The transfer of position is a common practice in the real estate market, especially in new developments or those under construction. In this post, we will explain how this process works with a practical example, highlighting the steps and precautions that must be taken.
What is Position Assignment?
Assignment involves the transfer of the rights and obligations of a promissory contract of sale of a property, which has not yet been completed, from an original buyer (assignor) to a new buyer (assignee). This process allows the assignor to recover the initial investment and often make a profit, while the assignee assumes the contract and the remaining payments.
Practical Example of Giving Up Position (fiction)
Context
- Development: Lisbon Garden Residential
- Real Estate Developer: Lisbon Properties, SA
- Original Purchaser (Assignor): Maria Silva
- New Buyer (Assignee): João Pereira
- Original Purchase Date: January 1, 2023
- Property Price: €300,000
- Deposit paid by Maria Silva: €30,000 (10% of the property value)
- Property Completion Date: December 31, 2024
Steps for Transfer of Position
1. Initial Purchase
Maria Silva signed a promissory purchase and sale agreement with Imóveis de Lisboa, SA for €300,000 for an apartment in Residencial Jardim de Lisboa. She paid a deposit of €30,000 at the time of signing.
2. Decision to Give Up Position
In June 2023, Maria Silva decides to give up her contractual position due to a job change to another city.
3. Finding an Assignee
Maria Silva meets João Pereira, who is interested in taking over the contract. João Pereira is aware that he will have to pay a sum to Maria Silva, in addition to assuming all the remaining obligations of the contract with the promoter.
4. Agreement and Formalization
Maria Silva, João Pereira and Imóveis de Lisboa, SA agree to the transfer of position. They sign a transfer of position agreement that includes the following points:
- João Pereira will pay Maria Silva the €30,000 already paid to the promoter and a further €5,000 in compensation for the right to assume the position (totalling €35,000).
- João Pereira assumes all obligations and rights of the original contract, including future payments to the promoter.
5. Payment
João Pereira pays Maria Silva the agreed €35,000.
6. Continuation of the Contract
João Pereira is now the holder of the promissory purchase and sale agreement and will be responsible for all future payments, including the payment of the balance of €270,000 to the developer, as per the original contract schedule.
Points to Consider
1. Value Assessment
It is important that both parties correctly assess the value of the property and the amount to be paid by the transferee. Include considerations regarding the amount paid to date and the current market value of the property.
2. Promoter’s Agreement
Check whether the original contract allows for the assignment of a position and whether the promoter’s approval is required. Many contracts have specific clauses regarding this practice.
3. Documentation
Make sure that all necessary documentation is in order and that the position transfer agreement is clear and detailed, to avoid future misunderstandings.
4. Taxes and Fees
Consider the taxes and fees associated with the transfer of a position. In Portugal, there may be tax implications, such as the payment of Stamp Duty.
5. Legal Consulting
Consulting a real estate attorney can help ensure that all legal aspects are met and that both parties are protected.
Advantages of Position Transfer
For the Transferor
- Investment Recovery: Possibility of recovering the initial investment and potentially making a profit.
- Financial Flexibility: Release of resources that were committed to purchasing the property.
For the Assignee
- Access to Under Construction Properties: Opportunity to acquire an under construction property, possibly at lower prices than those practiced on the market after completion.
- Customization: Ability to customize finishes and details of the property (if it is still in the early stages of construction).
Conclusion
Assignment of position is a useful practice in real estate that offers flexibility to buyers and investors. Understanding how it works and taking the necessary precautions can result in beneficial transactions for all parties involved.
If you are considering a transfer of position, be sure to evaluate all conditions, legal and financial implications, and, if necessary, seek legal advice to ensure a safe and effective transaction.
