When purchasing a commercial property in Portugal, there are a number of options, some of which are peculiar to laws and traditions here. We will firstly explain the different ways a property can be sold or utilised.
Freehold
It is unusual to see a property advertised as freehold (normally simply shown as “For Sale”) as freehold is simply considered a sale. It is important to note that when buying a freehold property there are two types “pure” freehold where you purchase the property and the land it stands on and “fractional” freehold where you purchase part of a building (for example the ground floor shop in a 5 storey building). In the latter case you may have to pay charges for maintenance and cleaning of common areas and, in some instances, may own a fraction of the common areas also.
Rental
Renting of commercial properties is common. The laws regarding this type of rental are simple and fair (as opposed to the laws regarding residential letting which are heavily biased in favour of tenants). Rental agreements will vary, but you can expect a contract for a minimum of three years, with rent rises annually and a requirement for either a bank guarantee or a deposit as a guarantee for the owner.
Trespasse
This is a system which most people entering Portugal for the first time have never experienced before. There are two parties to this transaction the landlord, and the tenant, however the big difference between this system and renting is that the tenant has the right to sell his lease (with subsequent rights and obligations) to a new tenant. Historically, this has been popular because a rent agreed many years ago (and increasing only with the cost of inflation) is lower than the market rent. Therefore the right to use the property is sold-the value being that the rent is low and sometimes the commercial position is good etc. When a trespasse is sold, an amount is paid to buy the trespasse, and then the new tenant starts to pay rent to the landlord. In the case of a transfer of the trespasse, the landlord has the right of preference and can opt to purchase the trespasse, rather than allow a transfer. At the time of writing (2006) the laws regarding trespasse are under review and may change in the near future.
Existing company-to buy or not to buy?
Moving on, lets imagine you have now found that dream business, the price is right and you understand the principles of how you are buying it. But the bricks and mortar is only half the story. Now we need to consider the company itself (if indeed a company is for sale).
The first point to discuss is whether the current owner is actually selling his company (or whatever trading wrapper he is using). It is important to remember that many small bars, restaurants etc. are run in the name of the owner, allowing for simplified administration and reduced costs. For a full explanation of the various types of company structures available click on this link: http://algarve-commercial.com/algarve-commercial/start.asp.
Whether or not you want to buy the current company will depend on individual circumstances. On the negative side, some important considerations are that you will be taking over any debts or liabilities the current company has, you will not benefit from the (small) fiscal benefits available to a newly formed company and you may be inheriting a reputation that you do not want. Start afresh with a new company and you know exactly where you stand. There are certain instances where it is advisable to purchase the existing company, for example when it has licences or contracts which you wish to continue with.
Please remember we are selling properties day in, day out. If you need some more information, or you have a doubt regarding anything to do with purchasing property in Portugal, contact us (you can use the form below) and we will help you.
This information is provided as guidelines only and is no substitute for proper legal advice. Azul Homes accept no liability for any mistakes or omissions herein and subsequent issues. All text copyright Azul Homes LDA 2006.
