In 2023, one of the growth factors in the real estate sector in Portugal is house renovation.
When renovating a house, it is vital to understand the legal and technical risks of the process.
Buying and selling a house starts and end in a notary office. So, understanding the basics of property law and planning permission is critical.
Renovation can make a lot of sense. First, it preserves the harmony of architectural heritage. Second, it reduces pollution; less concrete is less pollution. Third and most, renovation can be very profitable.
You must learn a few fundamentals when engaging in renovation involving structural change. These fundamentals will, of course, include structural engineering and planning permission.
PROPERTY RENOVATION/ PLANNING PERMISSION IN PORTUGAL
The purpose of that article is to introduce 4 dimensions of property renovation. If it makes commercial sense to renovate a property, the buyer must conduct due diligence. After that comes the architectural concept and project and the planning permission. Finally, the construction can start. Every step involves a high level of details and a strong level of coordination. The buyer will need to interact with various professionnals
Why should you renovate a house in Portugal?
In Portugal, there are plenty of beautiful buildings in need of total renovation. Perfectly integrated into their environment, these buildings are often full of character. However, they are in desperate need of new owners able to give them the kiss of life. Saving a building takes courage, love, money, and dedication.
So, would you consider "adopting" a Portuguese building? If the answer is yes and if you know what you are doing, your efforts will pay off.
To make your home renovation pay off, you must determine the most profitable home improvement. The most beneficial home improvements are kitchen and bathroom remodelling. Adding new windows, and insulation. Adding a swimming pool to the renovation project in sunny Portugal can also be lucrative. But this type of mild renovation is different from major structural work.
The cost of renovating in Portugal is between 500 euros per M2 to 1200M2. The final price will always depend on the specifications. It will also change depending on the complexity of the work.
Preliminary purchase and sales contract [CPCV]?
You have found the house of your dreams and want to purchase it. You make an offer, and the Seller accepts your offer. That is the beginning of a technical legal process. The offer is presented in the preliminary contract: "Contrato- Promessa Compra e Venda" [ CPCV].
CPCV are not mandatory for cash buyers, but using them is a good idea.
CPCV contracts detail the terms and conditions of the purchase and sale of the property. For that reason, buyers should use them.
The purpose of that contract is to secure the deal's terms between parties. That will allow the due diligence process and other formalities to take place.
The CPCV contract can include negotiated representations and warranties. That could cover unregistered or undisclosed limitations and restrictions affecting the property.
Due diligence & Seller's representations and warranties?
The due diligence aim is to identify red flags and issues relating to the property.
The first step is the verification of the property title and ownership. Your lawyer will contact the land registry and tax authorities for that. Next, your lawyer should investigate potential limitations, charges, restrictions, and encumbrances linked to the property.
This list of verification should be comprehensive yet realistic. Don't hire a team of top lawyers to conduct a massive investigation for a 15 K rural property. Only ensure you can turn the 15k rural property into a home, as it might not be the case. Some old farms can only have a pure agricultural purpose. That is when the dream of a new life under the sun can turn into an expensive nightmare in a foreign land. Items that can affect the title transferability or the property use must be flagged.
The buyer should secure the Seller's representations and warranties as an insurance policy. That can cover a negotiated list of items. This list aims at limiting the exposure of the buyer to risks. Representations and warranties are risk management tools. The validity of these representations and warranty should be as extended as possible.
Once the due diligence is completed, it is time to complete the transaction at the notary's office. The buyer will pay the Seller, and the Seller will transfer the title to the buyer. The sale of the property is now official. The name of that formality is “Escritura pública de compra e venda”. You are now owning a property in Portugal.
It is best to hire a lawyer to navigate all legal technicalities and tax implications. For example, you can hire a property and tax lawyer. You can also use law professionals called Solicitador.
Solicitador will be cheaper than a property lawyer. They will be able to represent you throughout the buying process. They can represent clients with Courts, Tax Administration, and Notary Offices. They can also represent you with most authorities and public bodies. They will take away all the pain of dealing with various administrations. Do not hesitate to hire one.
Planning permission in Portugal/ Pedido de Licenciamento ?
Substantial structural alterations are all subject to building permission. The assumption that you can do what you like inside your home is wrong and risky. You need the authorization of the local authority to perform structural changes.
Conducting Structural change without approval will create discrepancies. The actual floor plan of the house will no longer match the one on the public record. The differences will be problematic in case of the sale of the home after the renovation.
Structural changes without permission can open the door to liability and fines.
To secure the planning permission, you need to submit the architectural project.
Architectural project (Projecto de Arquitectura).
Submitting an architectural project to the local authorities [Camera Municipal] requires hard work.
The architectural project contains property titles and topographic plans. The architect will supply a detailed and comprehensive description of the technical project. Another important aspect will be the name of the building company and its directors. That company will need to have full insurance. The architectural project is an extensive set of documents. It takes practice, time, and effort to submit a successful application.
They are different approaches from one local authority (Camera) to another.
The presentation of the project requires the applicant to respect an exact format. Missing signatures, information, forms, or documents will translate into delays. Applicants must be patient; the application progress takes a long time.
The timing of a renovation in Portugal can seem slow and difficult. However, understanding and owning that critical information is vital to manage and succeed.
Construction Permit/ Alvará de Construção
Once you have the planning permission, you receive the permission to build; this is the Alvará de Construção. The construction work can now take place in conformity with the architectural project. The team responsible must report and record their activity in the site notebook or Livro de Obra. This document is the building site diary. It is designed to record relevant facts relating to the execution of the work. Not having that book is a punishable offense.
Retrospective planning in Portugal?
Because lack of understanding of rules, some people are building without planning permission. Building outside the legal umbrella will generate nasty legal sunburns.
The lack of conformity will generally translate into various types of complications. People realize this type of issue when trying to sell their properties. Lawyers flag non-conformity during the due diligence process. Once identified, the owner of the property must fix the problem.
Let's imagine having a swimming pool on the property but not having it on the plan of the property. Administratively speaking, the swimming pool doesn't exist and should be here at all. As a related side issue, the owner has not declared the swimming pool to the tax man and needs to pay the correct amount of tax. The owner is now defrauding the taxman.
Lack of planning permission is a multidimensional problem. It has implications with the land registry but also with the tax authorities. Finally, it impacts the use of the property and the capacity to sell it.
Authorities are tracking down illegal constructions. They use drones and other methods of surveillance. That includes local intelligence gathering.
The severity of the issue will depend on the size of the problem. For example, building a structure without permission in a natural reserve will be highly problematic.
To fix the issue, the house owner must contact an architect. The architect will undertake the planning permission process in a reversed way.
The architect will nominate a topographer to measure the property scientifically. Next, the architect will create a plan matching the work done without permission. Then, the architect will submit the architectural project (see above). The architect will also introduce a conformity report. Finally, a certified structural engineer will issue the report.
If the local authorities approve the project, they will inspect the site. The owner must now supply the new plans to the land registry and tax authorities.
The tax authorities can ask for the payment of taxes for a retroactive period.
Lack of conformity and discrepancies are not an option.
To avoid building complications, here is a quick step-by-step guide to standard architectural process:
1 Predesign and architectural concept: This is the information-gathering phase. It starts with a topographic survey of the property. It does involve the study of local planning rules and restrictions. It takes into account the local environment and the position of the site. Defining the vision for the renovation is a crucial aspect. It is the occasion to talk to the local authorities. That way, you can anticipate or address planning permission issues or challenges. The predesign phase should take between 2 to 4 weeks.
2 schematic design:
Based on the finding of the predesign, it will be possible to start having a concept for the building. Then, the architect can translate his vision into sketches, models, and 3D pictures. The purpose of the schematic design phase is to create a floor plan and building plans. That should take between 2 to 4 weeks.
3 Design development:
The general plans are now turned into detailed plans and drawings. Then, structural engineers will review the project from a technical point of view. That should take between 2 to 4 weeks.
4 Construction documents
The construction documents are the different sets of plans needed for costing purposes. Building companies will bid based on these plans. This phase involves a multidisciplinary approach and requires a lot of time. (About 12 to 16 weeks)
5 Building permit
The architect sends all the plans and relevant information to the local authorities. The permit request requires a lot of administrative work. Local authorities can always ask for more information or details on the project.
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