End of the Occupancy Permit and Technical Dossier. Don't buy a cat in a sack!

Having been approved on January 8, 2024, the "Licensing Simplex" within the More Housing Package, no longer requires the presentation of the Habitation License and Technical Dossier of the property, or proof of their existence, at the time of the deed of sale and purchase of a house, with retroactive effects from January 1, 2024.

But what is the purpose of these documents?

When, in Portugal, in the 80s and 90s, legislation was created requiring the presentation of the Habitation License and, later, the Technical Dossier to carry out the deed of sale of a house, the intention was to protect the buyer, especially in a market then flooded with "illegal houses", without habitability/sanitary conditions, presenting serious problems and risks for the residents.

The Technical Dossier, mandatory for all buildings constructed or subjected to remodeling/alterations after March 30, 2004, aims to identify those responsible for the works, provide details on how the property was built, and ensure means of defense in case of litigation.

The controversy over the end of the Habitation License and Technical Dossier

In an interview given to the ECO newspaper, Jorge Batista da Silva, head of the Order of Notaries, briefly stated that:

• The current regime, now annulled by the 'Licensing Simplex', was implemented by decree-law in 1985 with the goal of “discouraging the uncontrolled proliferation of illegal properties observed in the 70s and 80s” (later detailed by another decree-law issued in 1999) and aimed to: "...protect buyers, especially of residential properties”.
• “With the new regime, the legislator eliminated the requirement for the notary to verify the existence of the property's Habitation License and Technical Dossier. […] Currently, the notary merely informs, at the time of the transaction, ‘that the property may not be equipped with the necessary urban titles for its use’. […] The only existing control in the transfer of properties, which existed solely to protect buyers/consumers, was abolished.”
• "I think it's a legal mistake. Just imagine: I, to buy a house, don't have to show an Habitation License, because the legislator repealed the norm that required it. But, to make a promise to purchase and sale agreement for a house (CPCV), I need to show an Habitation License, because the legislator forgot it was in another article of the Civil Code. Clearly, the legislator was not familiar with the system."

Dangers and challenges in the abolition of the Habitation License and Technical Dossier

Given the above, I can draw several predictions and observations:

• If the purpose was simply to increase the number of housing units available for sale and rent, the success of this measure is predictable.
• However, buyer protection is compromised, since, in the absence of documents that prove the construction's compliance with the quality standards required by law and by municipalities, the buyer may end up "buying a pig in a poke" and something that does not match what was promised.
• The exemption from these two documents, especially the Housing License, is controversial, since, although accepted by notaries, solicitors, and lawyers, buyers may face obstacles if they need financing to purchase housing. There are cases, like a property I am mediating, whose owner has been waiting for a year for the issuance of the Habitation License by the Cascais City Council, where the buyer's bank, having approved the financing for the purchase, refuses to proceed without the said Housing License, despite the new legislation.
• The legislator, by dispensing with the Habitation License in the deed of sale and purchase of a house, while maintaining its requirement in the CPCV, created a conundrum for owners, buyers, and real estate mediators. I imagine, in many cases, the disappointment for all involved when the real estate transaction moves to the formalization of the CPCV and the notary refuses to allow its signing! The alternative involves skipping the CPCV and moving directly to the final deed, which is not straightforward:
  • neither for the owner, who keeps the house on hold for a period that can extend between 60 to 120 days;
  • neither for the buyer, who, without a CPCV, has no guarantee from the moment of the sale agreement until the deed can be carried out;
  • nor for the real estate consultant, who sees the risks of the deal falling through and losing the work done multiplied;
• In certain areas, the valuation and consequently the sale prices in the used property market may decrease. Various owners, who were prevented for many years from selling their properties due to the lack of an Habitation License - the so-called "illegal houses", plan to sell them at lower prices. Some, to attract cash buyers, bypassing credit barriers; others, aware of their property's lower value, but still in need of selling them. As for the usual "market studies" used by consultants and owners to set the sale price, disorder is evident! Cats and hares are mixed together, and negotiations are not expected to be easy.

In other words, occasionally, practical results diverge from the legislator's good intentions. If the goal was to invigorate the housing market, by expanding the offer and reducing prices, this can be achieved through this law, but it will imply an increase in risks for the buyer, which is not good!