In the real estate market, especially in new developments or those under construction, you may hear people talking about “transfer of position”. This is an important concept that allows flexibility for both investors and property buyers. In this post, we will explain what transfer of position is, how it works and what points to consider when engaging in this type of transaction.
What is Position Transfer?
Assignment of position is a process in which an original purchaser of a property, which is still under construction, transfers his rights and obligations under the purchase and sale agreement to a third party. In other words, the original purchaser assigns his contractual position to another person before the completion of the property and the final deed.
How does Position Transfer Work?
1. Initial Purchase
The process begins when a person (the transferor) purchases a property that is still under construction or in pre-launch phase. This buyer signs a promise of purchase and sale agreement with the real estate developer.
2. Decision to Give Up Position
For a variety of reasons, the initial purchaser may decide not to proceed with the purchase. Common reasons include financial changes, changes in personal circumstances, or the opportunity to make a profit by selling the contract rights.
3. Finding an Assignee
The transferor finds a third party (the transferee) interested in taking over the contract. This new buyer accepts the same contractual conditions and obligations that the transferor had with the property developer.
4. Agreement and Formalization
The transfer of a position is formalized through a written agreement. This document must be signed by the transferor, transferee and, often, by the property developer, who must authorize the transfer.
5. Payment
The transferee pays the transferor an amount which may include the amount already paid by the transferor to the promoter plus any additional amount agreed between the parties (potential profit of the transferor).
6. Continuation of the Contract
The transferee assumes all responsibilities and rights under the original contract. When the property is completed, the transferee finalizes the purchase and executes the deed in his/her name.
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
The transfer of a position is a common practice in the real estate market that offers flexibility to both the person transferring and the person acquiring the contractual position. Understanding this process well and the necessary precautions can transform this option into a strategic advantage for all 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.
