Surface rights in Portugal: what they are and what they are worth

Owning the house without owning the ground

Article 1524 of the Portuguese Civil Code defines the surface right in a single sentence: it is the power to build or keep, perpetually or for a fixed time, a building on land belonging to someone else, or to plant and keep plantations on it¹. That is very little text for a device that splits in two the most solid thing in civil law, ownership of a property.

From the moment the right is created, the same property has two holders. The surface holder owns the building that stands there or that is about to go up. The landowner still owns the ground. Neither of them owns the whole, and both hold a right in rem, with everything that entails: they can sell, they can mortgage, they can leave it in a will.

That is what separates a surface holder from a tenant, and it is worth fixing because it is the source of almost all the confusion around the topic. A tenant pays to use something belonging to someone else and hands it back at the end owning nothing. A surface holder pays for the right to build, and what they build is theirs.

How it is created, and what it costs

Article 1528 allows three routes: contract, will or adverse possession. It adds a fourth possibility that sometimes surprises people, that the right may result from selling a building or trees that already exist, separately from ownership of the land. So there is no need to build from scratch: an existing building can be sold while the seller keeps the ground.

The price has an article of its own. Article 1530(1) allows the parties to agree that the surface holder pays a single sum or a given annual payment, perpetual or for a fixed term. Paragraph 2 clears up a combination that looks contradictory and is not: a temporary annual payment is compatible with a perpetually created surface right. And paragraph 3 closes the door on payment in kind, because those payments are always in money.

If the payments fall into arrears, article 1531(2) entitles the landowner to demand three times the amount owed. And, curiously, article 1537 provides that a failure to pay for twenty years extinguishes the obligation to pay, without the surface holder acquiring ownership of the land as a result.

Where this shows up in real life

The most common answer is: on public land. Article 1527 subjects surface rights created by the State or by public bodies over land in their private domain to special legislation, and that is precisely the mechanism many municipalities use to release land for building without parting with it. The council keeps the ground, the developer or the resident builds and owns what they built, and at the end of the term the land is available again with the building on it.

That is why much of Portugal’s controlled-cost housing and many housing cooperatives rest on this arrangement, and it is also why buyers of such homes are often told that the land belongs to the council. It does, and it does not stop the house from being theirs, from being sold, mortgaged and inherited.

What each of the two rights is worth

Here tax law steps in, and it steps in with rules of its own, because the parties cannot invent the split. Article 13 of the CIMT, the same one that governs the valuation of a usufruct and bare ownership, has five paragraphs devoted to surface rights².

For a perpetual right, paragraph (f) says the value of the ownership of the land corresponds to 20% of the value of the land, and paragraph (g) obtains the surface right by deducting that amount from the full property value.

Read paragraph (f) slowly, because this is where almost every summary slips: it is 20% of the value of the land, not of the built property. On land worth 100,000 EUR carrying a building that takes the full property to 250,000 EUR, ownership of the land is worth 20,000 EUR and the surface right is worth 230,000 EUR, that is 92% of the property.

For a fixed-term right, paragraph (h) uses a different base: the value of the land is obtained by deducting from the full property value 10% for each indivisible five-year period the right still has to run, with the deduction never exceeding 80%. Paragraph (i) does the rest, subtracting the land value from the full property value to reach the surface right.

Note the change of base. In the perpetual case the 20% applies to the land; in the fixed-term case the deduction applies to land and building together. Hence a conclusion that sounds strange and is merely arithmetic: over a property that is already built on, a perpetual right is worth more to the surface holder than a 40-year one. In the example above, 230,000 EUR against 200,000 EUR. The two sums agree only when the land is still undeveloped and is itself worth the full property value.

Finally, paragraph (j) deals with rural properties separately: the value of the land of a rural property subject to a surface right corresponds to 20% of its taxable property value, with no distinction between a perpetual and a fixed-term right.

Five-year periods are indivisible

The word indivisible in paragraph (h) is not decoration, and it is the second source of wrong sums. You do not pro-rate by the time left: you count whole periods.

A right with 22 years left counts five periods and not four point four, so the deduction is 50% and not 44%. The valuation rises in five-year steps, and the ceiling is reached at 40 years, eight periods of five. Beyond that, a longer term does not increase the value of the right.

If that sounds familiar, it is because it is the same convention the Code uses in paragraph (a) of the same article for a temporary usufruct, which you can see at work in our usufruct value calculator.

And what does the annual payment count for?

It counts separately, under a rule of its own. Article 13(d) of the CIMT values the pension payable by the surface holder at eight tenths of its annual amount times the number of years it must run, subject to a limit of 20. We read that limit as a cap on the number of years counted, so a fixed-term payment is never worth more than 16 times the annual amount. It is the only reading consistent with paragraph (e), which values any perpetual payment at 20 times the annual amount: if the cap meant something else, a fixed-term payment could end up worth more than a perpetual one of the same amount.

In practice, a payment of 1200 EUR a year for 30 years is worth 19,200 EUR, because only 20 years are counted: 0.8 times 1200 EUR times 20. If it were perpetual, it would be worth 24,000 EUR.

Who pays the property tax

Article 8(2) of the CIMI settles the question in one line: in cases of usufruct or of a surface right, the tax is payable by the usufructuary or by the surface holder once construction of the works begins or the planting is completed³.

So there is a turning point, and it is worth identifying properly because it is not intuitive. It is neither the signing of the contract nor the completion of the building: it is the start of construction. Before that, property tax remains payable by the owner of the land. After it, it falls on the surface holder, who is the one with the economic use of the property.

What happens at the end

Article 1536 lists the ways the right is extinguished, and three are worth noting. It ends if the surface holder fails to complete the works within the agreed period or, absent an agreed period, within ten years. It ends on the expiry of the term, where it was created for a fixed time. And it ends when the surface right and ownership of the land come together in the same person, which is the normal route when the surface holder eventually buys the land.

Where it ends on expiry of the term, article 1538(1) provides that the owner of the land acquires ownership of the building as soon as the term expires. Paragraph 2 gives the surface holder a right to compensation, with two restrictions that change everything: it is computed under the rules on unjust enrichment, which is not the market value of the building, and it applies unless the contract says otherwise, so the contract can simply exclude it. Where no compensation is due, paragraph 3 makes the surface holder liable for deterioration of the building where they are at fault.

Anyone considering a fixed-term surface right should read that clause before any other, because it decides what is left after decades of paying for a building.

From value to tax

What article 13 of the CIMT produces is the taxable base, not the tax. For a transfer for consideration, the IMT rates then apply, and you can see them in our property transfer tax calculator. For a gift, the headings of the General Stamp Duty Table apply. The starting figure is the taxable property value or the contract price, whichever is higher, and the taxable property value has a calculator of its own.

To split the value between the two rights, use the surface right value calculator: it gives both amounts, the percentage each represents and, where there is an annual payment, its capitalised value.