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When it comes to buying real estate in Portugal, making sure you fully grasp the property sales contract is essential.
Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.
We've heard countless stories of people making costly mistakes when signing their property agreement in Portugal. We want to help you avoid the same experience.
We'll give here a very brief overview regarding the property sales contract in Portugal ; if you want a full checklist, please check our property pack for Portugal.
What is the Contrato de Promessa de Compra e Venda in Portugal?
In Portugal, the property purchase agreement is known as the "Contrato de Promessa de Compra e Venda" (CPCV).
This agreement plays a crucial role in real estate transactions. Essentially, it's a formal agreement between the buyer and seller outlining the conditions of the property sale.
The CPCV is legally binding. Once both parties sign it, they are committed to the terms outlined in the agreement. This includes the final price, payment conditions, and any other relevant details.
It acts as a guarantee for both the buyer and the seller, ensuring that both parties adhere to their commitments.
For international buyers or non-residents, the process is largely the same, but there are additional considerations. You might need to obtain a Portuguese tax number (NIF) and be aware of potential tax implications in your home country.
The CPCV is usually signed after both parties agree on the sale terms but before the final deed is executed.
It's at this stage that a deposit is typically made. The deposit is usually between 10% to 30% of the property's purchase price.
If you, as the buyer, back out of the deal, you'll lose this deposit. If the seller backs out, they are usually required to pay you double the deposit amount as compensation.
Compared to other countries, the process in Portugal is somewhat similar, but the specific legal requirements, such as the need for a NIF for international buyers, and the double deposit penalty for sellers backing out, might be unique.
Additionally, the legal framework and property registration processes can differ, making it important to understand local regulations and procedures.
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What should be included in the property purchase agreement in Portugal?
In Portugal, the property purchase agreement, or "Contrato de Promessa de Compra e Venda" (CPCV), is governed by the Portuguese Civil Code (Código Civil Português).
This agreement is fundamental in real estate transactions and has specific requirements to ensure its validity and enforceability.
The CPCV must contain certain key elements:
| Key Element | Description |
|---|---|
Identification of the parties involved |
Both the buyer and the seller must be clearly identified with their full names, marital status, tax identification numbers, and residential addresses |
Description of the property |
This includes the property's exact location, registration details, and a description of its current state |
Purchase price |
The agreed upon price for the property must be clearly stated |
Payment terms |
This includes the amount of the deposit (usually between 10% to 30% of the purchase price), payment schedule, and method of payment |
Completion date |
The agreement should specify the date by which the final deed (Escritura Pública de Compra e Venda) is to be executed |
Penalties |
Conditions under which penalties apply, such as if either party fails to uphold their end of the agreement |
In addition to these mandatory clauses, there can be several additional clauses tailored to the specific transaction:
- Conditions of the sale, like repairs or renovations to be completed by the seller.
- Any relevant property documentation, such as energy efficiency certificates or housing licenses.
- Clauses related to the property's current use or tenancy agreements, if applicable.
Contingencies are common in these agreements. For example, the sale might be contingent on the buyer obtaining financing or the property passing certain inspections.
Regarding authentication, the CPCV doesn’t necessarily need to be notarized, but it's highly recommended to have legal assistance. A notary is crucial at the final stage of the transaction for the execution of the final deed.
Real estate agents in Portugal do play a role in the process. They often assist in drafting the CPCV and can provide valuable advice regarding the market and legal requirements.
However, their involvement doesn't replace the need for legal counsel, especially for more complex transactions or for international buyers unfamiliar with Portuguese law.
What's the signing process like?
In Portugal, the process of signing a property purchase agreement, known as the "Contrato de Promessa de Compra e Venda" (CPCV), is a key step in a real estate transaction.
Here's a detailed breakdown of how it works:
- The CPCV is a bilateral agreement, meaning it requires signatures from both the buyer and the seller.
- Either party can consist of multiple people. For example, a married couple can be buyers, or several individuals can jointly sell a property. Each person involved must sign the agreement.
Here are the required documents and information:
- Both parties need to provide personal identification, usually a passport or ID card.
- In Portugal, this is known as the NIF (Número de Identificação Fiscal).
- This includes the property's legal description, registration details, and proof of ownership.
- Details regarding the agreed purchase price and payment terms.
Here is the signing process and timeline:
- The signing process begins once all terms are agreed upon. There's no fixed deadline for signing; it depends on the agreement between the buyer and seller.
- Before signing, both parties should ensure all necessary documents and information are in order.
- The CPCV can be signed in person or remotely. Remote signing usually involves legal representatives or the use of digital platforms that comply with Portuguese legal standards.
- After signing, the CPCV is valid for the period agreed upon by both parties, often until the date of the final deed's execution.
Here are the registration with local authorities:
- The CPCV itself is not typically registered with local authorities. However, the final deed of sale (Escritura) will be, following the completion of the sale.
- The registration of the deed is crucial as it legally transfers ownership and is recorded in the Land Registry (Conservatória do Registo Predial).
Here are the amendments and timeframe:
- Any amendments to the CPCV after signing require agreement from both parties. These amendments must be made in writing and signed by both parties.
- The typical timeframe for completing all necessary paperwork and approvals after signing the CPCV varies. It largely depends on the specifics of the transaction, such as obtaining financing, completing property inspections, or addressing any legal issues that arise.
- The final step, signing the deed of sale and registering it, is usually done within a few months after signing the CPCV.
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How is the payment handled when signing a property purchase contract in Portugal?
In Portugal, understanding the financial aspects of a property purchase agreement, or "Contrato de Promessa de Compra e Venda" (CPCV), is crucial.
Here are down payment and fees:
- When you sign the CPCV, you typically need to pay a down payment, known as a "sinal."
- The typical down payment is around 10% to 30% of the property's purchase price. However, this can be negotiated with the seller.
- Apart from the down payment, there might be upfront fees for legal services if you're using a lawyer or a real estate agent.
The payment is usually made directly to the seller, but in some cases, it may be held in an escrow account, particularly if you're working with a real estate agency or a legal representative.
The payment is due according to the terms agreed upon in the CPCV, typically at the time of signing or shortly thereafter.
Here are the tax implications and property transfer taxes:
- When purchasing property in Portugal, you're subject to property transfer taxes (IMT - Imposto Municipal sobre Transmissões Onerosas de Imóveis) and stamp duty (Imposto de Selo). However, these are typically paid at the time of the final sale, not at the CPCV stage.
- The seller might have capital gains tax implications, especially if the property is not their primary residence.
Here is the negotiating down payment and refundability:
- You can negotiate the down payment amount with the seller. This flexibility is one reason why having a lawyer or a real estate agent can be beneficial.
- If the sale falls through, the fate of the down payment depends on the conditions set out in the CPCV. If you, as the buyer, default on the contract, you may lose the down payment. If the seller defaults, they might be required to refund the down payment, sometimes double the amount, depending on the terms of the CPCV.
Generally, the down payment is expected to come from your personal funds. While it’s possible to use funds from a mortgage loan, this depends on the terms of your financing and timing.
You would need to have the mortgage loan set up and accessible before the signing of the CPCV.
Attorneys or real estate agents can guide you through the payment process, ensuring compliance with legal requirements and the terms of the agreement.
They can also assist in setting up an escrow account for the down payment, if this is the chosen method.
It is standard practice, and you should always request a receipt or confirmation when you make the down payment. This serves as proof of payment and can be critical if any disputes arise.
As a buyer, apart from the potential property transfer taxes and stamp duty at the time of final sale, the CPCV doesn’t typically have direct tax implications.
For the seller, the main tax consideration is related to capital gains, which would be addressed in the final sale process.
What are the potentials risks and pitfalls?
You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in Portugal.
In Portugal, navigating the risks and pitfalls of a property purchase agreement, or "Contrato de Promessa de Compra e Venda" (CPCV), is important for both buyers and sellers.
Here is the withdrawal and cooling-off period:
- Either party can withdraw from the agreement, but the consequences depend on the terms outlined in the CPCV.
- Portugal does not typically have a statutory cooling-off period for property transactions once the CPCV is signed. The terms of withdrawal and any associated penalties should be explicitly stated in the agreement.
- Withdrawal doesn't always require a 'valid' motive; however, financial repercussions often apply.
If a buyer backs out due to an inability to secure financing, they typically lose their down payment unless there was a financing contingency clause in the CPCV that protects them in this scenario.
Here are the failure to fulfill obligations:
- If one party fails to meet their obligations, penalties depend on the contract's terms.
- For a buyer, this usually means losing their down payment.
- For a seller, they might have to pay the buyer double the down payment amount as compensation.
The CPCV should outline what happens with the money if the agreement falls through. Usually, the down payment is at risk.
In other countries, the process might include a cooling-off period, different penalty structures, or more protective measures for buyers regarding financing.
In some jurisdictions, the involvement of escrow accounts or more stringent disclosure requirements from the seller may differ.
Risks include undisclosed property defects, legal issues with property title, or zoning problems. It’s crucial to have thorough property inspections and legal checks. Misunderstandings or disagreements over contract terms can also pose risks.
Disputes during the CPCV phase aren’t uncommon. They often revolve around property defects discovered later or failure to comply with agreed terms.
Disputes are usually resolved through negotiation, mediation, or, as a last resort, legal action. It’s beneficial to have legal representation to navigate these issues.
Discovering defects after signing can be problematic. If the defects were known to the seller but not disclosed, you might have legal recourse.
However, this depends on the specifics of the agreement and the nature of the defects.
Here are the dispute resolution process:
- Initially, disputes are often resolved through direct negotiation between the parties.
- If unresolved, mediation or legal arbitration can be the next steps.
- For serious disagreements, court action might be necessary, especially if there’s a significant financial impact or breach of legal obligations.
- Buying a property as a foreigner in Portugal
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.