The buying of new housing projects is a popular form of property acquisition in Portugal. With rising prices for existing properties and a lack of new construction-ready housing, in a context of new requirements for space, low interest rates and increased levels of savings, this option is attracting an increasing number of investors in Portugal.
But while it has advantages from a commercial point of view, it also carries certain risks. To ensure that everything proceeds smoothly in this type of off-plan purchase for all parties involved, we will explain some of the legal issues and clauses to be taken into account when concluding a sale in the future state of completion contract (buying a property on plan or under construction).
As there is no legal regime in Portugal that specifically regulates the activity of real estate development in order to guarantee the balance and security of the contracts concluded between the parties, it is up to each party to conclude an agreement that protects their interests and that is sufficiently detailed and specific in its regulation, in order to avoid the application of legal regimes by analogy and the need to invoke the general principles of the Portuguese legal system, with all the uncertainty and slowness that this entails.
As such, we will now briefly outline some of the procedures and issues to be considered when negotiating this type of contract.
As with any property purchase, and given the amount of investment involved, it is always recommended that all available information and data about the property and the project be checked before any commitment is made and any documents signed.
This way, the future buyer can have a concrete idea of the property to be purchased, of the builder/promoter and evaluate the risks involved in the project, which in some cases can take years to be concluded.
One of the pieces of information that must be included in the sales agreement (Portuguese CPCV) is the deadline for signing the deed of sale and the conditions that must be met for it to be signed.
Usually, some of the most common contractual terms are:
The developer may, during the construction phase, be compelled to make adjustments to the project which is the subject of the sales agreement (e.g. to meet the need for compatibility between the initial project and adjustments required for technical or legal reasons, or changes imposed by the local administration to make it compatible with current standards).
The agreement should stipulate that such changes are not grounds for modification or termination of the agreement, but should include an obligation to inform the buyer of the changes that will be made.
Finally, it may happen that the changes made lead to a reduction in the surface area of the property, which, if significant, will result in a considerable loss for the future purchaser. In these cases, it is usual to provide that after a certain reduction in the total surface area, the purchaser may terminate the contract and be reimbursed for the amounts advanced or, alternatively, request a proportional reduction in the price.
The first payment for a new build property is the initial deposit. It is not mandatory but may be requested by the developer when the reservation agreement is signed. It is then used as a deposit to reserve the future home. The amount of the deposit is generally 5,000€ or 10,000€, but can vary depending on the property projects.
The project can take years to be completed and is usually divided into several phases, so it is in the interests of both parties that the payment of the price of the property is made up in instalments as the work progresses.
The schedule of payments should be clearly specified in the contract (e.g. six months after the date of signature of purchase agreement, the buyer must pay the seller X and X at the signing of the deed), and payments may be conditioned on the achievement of certain goals in the construction of the property, such as, for example, the start of the building foundations or the completion of the concrete structure.
Finally, there are several other issues, i.e. penalties, method of communication between the parties, management of expenses and charges, etc., which will have to be expressly regulated in the execution of on plan buying contracts.
It is therefore highly recommended that both parties be duly assisted in the negotiation and drafting of this type of contract.