THE BUYING PROCESS
The Letter of Intent and Appointing a Local Lawyer
Once you have found the property you would like to buy and your agent has successfully negotiated a deal on your behalf, a professional agent will prepare a ‘letter of intent’. This document clearly states the agreed price, exchange and completion dates, and what is to be included. At the same time, we recommend that you instruct a local lawyer to represent you in the purchase. Your signed letter of intent will be sent to your legal representative as a reference to the agreed terms.
Exchange of contract
Now that your lawyer has been instructed, they will begin all the necessary legal searches on the property. These include ensuring the seller has clear title to sell and that there are no outstanding charges on the property. Your lawyer will then prepare the Promissory Contract (Contrato Promessa de Compra e Venda) which is a legally binding contract between buyers and vendors and is normally signed by both parties in the presence of a notary/lawyer. The Promissory Contract will confirm who the buyers and vendors are, details of the property, schedule of payments, completion date and any special terms agreed by both parties. Upon signature, it is normal procedure for the buyer to pay the vendor a 10% deposit, usually via the lawyers’ clients’ accounts. Under Portuguese law, if the vendor does not fulfill his contractual obligations, they are liable to pay back the deposit in double to the purchaser. If the purchaser is in breach of contract, the deposit is non refundable.
The Final Deed (Escritura) is the official deed of transfer of ownership from the vendor to you. It will be signed on the agreed date at the notary’s office, either by you or by your lawyer if you have opted to give them power of attorney. At this time, the balance of the purchase price is paid and the notary subsequently records the transaction in the official record. Once the deed and all other associated transactions are completed, your lawyer will register you as the new owner in the Land Registry (Registo Predial). Buyers should request a copy of this registration for their files.
To purchase a property in Portugal you will require a Portuguese fiscal number. This fiscal number will be for you as a non-resident and therefore has no tax implications in Portugal. Your lawyer will normally advise and help to obtain one.
Exchange of contract
Many high-end properties are owned by a corporate structure. The property itself is an asset of the company and buyers purchase the company’s shares. These structures are usually domiciled in Malta or Delaware; however, there are several other white-listed jurisdictions around the world. If the property you choose is in one of these structures, your local lawyer will carry out the legal searches on the property as normal. In addition to that, they will carry out the due diligence on the corporate structure through a request to the management company that binds them in accordance to their regulations. These searches will clarify the fees, warranties, representations and legal procedures of the company. A Share Purchase Agreement will then be prepared and, upon signature by both parties, all the conditions of the transaction are secured and a usual 10% deposit will be paid to the vendor, via the lawyers’ clients’ accounts. This transaction takes place under the jurisdiction of the company’s domicile.
The process is simply completed by both parties fulfilling the terms described in the Share Purchase Agreement and the buyers transferring the balance of the purchase price to the vendors, again usually via the lawyers. Afterwards, the respective management company will transfer the share ownership from vendor to purchaser. This process is quick, simple and in English.
The Buying Costs
Legal expenses – Lawyers’ fees normally vary from 1% to 2% of the purchase price.
IMT – Property Purchase Tax
This is the Portuguese Property Transfer Tax which is payable by the purchaser prior to completion. The rate is variable and is based on a sliding scale according to the price of the property, up to 6%. Your lawyer will always advise you of these costs at an early stage. Stamp Duty, notary and registration fees are payable by the purchaser upon signature of the deeds at the public notary and at the Land Registry when the transfer of property ownership is registered. The stamp duty is a flat rate of 0.8% of the property price.
In the case of a share transfer process, the IMT, notary, stamp duty and registration fees are applicable.