Buying off-plan houses, or houses that have not begun construction yet, is a form of property acquisition that is in fashion in Portugal. With used house prices soaring and the lack of supply of new houses for sale that are ready to live in, within a context of new space needs, low interest rates and greater savings, this modality has been attracting more and more investors in Portugal. But if it presents advantages from a commercial point of view, it also has some associated risks. To help ensure that everything goes well in this type of business, for both parties, we will explain with the help of legal experts some of the issues and legal clauses that should be taken into account when concluding a promissory contract of sale for a future property.
"Since there is no legal regime in Portugal that specifically regulates the activity of real estate development and ensures the balance and security of the contracts entered into between the parties, it is up to the parties to enter into an agreement that protects the interests of those involved and is sufficiently detailed and specific in its regulation, in order to avoid the application of legal regimes by analogy and the need to resort to the general principles of the Portuguese legal system, with all the uncertainty and slowness that this entails", Belzuz Abogados* begins by clarifying in this article prepared for idealista/news.
With this in mind, we will now briefly address some of the procedures and issues that should be considered when negotiating a promissory contract of sale (CPPCV) of a future property.
Due diligence to the property and the project where you want to buy the off-plan house
As with any agreement to purchase a property, due to the large investment involved, it is always advisable to perform due diligence - a survey and analysis of all available information and data regarding the property and the project - prior to entering into and signing any document.
In this way, the promissory buyer will be able to carry out a proper assessment of the future property they intend to acquire, of the counterparty (contractor/developer), and of the risks of a project whose completion, in some cases, may take years to be concluded.
Predictions and necessary conditions to schedule the deed date of the house purchase
One of the issues that should be included in the promissory contract is the deadline for the execution of the definitive purchase contract and the conditions to be met for it to be concluded. Usually, some of the contractual conditions are
- Subjection of the property to the horizontal property regime (when the property to be transacted is an autonomous fraction);
- Definitive registration of the property as being subject to the regime of horizontal property in the Conservatory for Land Registry and in the urban land registry
- Issuance of the usage permit;
- Deposit, with the Municipal Council, of a copy of the habitation technical file;
- Authorisation from the banking entity for the cancellation of the mortgage registration, in cases where the promoter resorts to bank financing;
- Evidence of the inexistence or renunciation of the legal preference right, if it exists.
It should also be noted that when foreseeing a deadline for the signing of the final contract, the date of validity of the construction license must be taken into account.
Alterations to the initial project
The developer may, during the construction phase, be obliged to make adjustments to the initial project which is the subject of the promissory contract (e.g. due to the impositions of the licensing entities, need for compatibility between the architectural execution projects and the specialties, adjustments required by technical or legal needs, etc.).
The contract must provide that such changes do not constitute grounds for any modification or termination of the promissory contract, there being, however, the obligation to communicate to the buyer the changes that will be made.
Finally, it may occur that the alterations made result in a reduction of the area of the property, which, if significant, will result in a significant loss to the promissory purchaser. In these cases it is usual to provide that after a certain reduction of the total area, the promissory purchaser may rescind the contract and be reimbursed for the amounts delivered or, alternatively, request a proportional reduction of the price.
Staged payment and upon compliance with certain objectives
As stated above, the execution of the project may take years and is usually divided into several phases, so it is in the interest of both parties that the payment of the price of the property is paid in phases during the execution of the project.
The moments in which the payments are to be made must be expressly set out in the contract (e.g. six months after the date of the promissory contract of sale of future property, the promissory purchaser must deliver to the promissory seller the amount of X), and payments may be conditioned to the achievement of certain objectives in the construction of the property, such as, for instance, the conclusion of excavations, the start of foundations or the conclusion of the concrete structure.
Finally, there are several other issues, namely penalties, the form of communication between the parties, the regulation of expenses and charges, etc... that should be expressly regulated within the scope of the execution of a future real estate purchase and sale contract, for which reason it is advisable that both parties be duly advised when negotiating and drafting this type of contract.
*Ricardo Pires Jordão, Real Estate Department of Belzuz Abogados S.L.P. - Portuguese Branch