With many of our clients dreaming about their unique properties and looking for legal support throughout construction projects, we’ve decided to share some food-for-thought on this matter. The article is entitled the DAYDREAM BELIEVER and focus on the main elements that one should consider before starting a construction project in Portugal.
elements to consider when building a property in Portugal
The first important decision is where and what to build. The purchase of a plot of land must be preceded by architectural and legal research on what is possible to build in a specific area and to what extent. Otherwise, the whole project may be jeopardised. The purchase of land for construction is also subject to transaction costs such as property transfer tax and stamp duty.
Design & Building Permit
Now, you can think about what kind of property you would like, and with the assistance of your chosen architects you can prepare a construction or renovation project idea and submita construction license application. During this process, it’s key to equip yourself with applicable urban planning laws and regulation infomation, both at Council level and nationwide, to confirm any existing restrictions and parameters with the City Council of the area where the land is located, which is the entity that will handle and analyse your licensing application.
The designed property must respect all legal and construction requirements, and it must be built in accordance with the project approved by the competent City Council –
otherwise, the owner can be heavily fined and in a worst-case scenario be forced to demolish any irregular construction.
Contractor & Project Manager
Construction is facing many challenges due to the fluctuation of costs in raw materials and staff as a consequence of Covid-19 and more recently the Russian-Ukrainian conflict. When choosing a contractor, one must look for a licensed and solid (as much as possible) entity. In Portugal, builders are licensed by IMPIC (Institute for the Public Markets of Real Estate and Construction). Market tests and private tenders can be used to obtain different proposals for private projects.
If the project is not a design and build, the owner needs to search for a contractor (or contractors) to perform the construction work. Having a project manager is key to the success of the construction project both in terms of time, quality and cost. The role of project manager may be performed by the architect who designed the property or by an independent person or entity. Both scenarios have pros and cons, but either way, it’s crucial to avoid the owner managing the work directly and without professional support, especially if they are living abroad and thus unable to have eyes and ears on the ground.
A works contract shall be entered into between the owner and the appointed builder. Many aspects of the construction, including timescale and duration of the project, specifications, price and payments, extra works and changes to the project, penalties and guarantees, provisional and definite acceptance, as well as dispute resolution mechanisms will be negotiated and set forth therein.
Another important aspect to consider is financing the project through a mortgage or credit agreement granted by a Portuguese credit institution. Financing of construction projects requires an assessment of the land, project and builder’s proposal, and the release of funds is often dependant on the progress of the work confirmed by lender’s surveyors.
The lack of valid construction licensing, embargos due to unlicensed works, among others, may cause significant delays in construction progress and block the release of funds.
Licensing & Updating Property Registry
Once the construction of the property is completed, the owner is required to gather a set of documents issued by all technicians involved in the performance of the works and submit a usage licensing application before the competent City Council. An inspection to the finished property may or may not be mandatory, depending on the project.
If all goes well, the City Council issues a licence attesting the legality and conformity of the property for the purposes it was built for. Once the property is licensed, the owner will finally have full rights over it, namely the right to use, rent or sell it once the property is duly registered before the appropriate authorities.
Building your dream property is very exciting, however, the challenges are significant especially for foreign investors.
Proper guidance and advice from a team of professionals is key to a successful outcome and will allow the owner to manage expectations, saving time and unpredicted costs.
The information contained in this article is general and shall not be deemed as legal advice.