Simplifying Property Transactions: The Role of Usage Licenses

 Afonso de Brito Palma | Lawyer

In the context of the "Simplex" initiative for urban planning permits, introduced through Decree-Law No. 10/2024 of January 8, which came into effect on March 4, 2024, new rules regarding the usage license have been implemented, reformulating how transactions are conducted in real estate law.

However, before delving into this subject, it is important to first clarify, by way of preliminary note, the concept of a usage license.

A Usage License or Authorisation serves to certify that the intended use of a property complies with legal and regulatory standards regarding its permissible uses, which may even include mixed uses. This license is issued by the Municipal Council of the property's location and defines the type of usage the building or unit may have (whether residential or non-residential).

Since the introduction of this requirement on August 7, 1951, the presentation of a usage license has been mandatory for the execution of definitive real estate purchase and sale agreements, whether executed through a public deed or a privately authenticated document.

However, with the legislative changes introduced by the aforementioned decree, the requirement to present a usage license has been eliminated, alongside the simplification of many other requirements and procedures related to property licensing and construction.

Although this simplification has generated a general sense of optimism in the real estate market among investors and other stakeholders, suggesting that this legislative change paves a more accessible path for property transactions, the fact remains that the Usage License remains a fundamental tool for verifying the material and legal condition of a property. It still ensures that the property’s construction is authorised for its intended final use, whether residential or otherwise, which is an assurance that should not be dismissed or waived.

It is important to highlight that, without a usage license, a real estate investor risks acquiring a property that does not comply with the approved plans submitted to the competent Municipal Council. This could mean purchasing a property with unauthorised (and potentially unsafe) constructions. If these non-compliances are not identified in time, their discovery may come too late, at which point it may no longer be possible to hold the former owner accountable. The investor or buyer would then bear the burden of rectifying the illegal constructions in question, supporting single-handedly all related costs.

Furthermore, if the prospective buyer has already entered into a preliminary purchase agreement but has not yet secured the necessary bank financing, the bank may require documents such as the Usage License or the Technical Data Sheet during the financing process. In the absence of these documents, meeting agreed deadlines for the execution of the final purchase agreement may become difficult. This could result in the buyer being unable to acquire the property and, in the worst-case scenario, losing any deposits made if the preliminary agreement is not properly amended.

Given the multiple risks and constraints arising from the absence of a Usage License at the time of negotiating a future real estate transaction, it is advisable to conduct a thorough analysis of the property and its associated documentation.

As Lawyers specialising in Real Estate Law, we always carry out a meticulous and comprehensive verification of the property in question before preparing the necessary contracts for the execution of a purchase and sale agreement. This process includes drafting a Due Diligence report to inform our clients of the true legal status of the property and any potential risks associated with it in the future. Prudence today ensures security tomorrow.

Feel free to contact us if you have any questions or need legal advice!