Selling a Property in Portugal
Dealing with the sale and purchase of a property in a foreign country can be frightening, especially when a strong language barrier exists, but once terms and procedures are explained, we will realise that, fortunately, things are not as complicated as they seemed.
A seller must make sure all municipal rates and taxes are in order, and that condominium maintenance and service fees have been settled and are up to date.
After finding a prospective buyer or accepting an offer on the sale of the property, the seller should make sure all utility bills (electricity, water, gas, telephone, internet provider, insurance) are fully paid up and in order. Outstanding or unpaid bills, especially the council rates and taxes, can result in the auctioning of the property by the government authorities. Some sellers choose to cancel the utility services after settling all accounts, others prefer to transfer the services directly into the name of the new owners (this is usually the case when both parties are legally represented by lawyers/solicitors) and thus avoiding the hassle of undergoing a new application process.
It is highly recommended that both sellers and buyers engage the services of a government-licensed Real Estate Agency. This enables you to be protected and insured against any irregularities or disputes that can arise during the transaction process. The government awards a license to an estate agency after ensuring a number of qualifications and certificates have been met and means government-approved forms must be used throughout their activity.
The use of a legal representative is recommended especially in cases where the seller does not live in the country. Essential acts such as drawing up the Promissory Contract of Purchase and Sale, verifying all paperwork concerning the property is in order, checking with the tax office to confirm no taxes are outstanding as well as booking the transfer deed with the notary office are all undertaken by the solicitor, relieving the buyer of future encumbrances.
Essentially three major acts take place when selling a property. One is signing the Promissory Contract the second is signing the Property Transfer Deed and the third is paying any Capital Gains Tax due.
- Promissory Contract of Purchase and Sale (Contrato Promessa de Compra e Venda) is a legally binding document where all the terms and conditions of the sale are set. It is drawn up by a solicitor/ lawyer and will be signed by all parties involved (sellers and buyers), either through their legal representatives by means of a Power of Attorney, or by themselves personally. The buyers will then pay to the seller or their legal representative, a deposit (Entrada) of between 10 and 30% (depending on what was previously agreed to by both parties). This contract serves to confirm the intention to buy and sell the property. Should the seller pull out of the deal, they are legally obliged to pay the seller the deposit in double. Should the buyer decide to pull out of the deal they will lose the deposit paid.
- Transfer Deed (Escritura Publica) is the final contract signed when selling or purchasing a property. It is usually the responsibility of the buyer (or their solicitor) to book a time and date, agreed by all involved, for the transfer deed to be signed. This is done in a public notary office and happens after both parties (or their legal representatives) have confirmed all the terms and conditions stated on the Promissory Contract have been met. By this stage all the necessary funds are available and ready to be paid out by the buyer to the seller and the sale can now be concluded. Should one of the parties present not speak the language, a translator should accompany them. At this time, the remainder of the amount due by the new owner is paid to the seller and all keys are handed over to the new owner. The new owner (or their legal representative) will then proceed to pay for the cost of the deed and respective taxes.
- Capital Gains Tax (Mais Valias) is due by the seller to the government provided the property was sold for a higher amount than originally purchased by the seller. The seller may be exempt from paying this tax if they reinvest the money within a certain amount of time and under certain conditions. The seller is strongly advised to seek a lawyer or a tax advisor regarding the capital gains tax as the calculations involve various factors and should only be made by qualified persons.
In accordance with the decreed law nº 78/2006 which was published on 4th April 2006, all property owners must have an energy certificate of the property ready and available to be presented at the time of the signing of the deed. This certificate is to measure how efficiently the property uses energy and without it the public deed (escritura) cannot be signed. Energy certificates are issued by certified companies and engineers and take approximately 5 days to be completed. The cost of the certificate depends on the type and size of the property, in most cases slightly over 200 euros for an average sized two bed apartment, and is the seller’s responsibility to apply and pay for it. It is valid for 10 years and at the time of the public deed is handed to the new owner. Sellers can ask their solicitor/lawyer to apply for the certificate and most of the estate agencies will also be more than happy to do so for their clients.?