Understanding Build Contracts in Portugal: What to Watch For

Whether you’re buying a turnkey villa, an off-plan home, or managing a custom build, at some point you’ll sign a construction contract — and it’s one of the most important legal documents in your property journey.

But in Portugal, build contracts (also called empreitada contracts) can vary significantly. Some are highly detailed and protective of the buyer. Others are vague or developer-friendly — leaving you exposed to delays, cost overruns, or unmet expectations.

This guide breaks down what you should expect in a Portuguese construction contract, what red flags to avoid, and how to protect yourself before signing.

What Is a Construction Contract (Contrato de Empreitada)?

A Contrato de Empreitada is a legally binding agreement between the builder (empreiteiro) and the client (you). It covers:

• What is being built
• How much it will cost
• When it will be delivered
• What standards and materials are used
• What happens if something goes wrong

It applies whether you’re:

• Building on land you already own
• Buying an off-plan villa
• Signing into a turnkey package

🛡 Important: Always have your lawyer review the contract before you sign — even in off-plan deals where the developer provides a “standard” version.

What Should Be Included in a Build Contract?

Here’s what your contract must clearly specify:

1. Project Description

• Reference to architectural plans
• Square meters, layout, number of floors
• Outdoor areas, pool, garage, etc.

2. Materials and Specifications

• Flooring, windows, insulation, kitchen/bathroom brands
• Heating, air conditioning, solar systems
• Plumbing, electrical systems
• Finish standards (e.g., “turnkey” vs “shell”)

📋 Ask for a detailed spec sheet as an annex — don’t rely on marketing brochures.

3. Price and Payment Terms

• Total cost (incl. VAT)
• Payment milestones (e.g., 10% on signature, 20% on foundation, etc.)
• Who pays for utilities, landscaping, fencing?
• What’s included vs optional (extras, upgrades)

💡 Make sure payments are tied to verifiable construction progress, not arbitrary dates.

4. Timeline and Delivery

• Estimated start and completion dates
• What happens if construction is delayed?
• Final walkthrough and punch-list procedure

⏳ Add a penalty clause for unjustified delays (e.g., 0.1% per day after a grace period).

5. Penalties, Guarantees, and Warranties

• Structural guarantee (5 years)
• General finishes and systems (2 years)
• Delay penalties for the builder
• Consequences if work doesn’t match specs

🧱 In most turnkey or off-plan projects, Portuguese law provides mandatory guarantees, but they must be clearly stated.

6. Bank Guarantee (Garantia Bancária)

In Portugal, developers are not legally obligated to provide a bank guarantee when selling off-plan or staged-payment projects. However, it is strongly recommended and often expected in well-managed developments — especially where buyers make significant payments before construction is complete.

A bank guarantee is a document issued by a financial institution that promises to refund your payments if the developer fails to deliver the property as agreed. It’s a key form of buyer protection.

Ask:

• Is a bank guarantee available for my payments?
• What amounts does it cover?
• When is it issued and by which bank?

⚠️ Some developers may avoid offering guarantees — especially on informal or small-scale builds. If no guarantee is provided, exercise extreme caution and consider walking away.

Common Red Flags to Avoid

🚩 Vague or missing spec list
🚩 “Indicative” delivery dates without penalties
🚩 No clear definition of what’s included in price
🚩 Builder has no visible track record
🚩 Payments front-loaded (too much paid before work is done)

Special Notes for Turnkey and Off-Plan Buyers

In turnkey and off-plan sales, the construction contract is often bundled with the promissory purchase contract (CPCV). Make sure:

• There’s a clear handover process on delivery
• It includes all construction details, not just property sale terms
• Customization options and deadlines are clearly defined

What About VAT (IVA)?

• New construction is subject to 6% or 23% VAT, depending on use and classification
• Be sure VAT is included in the quoted price, or stated explicitly if not
• Legal and architectural fees are usually subject to 23% VAT

💶 Clarify tax implications early — especially for investment or short-term rental use.

Do I Need a Lawyer?

Absolutely. Portuguese law protects buyers — but only if your contract is properly written and enforced.

Your lawyer should:

• Review the full construction contract
• Verify all licenses and guarantees
• Translate the document or provide a bilingual version
• Ensure your deposit and payments are secured

✅ Even with trusted developers, independent legal advice is essential.