Continuing a series of conversations with my partners in the real estate businesses that I support professionally, I held another conversation with Dr. Cristina Pinheiro, Solicitor and collaborator in the Procedural Department of a real estate agency.
This time our approach focused on the issue of preemptive rights in real estate transactions, namely trying to clarify questions such as “who has or can have preemptive rights?”, “how can you exercise these preemptive rights?”, “what are the deadlines to exercise them?”, etc. Here I share an excerpt from most of our conversation.
Marco Moura Marques: Hello, Cristina! Good afternoon!
Cristina Pinheiro: Good afternoon, Marco!
MMM: Thank you very much for agreeing, once again, to develop this type of conversation with me, about topics that you deal with daily and that are very important for people like me, with my real estate mediation and consultancy activity, and with the aim of provide the best service to my clients.
CP: Marco, thank you very much! I thank you for your invitation, once again. These topics always raise many questions, which should be clarified, so I understand that this is a great service that, once again, you provide to your clients.
MMM: There is a topic that is certainly very interesting, which has to do with preemptive rights. It is interesting to understand, for myself and for those who will read and listen to us, which situations exist in which there are preemptive rights in any real estate transaction. And, as a result, how notifications from holders of these rights work, how responses to these notifications work... Please give us a general perspective on this topic.
CP: Well, the right of preference is the right that a person has to prefer over any other person in the transaction of a property. In a purchase and sale business, for example, it establishes some priorities among potential buyers, within a business that is carried out under equal circumstances for each buyer. We have some preemptive rights assigned to different people, as well as different deadlines.
MMM: What examples do we have?
CP: We can start with preemptive rights which, at this moment, will be more in the spotlight, as they are more recent and arise following the Basic Housing Law. I am referring to the legal rights of preference of public entities, namely the State, through the City Halls, the Autonomous Regions, the Regional Directorate of Cultural Heritage, the Institute of Housing and Rehabilitation. These entities have the right to be aware of the real estate transactions that are expected in the near future, so that they can decide whether they want to override the prospective buyer.
MMM: You know, of course, that these preemptive rights that you are now going to specify have existed for some years. However, in every transaction I make, I have to explain to my clients what these rights mean and what they are for.
CP: It's perfectly normal. The recent importance of ‘ARU zones’ (Note of the Editor: ARU stands for Urban Rehabilitation Areas), for example, means that the preemptive rights associated with them are well known...
MMM: And although there are other preemptive rights, which you will certainly also talk about, in addition to those related to the ARU zones having already existed for some years, the fact is that when we put a clause in the purchase and sale promissory contract that refers to the existence of entities that can exercise legal rights of preference over the property being transacted, this scares a lot of people…
CP: Yes, that's true. The seller is the least harmed, because even if the legal right of preference is exercised, he will end up carrying out the deal under the conditions that were agreed with the prospective buyer. The buyer will be in a situation of uncertainty and expectation for at least 10 working days, a period that will have to pass for him to know whether he can buy the property under the previously agreed conditions or whether another entity will be able to do so, replacing it.
MMM: So, Cristina, what is this about the legal rights of preference of public entities?
CP: As I have already mentioned, these rights result from the Basic Housing Law and are attributed to public entities in areas of urban pressure. These ‘ZPUs’ (Note of the Editor: ZPU stands for Urbanistic Pressure Zone) are areas in which there is difficulty in accessing housing due to a shortage or inadequacy of housing supply in relation to existing needs. Well, we who are in the real estate sector know well that these days, these areas will cover a good part of our country. There are not enough houses and those that are on the market are in a price range that is below the means of a large part of the population in need.
MMM: But are these urban pressure zones, the ZPU’s, geographically well defined?
CP: They should be. There is an Ordinance, a few years old, that defines the zones of urban pressure. With the Basic Housing Law, municipalities were supposed to have already defined these areas well, but I know that not everyone defined them. In this specific topic we almost practice customary law, as we carry out transactions and question whether or not the properties are in ZPU... and whenever the transaction involves bank financing, banks demand clarity regarding the legal rights of preference... And, in In fact, for the protection and security of the real estate trade, we do so, that is, we comply with the rules regarding the notification duties of these public entities regarding their legal rights of preference. I understand what the legislator intends: to give public entities the opportunity to know which properties are about to be sold and to be able to acquire them, without prejudice to the sellers, and thus, in this way, to be able to hold properties that best respond to the problem existing housing.
MMM: So it means that in each transaction intention that comes to your hand, due to your collaboration in drafting the promissory purchase and sale contract, you will try to identify the exact location of the property so that you can confirm whether or not it is included in these ARU or ZPU zones. Is that it?
CP: Yes, that's it. As the Portuguese popular expression goes: “caution and chicken broth never hurt anyone”. There is no harm in using the means of notification available for the purposes of legal rights of preference, especially if we are in doubt as to whether or not these rights exist. Of course, in areas with a lot of housing available compared to demand, particularly areas in the interior of the country, this could be overzealous. But in areas with large housing clusters it seems to me to always be necessary or prudent.
MMM: Who is responsible for investigating this? In other words, in a buying and selling process, with a real estate agent supporting you, who is responsible for publishing this advertisement?
CP: It's always the seller. It is the latter who must inform the future transaction through the casapronta.pt portal, prepared for this purpose, publishing an advertisement with the agreed conditions for the business. In other words, who is the seller, who are the buyers, their tax identification numbers, the location of the property, the expected date for the deed, the identification of the Property Registry file number, the identification of the Tax Booklet registration number... The publication of this announcement must always be anticipated by 10 working days compared to the date scheduled for the deed, as this is the period of time that these public entities legally have to exercise their legal rights of preference. But even though the responsibility lies with the seller, I am used to, here at KW Alfa, showing kindness to our seller client, collecting and inserting this information on the aforementioned portal and requesting the publication of the advertisement. Our client only has the obligation, using the reference that is generated automatically, to pay the fifteen euros within the indicated period. And pay attention to this important detail: it is best to make the payment within the deadline indicated, since even after the deadline the reference for payment remains valid, and if the payment is made, the money is received by them, but the advertisement is not published... And if it is not, it means that you have to make a new publication request and wait another 10 working days before the deed can be carried out.
MMM: By the way, allow me to ask: does this mean that we are not notified when payment for the ad publication order is made out of time?
CP: No, we are not, so we have to be aware of that. We do have to consult the portal, using the process number generated when entering the data, or through the seller's tax identification number, to check whether public entities have said nothing (which happens in the overwhelming majority of cases), or whether some say, peremptorily, that they want to exercise their right. But when an entity wants to exercise this right, it sends an email requesting contact and proposing an inspection of the property. This very rarely happens, but we have to be careful to check. And we must also be careful, which is the following: as this announcement is valid for 180 days after being published, then if it is foreseen that our definitive purchase and sale contract (the deed) will only be carried out from now on for one or two years, it will not make sense to ask for this announcement to be published immediately.
MMM: Very good. Therefore, the publication of this announcement is necessary to give notice to public entities that have legal preemptive rights over the property to be transacted. Is there any other situation?
CP: Before that, an additional note... We saw that the framework is the area where the property is located and, in particular, if your address is located in an area of urban pressure, where there is a shortage of housing, following the provisions of the Basic Law of Housing. Now, there are situations in which not houses are sold, but rather shops and parking spaces, for example. In other words, these are properties not intended for housing, so there is no obligation to request the publication of an advertisement relating to legal rights of preference, when they are included in ZPU.
MMM: Understood.
CP: Public entities have also had preference, for some years now, over properties traded in urban rehabilitation zones or areas, ARU's. And then, yes, preference will have to be given over all urban properties, whether or not they are intended for housing. Here care must be taken to check whether or not the transacted property is included in an ARU and, if applicable, request the publication of an announcement regarding legal preemptive rights. These ARU zones can also be consulted on the municipal council portal of the property's municipality, although they are often not easily identifiable. But, once again, the expression “caution and chicken broth”…
MMM: In other words, it’s better to ask for more than less…
CP: Yes. Sometimes it even happens that the property is on the edge of an ARU zone and we have doubts that we cannot quickly clarify... so, sometimes, it is better to proceed with the request.
MMM: And what implications are there for the real estate transaction if the request for publication of preemptive rights is not made?
CP: As with all legal rights of preference - not forgetting that others can be defined contractually - whoever understands that they have this right and understands that it has been denied or prevented from being exercised, can always resort to legal action of preference. This has a period of 6 months to be used, counting from the date of knowledge of the fact.
MMM: In a hypothetical situation in which the moment of the definitive purchase and sale contract (deed or authenticated private document) is reached and the seller has not published the announcement regarding legal preemptive rights, what could happen? Can a Notary or Solicitor refuse to carry out this contract? Or do you agree to carry out the deed if the buyer accepts taking this risk?
CP: Verifying compliance with some formalities in these acts is the responsibility of the authenticating entity, that is, the Notary or Solicitor or Lawyer. Verifying the notification of holders of legal preemptive rights is one of these formalities and one of these responsibilities. However, it is possible to conclude this definitive purchase and sale contract, as long as the parties are duly warned, particularly regarding the seller's notification obligation and the risk that the buyer runs of purchasing something over which a third party has a right. legal preferably. And, if so, it must be included in the contract (deed or private authenticated document). However, I am sincere when I tell you, Marco, that as a Solicitor, I prefer not to do this. I prefer to tell the parties to wait a little longer and notify the entities holding legal preemptive rights. It will not be for another 10 days, nor for a cost of 15 euros, that people will live their lives in fear of a third party being able to take legal action in preference. And let's not forget that even if the Notary or Solicitor decides to proceed with the deed, the truth is that the act will still be screened by the Property Registry Office that accepts the request for registration. The Officer may understand that it goes beyond the legal limits of contractual freedom, for example.
MMM: What if the request for publication of the advertisement has not been submitted at the time of writing? Or if the order has been submitted and paid, but the 10 working days have not yet elapsed? In these situations, is it possible to carry out the deed? Can this be carried out even if your registration may remain pending at the Registry Office, awaiting correction of the deficiency? And can this be regularized with the delivery of proof of order and payment for publication of the advertisement and that 10 days have passed and the legal right of preference has not been activated?
CP: If the Property Registry Office understands that this scenario can be resolved by supplying deficiencies, then it will notify the Notary or Solicitor. If you understand that this is a reason for refusal - although it doesn't seem to me at all that it is - then simply refuse the registration of that act. And, in this situation, the Notary or Solicitor may resubmit the registration, from the moment the 10-day period has elapsed in full. But it does not seem to me that these scenarios arise, that is, the authenticating entity – Notary or Solicitor – upon verifying that the 10 working days have not elapsed, will take the initiative to wait for them to elapse to carry out the deed and its registration request. Because it's safer. Although registration is not a condition for the act to be effective, it provides security for real estate trade. It is effective erga omnes, that is, against everyone, and serves to publicize third parties. It does not constitute rights, but it preserves them. As an authenticating entity, the Notary or Solicitor wants - or speaking for myself, but on behalf of the entire class - what we want is for the parties to be safe. Mainly the buyer. He has the right to buy something, pay the price and be perfectly assured that he will not have problems from now on, due to any defect or inefficiency resulting from the process. Everything has to be analyzed very carefully. Once you have requested and paid for the publication of the notice relating to preemptive rights, there is no reason not to wait for the 10 working days provided by law.
MMM: Very good. Returning to the list of entities with legal rights of preference... we have the public entities, which we have been talking about, which have rights of preference when the housing properties are inserted in ZPU's and when the properties are inserted in ARU's...
CP: We have even more legally established preemptive rights, namely co-ownership. When there are two (or more) owners of the same property, each co-owner has the right of preference over the share of the other (or others). This happens a lot in couples in civil unions, for example. Or between brothers heirs of the same inheritance. It does not make sense for one of them to be able to sell their share in a co-owned property without allowing the other to express their will to acquire the share of what they want to sell. There is a necessary protection here that is, let's say, intuitive and logical. These preemptive rights can be activated by those who have them, within a period of 8 working days from the moment they are notified by the seller.
MMM: Yes, it is understandable that this necessary protection should be taken care of.
CP: With regard to properties constituted by surface rights, the holders of the right to the land have preference over these assets. These rights must be activated within the deadlines defined under the Civil Code, that is, 8 days.
MMM: Okay.
CP: In what concerns the 'trespasse' or business transfer, it is the landlord who has the right of preference. In other words, your tenant, if you are planning to transfer your business, must notify your landlord, informing him of the transaction he intends to carry out, so that he can, if he wishes, exercise his right of preference.
MMM: Notifications from public entities are made via the casapronta.pt portal, as you have already mentioned. And these, that is, the co-owners, the surface rights holders and the landlords?
CP: These must be notified by registered letter with acknowledgment of receipt sent to the official address of the holder of the legal right of preference. Unless they have agreed on another address.
MMM: What other situations do we have?
CP: We have heirs as holders of preemptive rights over inheritances and particularly with regard to the sale of their hereditary share. Please note that here we have a period of 2 months for the holder of the preemptive right to decide whether or not to exercise this right.
MMM: In other words, we are talking about an inheritance that is still undivided, right? And what do you say means that each of the heirs can sell their part of the inheritance, their hereditary share?
CP: Exactly. It can be sold, it can be transferred… it can also be seized. It is very common in executive processes that attachments appear on someone's hereditary portion. There is also a logic identical to that of co-ownership here. In other words, if someone is heir to a property, together with other people from the same family, it is very strange if, suddenly, we have a third party, stranger or not, holding part of the inheritance, without having been previously heard. Here too, it makes sense to protect the inheritance, or rather, the family and family relationships. Heirs have 2 months to express their opinion on whether they want to exercise their right of preference.
MMM: Right. And what other situations do we have in terms of preemptive rights?
CP: We have situations involving the sale of rural properties, which always give us headaches when it comes to the issue of legal rights of preference. Here, the rights holders are the owners of land bordering areas inferior to the cultural unit. The cultural unit is defined in Ordinance 219/2016 of August 9 and…
MMM: … and it’s not the same across the country, is it?
CP: No, it's true, it's not the same across the country. This right of preference does not apply if any of the adjoining land is part of an urban land. For example, a mixed terrain, rustic and urban.
MMM: I would say that in all other situations where there are legal rights of preference it will be rare not to be able to identify the holder or holders of those rights, but in this last situation...
CP: Yes, in the situation of selling rustic land where there is small adjoining land, it is very difficult... Finance does not make the addresses available, under tax secrecy. Sometimes people can obtain this information from the Parish Councils. In the worst case scenario, the seller makes a notice and publishes it in the Parish Council and in the most read newspaper in the locality or municipality. And here there is a period of 30 days for someone to present themselves as the owner of the adjoining land who wants to exercise their right of preference.
MMM: Do you suggest that a notice be published at the Board and published in the most read newspaper? Or is one an alternative to the other?
CP: I suggest publishing in both, cumulatively. It's always safer. When the owner or owners are not known, we must wait 30 days for someone to come forward. But when we know the owners of the adjoining land and their addresses, then we must send a registered letter with acknowledgment of receipt and wait 8 working days for them to exercise, if they wish, their right of preference.
MMM: Are there more situations?
CP: Yes, we have more. We have cooperatives, as holders of legal rights of preference in the sale of properties built by them. Cooperatives have these rights for the first 30 years from the date of delivery of the first property. And they will have to respond within 8 working days after receiving notification from the seller, by registered letter with acknowledgment of receipt. These rights are often a problem, as many of these cooperatives cease to exist, sometimes due to bankruptcy. It has happened to me that I had to notify a cooperative that went bankrupt... I had to identify and notify the insolvency administrator... although most of the time they don't even exercise their right of preference.
MMM: In this case, you identify the existence of a cooperative with preemptive rights through the land registry certificate, right? In identifying the first owner of the built asset...
CP: Yes, in the certificate relating to the ‘mother building’ we will be able to identify whether it was a cooperative.
MMM: Let's imagine the following: the seller, in any of these situations, makes due notification of the entity that he identified as having a legal right of preference... Or, as you already mentioned, in a situation of selling rustic land, he does not manages to identify the owners of the adjoining land, but publishes a notice in the Council and in the most read newspaper in the municipality... In any situation there is a deadline for the notified entity to respond. But... the other entity, in good faith or bad faith, after some time, may say that it was not notified and/or adequately informed. I imagine that your recommendation to the seller will be to organize and keep proof of all actions carried out, particularly notifications, very well.
CP: Yes, you should keep a file of everything.
MMM: For how long?
CP: Good question. The preference action, already mentioned by me, must be initiated within 6 months after knowledge…
MMM: In any of these situations?
CP: Yes. The preference action is provided for in article 1410 of the Civil Code.
MMM: Explain, please... what is this ‘6 months after acquaintance’?
CP: Yes, I mean sales knowledge…
MMM: In other words, if the holder of the preemptive right only became aware of the sale approximately 3 years after it occurred, will those 6 months still count from then on?
CP: Yes. The 6-month period is an expiry period. Then we may have the problem of proof, relating to knowledge. But since the purchase and sale contract is mandatory to register and the registration serves to publicize, we have the knowledge here.
MMM: Understood. Now going back a little to the beginning of our conversation and revisiting a note I have here about classified properties... That is, in the case of properties being transacted that have some type of classification as heritage to be preserved, what should be done? For example, let's imagine a house with surrounding land where there is a very old chapel. And that, somehow, either the Board or the Chamber classified this building as being of municipal interest... In a scenario like this, it is much more difficult for the real estate consultant or the Procedural Department of a mediator to be able to identify a property in this situation, unless the seller inform them accordingly.
CP: Yes, yes, in a situation like this it is much more difficult.
MMM: It is up to the consultant who visited the property to ask the seller their questions, if they have any. And you can take some steps to find out if there is a classification... but you will always have to trust what you are told.
CP: But look... it doesn't even make sense for the seller not to want to share that information. Because whoever may exercise the preference will do so under the same terms as agreed with the buyer. The seller will never lose out if someone exercises the right of first refusal. Whether the deal is carried out with a private individual or with the State, for example, the terms of the agreement remain the same when someone exercises their right of preference.
MMM: Great. And what else do you have to show us?
CP: We still need to talk about tenants' preemptive rights. If the owner of the property they are renting wants to sell, the tenant has the right of first refusal to sell the property, if they have lived in it for more than 2 years. After being notified by the seller, the tenant has 30 days to respond if they wish to exercise their right of preference. Please note that there is a hierarchy in legal rights of preference and, in this case, public entities do not override the tenant.
MMM: And the usufructuaries, what can you tell us about their rights?
CP: Usufructuaries do not have legal rights of preference provided for in the Law.
MMM: So a user of a property can see the property they enjoy being sold to another entity, maintaining their right of usufruct...
CP: Exactly.
MMM: In this case, it is the responsibility of the seller to inform the buyer of this usufruct and the buyer to ensure this situation.
CP: In truth, the usufruct is registered at the Land Registry Office. It is the usufructuary who appears as the owner of the property in the property tax book and it is to him that the IMI for that property is paid. Therefore, documentarily, the buyer must necessarily have access to this information. I would like to take this opportunity to reinforce the message that in these and other real estate transaction situations, those directly interested should use a real estate consultant, a lawyer, a Solicitor... Intervene alone in this type of transactions, only if they have good legal knowledge and knowledge of the processes , because there are numerous details that, if poorly addressed or neglected, can complicate transactions. People often point to us as being 'pessimistic' and even purposefully pessimistic, so that we later emerge as the 'saviors' of each situation. But the reality of business, in fact, far surpasses fiction. You can't predict everything, even if you have a lot of experience and knowledge. But our job is to reduce risks, which is achieved all the better the better informed we are.
MMM: I understand perfectly what you mean and I hope that whoever listens and reads us also understands. Continuing this wave of 'pessimism', but not adopting it... let's imagine the following scenario: (i) an entity, natural or collective, with preemptive right in the sale of a property, (ii) exercises its right within the stipulated deadlines in the Law, (iii) but the deed has already taken place, (iv) as a result of deficiency in notification by the seller... What happens if this entity has legitimacy to exercise its right, but the property has already been sold and has a new owner?
CP: There is the preference action. This is the institute you should turn to to exercise your right in this scenario.
MMM: But what about the buyer in good faith, what about this situation?
CP: If you are a third party in good faith who did not know of the existence of this right or did not notice the lack of notification, he or she can also use the mechanisms that the Law provides for these situations. Namely in terms of civil liability. Asking for compensation, for example.
MMM: If we are talking about the sale of a house…
CP: … where the person or family is already living there when the right of preference is exercised… Yes, it is very complicated.
MMM: This is in line with what we have already discussed here, more than once, and that is this: we do not give legal advice here. We validate processes, we make sure that everything that is required to exist is documented and correct…
CP: But we often go beyond our functions, because we are always careful to say ‘look here, take a look at this, talk to your lawyer…’. We always try to keep people aware of the processes and their risks.
MMM: So, Cristina, by way of summary... We have already discussed in our conversation the situations in which there are legal rights of preference in any real estate deal. We address, but do not detail, the forms of notification to holders of preemptive rights. We also talk about response times to notifications from holders of preemptive rights. We also talk about what could happen due to lack of or incorrect notification of holders of preemptive rights, with them being denied the possibility of exercising their right. We also talk about what those who understand that they have been denied this right can do. Is there anything else you want to mention?
CP: Please note that we are talking here about legally established preemptive rights. However, there will be other preemptive rights that may be stipulated in contracts signed between the parties. For example, tenants have preemptive rights when selling the leased property after 2 years of living in it. But the lease contract may freely stipulate that they acquire this right after the first year of the lease, for example. This happens a lot in lease contracts with an option to purchase, in which the tenant has a preference in the sale, defined at the beginning of the contract. However, conventional preemptive rights do not override legal ones.
MMM: Yes, that's true.
CP: The Law provides for all these situations, notification deadlines, response deadlines, always in the protection of the weakest party or a well-intentioned interest (in the case of the rights and objectives of public entities). Now, there is a phrase often used by jurists that applies here: “a bad agreement is better than a good demand”. This means that going to court is not always synonymous with having our rights recognized, is it? And people will waste time and money, with all that this entails. Therefore, these situations should be avoided, that is, letting the resolution of an avoidable problem be decided in court. Therefore... it is better to pay fifteen euros and wait 10 working days to notify public entities or, in relation to other holders of preemptive rights, write and send a registered letter with acknowledgment of receipt and wait for the time provided by law for each situation . Financially speaking, these forms of notification are not something that is significant. And if the parties involved in a transaction use a real estate agent, they will have someone to process the request to publish advertisements and write notifications, depending on each situation. In short, we can do everything within the law to avoid future problems as much as possible.
MMM: Very good. So we close with this, placing emphasis on the added value we give to our customers, being aware, making them more aware and knowing how to act in relation to the topic of legal rights of preference.
CP: Without a doubt.
MMM: Cristina, thank you very much! See you soon!
CP: I thank you! See you soon!
Do you need additional clarification on this topic? Do you need support when selling or buying a property?
Don't hesitate to contact me:
Marco Moura Marques
+351 967 035 966
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