The preliminary purchase contract in Portugal: security and clarity when buying a property

Buying a house or flat in Portugal is an important decision that requires thorough preparation and planning. In Portugal, it is customary to conclude a preliminary purchase contract, the so-called "Contrato de Promessa de Compra e Venda" (CPCV), before the final purchase contract. In this blog post, we would like to discuss the reasons for using a preliminary purchase contract, outline its advantages and disadvantages and provide an insight into similar practices in other countries.
In addition, we clarify the most frequently asked questions in connection with the CPCV.

What is a so-called "preliminary purchase contract"?

A pre-sale contract is a legally binding document that sets out the terms of the future purchase contract for the property purchase. It is concluded between the buyer and the seller and serves as a security and guarantee for both parties before the final purchase contract (Escritura) is signed. The preliminary purchase contract is a widespread practice in Portugal and is used in the majority of real estate transactions. Because of the legal and financial security it provides, most buyers and sellers opt for this approach. It's almost the norm, especially for larger and more expensive property purchases. Nevertheless, signing a CPCV is not mandatory.
Usually, it is the buyer's lawyer who prepares the CPCV. He will carry out all legal research on the property in question in advance. This ensures that the property has no open encumbrances or debts.

Advantages and disadvantages of the preliminary purchase contract

Advantages:

• Legal certainty: The preliminary purchase contract offers legal protection for both parties. It ensures that the seller does not sell the property to another interested party and that the buyer undertakes to purchase the property. Thus, the risk of withdrawal from the transaction is minimized.

• Clear terms: The pre-purchase agreement sets out all the important details and terms of the purchase in advance, including the purchase price, payment methods and the expected date of the final closing of the purchase contract.

• Time for exams:

• Financing: For the buyer, the preliminary purchase contract also offers the opportunity to arrange the financing in peace and quiet and, if necessary, to take care of a loan.
• Formal Inspections: The buyer has time to carry out all the necessary inspections of the property.
• Construction completion: In addition, a property that is still under construction, for example, could be completed in this time.

Disadvantages:

• Legal obligation: Both parties are legally bound, which means that withdrawal can have serious financial and legal consequences.

• Deposit: A deposit is due and can be lost in the event of a breach of contract.

• Time required: The process can be more time-consuming, as there are additional conditions to be regulated for the time until the notary contract.

What happens if one party breaks the preliminary purchase contract?

Despite the goodwill between both parties, sometimes unpredictable situations and changes can occur. For example, the buyer does not succeed in getting a loan approved within the deadline specified in the purchase contract or there were delays on the part of the seller during the construction of a property, so that the deadline for completion was not met. If one of the parties breaks the preliminary purchase contract in this way and in case it is not possible to renegociate the terms, this can have legal and, above all, financial consequences. As a rule, the buyer loses his deposit if he breaks the contract. If the seller breaks the contract, he must refund the buyer double the deposit.

What is the usual down payment?

The deposit is usually between 10% and 30% of the purchase price. However, the exact amount can vary and is determined in the preliminary purchase contract, including a payment deadline.

Can the preliminary purchase contract be adjusted?

Yes, the pre-sale agreement can be customized to accommodate the specific terms and requirements of both parties. It is advisable to consult a lawyer to ensure that all the important points are covered and that the contract is legally binding.

How long does it usually take from the preliminary purchase contract to the final purchase contract?

The duration between the preliminary purchase agreement and the final purchase agreement can vary, but is typically between 30 and 90 days. This period allows both parties to make all the necessary preparations, such as securing financing and carrying out inspections, or even to organize the move or move-out, as the actual purchase contract (Escritura) also involves handing over the property.

What should be included in the preliminary purchase contract?

A comprehensive preliminary purchase agreement should contain the following points:

• Complete information about the buyer and seller, such as name, address, marital status, contact details and the NIF
• Description of the property (location, oficial data of the property, etc.)
• Purchase price and payment terms
• Amount and due date of the deposit
• Date of final conclusion of the contract
• Agreements on any clauses, such as rights of withdrawal
• Sanctions for breach of contract
• Date, Locality and Signature of both parties

Similar practices in other countries

There are also practices similar to the preliminary purchase contract in Portugal in other countries:

• France: The "Compromis de Vente" is comparable to the Portuguese preliminary purchase contract and offers similar legal certainties.

• Italy: The "Contratto Preliminare" is a preliminary contract that sets out the terms of the final purchase contract.

• Spain: Here there is the "Contrato de Arras", which serves as a preliminary contract and includes a deposit that can be lost in the event of a breach of contract.

The preliminary purchase agreement is a fundamental instrument in the Portuguese real estate market. It not only provides legal certainty and clarity, but also serves to define all contract terms clearly and at an early stage. This is especially important to minimize potential risks and make the buying process smooth. Despite some possible disadvantages, the advantages clearly outweigh the disadvantages for most buyers and sellers.
If you are looking to purchase a property in Portugal, it is advisable to carefully review the preliminary purchase agreement and seek the assistance of an experienced lawyer. This can help you understand all the details, identify potential risks, and ensure that your interests are safeguarded throughout the transaction process.