segunda, 03 outubro 2022

The purchase of a property under construction in Portugal (Part 2)

VolverAs we explained in a previous article, when intending to buy a real estate property that is under construction or in the planning stage, there are always associated risks with such transaction, especially between the promissory agreement and the execution of the final deed of such real estate property.

Since there is no specific legal frame in Portugal which specifically regulates the real estate development activity that could ensure the agreement’s balance and security, it is always up to the parties, within the principles of private law, to draft an agreement aiming to protect the interests of the involved parties being required to draft an agreement sufficiently detailed and demandingly specific within its regulation.

In this article we will briefly address some of the main procedures and issues that should be considered by the purchaser, when negotiating a promissory agreement for the purchase of a property under construction.

Due Diligence on the property and on project

Due to the large investment involved, it is always advisable to perform a due diligence - a survey and analysis of all available information and data regarding the property and the project - prior to entering and signing any document. In this way, the promissory buyer will be able to make a proper assessment of the future property intended to be acquired, of the counterparty /developer and of the specific risks of a project in which the execution may take years to be completed.

Necessary conditions for the deed

One of the details that should be included in the promissory agreement is the deadline for the execution of the definitive purchase and sale agreement and the conditions that must be met for such agreement to be executed. Some of the preconditions that are usually established are the following:

• When the property to be transacted is an autonomous fraction, the property must be under the horizontal property regime, otherwise the target of the acquisition will be a part of a property that will be jointly owned by other entities, therefore subject to the connected risks of a common property regime;

• Definitive registration of the regime of horizontal property in the Conservatory for Land Registry and in the urban land registry;

• The property’s license of utilization must be already issued by the competent Municipality;

• The deposit of a copy of the housing technical file in the Municipality should have been already performed;

• Authorization from the creditors with registered liens over the property regarding their cancelation (for instance, authorization from a financial institution for the cancellation of a mortgage registration), in cases where the developer used facility agreements for financing the project;

• Proof of the inexistence or waiver of the legal right of preference of all the third parties with preemption rights, when applicable.

It should also be noted that when foreseeing a deadline for the signing of the final agreement, the date of validity of the construction license should also be taken into account.

Changes to the initial project

The developer may, during the construction phase, be required to make adjustments to the initial project which is the promissory agreement’s object (e.g. due to requirements of the competent authorities, the need for compatibility between the architectural execution projects and the specialties, adjustments required by technical or legal needs, etc.).

The agreement must stipulate that such changes do not constitute grounds for any modification or termination of the promissory agreement, although there must be stressed an obligation to inform the buyer of the changes that will be made. Usually, some price adjustment clauses are proposed, and such clauses must be carefully analyzed and drafted.

Finally, it may happen that such changes result in a reduction of the area of the property, or others, which may result in a significant loss to the promissory purchaser. In those cases it is usual to establish that after a certain reduction in the total area, the promissory buyer may have the right to terminate the agreement and be reimbursed for the amounts delivered or, alternatively, request a proportional reduction of the price (it can be establish that it can be alternatively chosen – at the sole discretion - by the promissory buyer).

Phased payment and upon the fulfillment of certain goals

As mentioned above, the execution of a 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 property price is paid in installments during the execution of the project.

The times at which the payments are to be made must be expressly stated in the agreement and wisely split between the projects’ duration (e.g. six months after the date of the preliminary sales agreement, the promissory purchaser must deliver to the promissory seller the amount of X), and payments may be conditioned to the fulfillment of certain goals in the construction of the property, such as, for example, the completion of excavations, the foundations must be completed or the completion of the concrete structure.

The Real Estate Department at Belzuz Abogados is fully available to provide clarification or advice on this matter.

Departamento de Direito Imobiliário | Portugal

 

Belzuz Abogados SLP

A presente Nota Informativa destina-se a ser distribuída entre Clientes e Colegas e a informaçăo nela contida é prestada de forma geral e abstracta, năo devendo servir de base para qualquer tomada de decisăo sem assistęncia profissional qualificada e dirigida ao caso concreto. O conteúdo desta Nota Informativa năo pode ser utilizada, ainda que parcialmente, para outros fins, nem difundida a terceiros sem a autorizaçăo prévia desta Sociedade. O objectivo desta advertęncia é evitar a incorrecta ou desleal utilizaçăo deste documento e da informaçăo, questőes e conclusőes nele contidas.

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