal.

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