IAG Real Property Group: Questionnaire
PORTUGAL
Q1. What type of ownership can I have? (e.g. of land and buildings, apartments. Whether the land and
buildings on the land have to be owned by the same party. Is title freehold or leasehold?)
The definition of property includes: (i) rural property, i.e. a portion of land and its dependent
buildings; (ii) urban property, i.e. a building with its surrounding/adjacent area or a plot with a
permit for construction, and (iii) certain rights over, or interests in, the above mentioned
properties, namely:

Ownership: the right to the full use and enjoyment of the property and its profits, and the
right to encumber the same;

Co-ownership: ownership held by two or more owners;

Surface rights: the right to own a building or the cultivated area on the land of another;
and

Horizontal Ownership: Ownership of self-contained units in a building, whether residential
apartments or commercial premises, and proportional co-ownership of the common parts of
the building (condominium).
Portuguese law follows a system of civil law as far as possession and property are concerned
and, therefore, terms such as “freehold estates” or “leasehold estates” are not used. Title to
land confers absolute ownership with only the limitations specified by law. Possession may
lead to ownership in certain circumstances (usucapio). Tenancy is not a real property right but
only an obligation created by contract.
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Land and buildings can have separate ownership. In the case of the surface rights one party
can be the owner of everything built above the surface and the other can retain title to the land.
Q2. What structures are commonly used to buy or invest in real property? (e.g. property companies,
partnerships, real estate property companies, private individuals)
The most common structures used to buy or invest in property are:
(a) Real estate investment companies, which may be incorporated as one of the following
types:
(i)
Real estate holding funds and respective management companies;
(ii) Real estate mediation companies;
(iii) Real estate management and holding companies (“SGII - Sociedades de Gestão
e Investimento Imobiliário”); or
(iv) Companies having as their object the purchase of real property for resale.
(b) Private individuals, mostly in cases of non-commercial property.
Q3. How can I finance the purchase? (i.e. What are the most common forms of security granted over
real property to raise finance?)

Through bank loans. As security for the loans banks take a charge (mortgage) over the
property, in addition to other personal guarantees. In case of default by the mortgagor (e.g.
outstanding loan payments), the mortgagee will be entitled to (i) exercise its right of sale and
(ii) apply the proceeds of sale for payment of the capital and interest due under the
mortgage. It may also enforce the personal guarantees given by the borrower or third
parties.

The mortgage is a right in rem and will still be effective even if the mortgagor is no longer
the proprietor of the real property, but only a mortgage registered with the Land Registry can
be enforced (even between mortgagee and mortgagor).
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Q4. Are there any restrictions on foreign ownership or occupation of real property or on foreign
guarantees or security?

There are no restrictions to the acquisition of land by foreign individuals or companies.
However, properties purchased by offshore companies are subject to special taxes at
increased rates (see Q6. below).
Q5. What costs are normally paid by the buyer and by the seller?
(a) Buyer’s costs:

Fee for notarization:
(i) of public form instruments: € 175
(ii) of private form instruments: € 100
(iii) by lawyer: subject to market rules

Stamp Duty for notarization: € 25 (applicable to all the cases referred above)

Land Registry fees:
(i) acquisition: € 250
(ii) acquisition and mortgage: € 500
(b) Seller's costs:

Broker’s fee: normally between 3% to 5% (plus VAT).

Cost of removal of encumbrances on the Land Register which are not to be taken over by
the buyer: Rates vary depending on the nature of the entries, but not more than € 100.
Q6. What taxes are payable on the sale and purchase of real property and by whom? What are the
rates? (e.g. VAT, stamp duty, transfer tax, real estate tax?)

The buyer of real property is liable for the payment of the following taxes:
(i)
Property Transfer Tax (“IMT - Imposto Municipal sobre as Transmissões Onerosas de
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Imóveis”) at a variable rate of between 2% and 8% of the purchase price, except when
the purchaser is an offshore company, where the applicable rate is always 8% of the
price; and
(ii) Stamp Duty (“IS – Imposto de Selo”) at a fixed rate of 0.8% of the purchase price.

Ownership of land is taxed each year under the (Municipal) Property Tax (“IMI - Imposto
Municipal sobre Imóveis”) at a fixed rate of between 0.2% and 0.8% of the value of the real
property for tax purposes (to be set by the municipality), except when the holder is an
offshore company, in which case the applicable rate is always 5% of the value. In some
cases, the taxpayer benefits from an initial exemption period of between 4 and 8 years (e.g.
if the property is his/her dwelling-place). This exemption period does not apply to offshore
companies.
Q7. What are the main stages and documents in the sale and purchase of real property? (e.g. Are
there pre contractual negotiations, heads of agreement, non binding letters of intent, term sheets,
memorandum of understanding, sale contract completion/transfer? Answer in short bullet points)

Local search (comprising of enquiries and gathering of information from the competent Land
Registry Office and Municipality, in order to ascertain possible liens or encumbrances and
the issuance of permits and/or required licenses);

Negotiation of the purchase agreement;

Execution of a promissory purchase agreement (not compulsory).;

Setting a date for the purchase deed;

Payment of the Property Transfer Tax and Stamp Duty;

Execution of the purchase and sale deed (and payment of the respective fee and Stamp
Duty). Payment of the purchase price;

Registration of the purchase with the Land Registry (and payment of respective fee):
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In order to register the title, the buyer must file an application (Form “Mod 1”) with
the land Registry and attach the following documents:
(i) The Purchase Agreement; and
(ii) Certificate of the entries in the registry of properties at the Portuguese tax
authorities.
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Q8. When are the parties legally bound?

The parties will be legally bound as soon as they enter into the promissory purchase
agreement referred to above.

If one of the parties fails to perform the agreement (e.g. the seller refuses to transfer the
property on the completion date), the other party will be able to obtain a court order to
complete the transaction (i.e. an order of specific performance), except where an advanced
payment was made to the seller. In that case either the buyer can claim from the defaulting
seller a sum which is twice the amount of the advance payment or the seller can retain the
advance payment made by the defaulting buyer.

Where the parties did not execute a promissory purchase agreement, they are legally bound
on signature of the purchase and sale deed.
Q9. When is title to the property transferred? What are the formal legal requirements? (e.g. in
writing and signed by the parties? Notarised?

The transfer of ownership takes place with the execution of the purchase and sale deed and
is not dependent upon the registration of such purchase on the Land Register (although
Portugal has a system of compulsory registration and only the title of the registered
proprietor is binding against any bona fide third parties).

Purchase and sale agreements can be executed by notarial deed or by private deed
(notarised or executed before an attorney registered with the Portuguese Bar).
Q10. Does the seller have any statutory or other liability to the buyer after the sale of the property?

The seller is liable if the property is encumbered or defective and such defects or
encumbrances have not been disclosed to the buyer in good faith.
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
Special protection is given to private individuals in respect of any purchase agreements
involving professional sellers. In these cases, the seller is bound by law to a 5-year
warranty. If the building reveals any defects during this period, the seller will be liable for the
damage caused to the buyer and, depending on the circumstances, the buyer will have the
right to demand: (i) reparation of the defects, (ii) rebuilding, (iii) an adequate price reduction
or (iv) termination of the contract.
Prepared by:
Alves Pereira, Teixeira de Sousa & Associados, R.L.
Avenida da Liberdade, 38.º - 3.º
1250-145 Lisboa
E-mail: info@alvespereira.com
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