Pre purchase and sales contract: the secret weapon that protects buyers and sellers

A sale and purchase agreement is a guarantee for both the buyer and seller of a hosue in Portugal / Gtres
A sale and purchase agreement is a guarantee for both the buyer and seller of a hosue in Portugal / Gtres
12 June 2019, Redaction

When you buy or sell a house in Portugal, it’s not obligatory to make a preliminary purchase agreement and it does cost you extra money, but you would be wrong to rule out signing one so quickly. Known in Portuguese as the contrato de promesa compra e venda or CPCV, a pre sale-purchase contract between the seller and the buyer is one of the first legal steps towards buying or selling property before signing the sale deed, and serves as your only guarantee until the definitive contract is signed. At the end of the day, a preliminary real estate contract can help you to avoid troubles and stop you spending money unnecessarily, so today we’re looking at everything there is to know about preliminary sale contracts in Portugal.

A pre sale agreement – for which you can find a template on this Portuguese-language website – is legally binding so as to guarantee the rights of the contracting parties, thus safeguarding the individuals involved in the sale up until the moment they sign the actual deed of sale of the property.

The CPVC must also be accompanied by a usage licence or building permit (Licença de Utilização ou de Construção). If not, proof must be provided that it has already been requested from the local authorities or, if this is not possible, a declaration must be attached to replace it.

When to make the sale agreement and deposit

The Portuguese financial advice website Doutor Finanças says that it is "opportune to make a CPCV when one intends to enter into a deal (thus ruling out other possible buyers), when the property does not have a usage licence, when the construction of the property is not yet completed or when the buyer is still awaiting approval from the bank if they need a mortgage to purchase the property."

It is very common for there to be a certain value involved in the promissory contract, which is the down payment, known as a "sinal" in Portuguese. It is an amount of money or another asset agreed between the parties that the buyer must pay to the seller. This deposit is a guarantee of compliance with the pre sale contract, and is also proof of the seriousness of both parties’ contractual intention.

The amount given as a deposit may vary, but is usually between 10% and 20% of the property price.

What happens if someone breaks the pre sale contract

Unfortunately, it is possible to lose money if either the buyer or the seller defaults on the CPCV.

If the seller does not fulfil their end of the preliminary sale-purchase agreement, they will have to refund the buyer double the value of the deposit they have made. On the other hand, if the breach of contract is on the buyer's side, the seller can keep the deposit.

"The aggrieved party can also appeal to a court to request that the terms of the contract are honoured, in order to obtain a sentence that allows its enforcement," explains Doutor Finanças.

To avoid losing money, you are advised to ensure in advance that the buyer has the potential to be approved for a mortgage. However, if both parties agree, it is possible to add a clause that cancels the contract if the mortgage is denied by the bank. This allows you to safeguard and recover the money from the deposit that the buyer pays to the seller.

What are the advantages of making a sale agreement?

A promissory contract has numerous advantages, both for the seller and the buyer. In addition to quickly formalising a binding document between the two parties, it also guarantees:

  • The conclusion of the purchase/sale of the house within the agreed timeframe;
  • Legal certainty in the event of delay or breach of contract;
  • The transaction if the property does not have a license to use it;
  • The purchase/sale when the property is still under construction;
  • The sale will go ahead even if the buyer does not have the necessary funds for the purchase;
  • The time while the buyer is waiting for the approval of financing by the bank.

Things to watch out for when making a pre sale contract

Even if it is not a mandatory contract, the CPCV is legally and contractually binding as soon as it is signed, just like any other contract. Therefore, even if it presents advantages for both parties involved, the following precautions must be taken before signing one:

  • Confirm in writing that the full identification of all parties to the contract, the identification of the object of the contract (in most cases, a real estate property), the housing permit, the deposit amount and the payment schedule;
  • Include the maximum period for the conclusion of the final contract (in which case some leeway can be given for potential delays);
  • Include a clause that exempts the buyer from liability to respond to charges on the property, such as liens or mortgages; 
  • Ensure that the mortgage is approved, if applicable;
  • If the condominium building where the property is located is in arrears, ask the seller in advance for the last minutes of the meeting of the homeowner’s association to check if there are any debts;
  • Check beforehand if the building has been subject to any renovation works recently or if you will need to do some soon.

To avoid unpleasant surprises, Doutor Finanças also recommends including a termination or cancellation clause in the contract, which should describe how to terminate the contract and in what period of time.

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