The purchase of property under construction is a type of acquisition that presents advantages from a commercial point of view but to which some risks are also associated. In this article we will address the advantages and risks of this type of deal, as well as the legal form and formalities that should be observed when signing a promissory agreement of sale of a future property.

Buying properties that are under construction or in the planning stage is increasingly common in today's property market. This phenomenon is largely due to the shortage of supply of new homes, which in turn puts additional pressure on the high demand for these properties. It is therefore understandable why there is an increasing willingness on the part of traditional buyers/investors to take part in these operations, which have a greater associated risk.

The advantages for the developer selling the future properties are obvious: by placing the property on the market at an early stage of construction and receiving a significant part of the final price in advance, the developer will have access to capital that can be used to finance the works. It should also be pointed out that selling a property during under construction also implies a reduction of the risk in placing the property on the market on the part of the developer, avoiding that he gets all his capital "tied up" in the works between the date of conclusion of the works and the date of purchase of the property by the buyer.

For the purchaser, this type of deal also presents some advantages, namely: the risk associated with these operations makes the price of these properties lower compared to the purchase of properties whose works are already concluded. The fact that the payment of the price is phased may also represent an advantage for the purchaser, who is sometimes also offered the possibility to take some decisions within the scope of the construction of the property, being able to customize it (for example, by having a say in the choice of certain materials and finishes, colors to be used, brands of built-in appliances, etc.). Finally, as time passes and the various phases of the construction works are completed, the risk associated with this type of deal gradually decreases, which, together with the tendency for the property market to rise, means that the contractual position itself can be considered an asset.

However, there is greater risk associated with a promissory contract of sale of a future real estate property when compared with the "traditional" real estate promissory contracts, which is the fact that there is no real estate property underlying this transaction to guarantee the payments made by the promissory buyer. Contrary to what happens in other legal systems in which attempts are made to mitigate this risk by having insurance contracts in place that guarantee the payments made by the promissory purchaser, in Portugal it is not mandatory or customary to resort to these mechanisms.

The promissory contract of sale of future property in the Portuguese legal system

The law expressly predicts the exitance of promissory agreements for the onerous transfer or constitution of a property rights over a building or autonomous unit (such as the right of ownership). The law expressly provides that in this type of contract the future property may be:

1. Already built

2. Under construction; or

3. Yet to be built.

The document that serves as support to the promise will only be valid if it appears in (1) a document signed by both parties (in the case of a bilateral promise, as in the case of a unilateral promise the signature of the promissory seller will be sufficient), being required the (2) personal recognition of the signatures and the (3) certification, by the entity that performs that recognition, of the existence of the respective license of use or construction license.

If the above-mentioned formalities are not complied with, the law determines that the party that intends to transfer or constitute the right (typically the developer) may only invoke the omission of these requirements when it has been culpably caused by the other party (purchaser). This provision aims, in the words of the Supreme Court of Justice, to defend the interest of the promissory purchaser, who sometimes, for being less advised in legal matters, may feel frustrated concerning the business he has made in good faith.

Finally, the Supreme Court of Justice's interpretation of the legal provisions regarding this type of contract has resulted in greater protection for the promissory purchaser insofar as this court determined in its decision on the standardization of jurisprudence that, besides the fact that only the promissory purchaser has the right to invoke the imperfection of the transaction due to the lack of the respective legal formalities in the due instrument - unless the promissory purchaser has directly contributed towards this - the omission of the formalities provided for may not be invoked by third parties or recognized by the court by its own initiative.

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.