What does it mean to be the owner of an apartment under a joint freehold arrangement?
Being the owner of an apartment under a joint freehold arrangement means that the buyer will be the private owner of an apartment, destined for the buyer’s exclusive use, and also, in terms of co-ownership, of a quota of parts of a development, known as “communal areas”. Depending on the type of the development in question, communal areas can include the exterior structure of the building, communal roads, corridors and walkways.

What are “Tourist Apartments”?
“Tourist Apartment” is the generic term in Portuguese Law given to apartment properties destined for holiday use. This is a proven method for individuals to buy a property as an investment and to benefit from the profits they make from renting the purchased property out to tourists.

What are the main benefits of owning “tourist apartments”?
Owners have the chance to own a professionally managed investment property, which is entirely managed, operated and promoted under a leading hotel brand. Owners effectively benefit from a property free of constraints that combines income derived from tourism with above-average profit management potential. Additionally, owners can benefit from their right to use their apartment for personal use, for a predetermined period every year.

What is Pine Cliffs Residence?
Pine Cliffs Residence is a holiday apartment development comprising 154 two and three-bedroom apartments spread over 13 two or three-storey blocks, apartment buildings and support facilities, located within Pine Cliffs Resort in Portugal. Pine Cliffs Resort currently comprises a group of residential apartments, townhouses, hotel residences, shops and luxury facilities and amenities, as well a hotel facilities, including a health centre, treatment and beauty salons, countless pools for resident and hotel use, and various restaurants under the Sherton/Starwood umbrella, bar area, Beach and Golf Club, with academy and nine-hole golf course, and other golfing facilities.

What am I really buying?
The owner is buying a complete property for investment, which has the potential to generate an income, above the market’s competitive average capital gains. Essentially, the owner is buying an apartment in an award-winning five-star luxury resort, renowned for its excellent quality and service levels in the international tourism market.

What exactly is included in the "package"?
The owner has ownership of a particular apartment, together with the content of the apartment, including its goods, decorative apparel and equipment. The owner concedes the exclusive right to manage and operate the apartment as a “Tourist Apartment”, for a determined period, by a specialised management company, which will manage and run the apartment and provide income for the owner.

What contracts are involved?
The owner celebrates a purchase contract and a compulsory tourism contract with the management company.

How will my apartment generate an income?

During the first three years of operation, the owner has a guaranteed return of 5% p.a. on their investment, independent of the level of revenue generated in each of the respective years, i.e. if the revenue level generated is less than 5% of the investment made. If the revenue is greater than 5% of the investment, the owner will receive this revenue, i.e. the greater of the two.
From the forth year onwards, the owner will receive his share of the income of the net tourism revenue, in accordance with the terms of signed Tourism Transaction Contract, that is to say the proportional share of the income of the net tourism revenue applicable to his apartment(s).

When does the guaranteed return period begin and end?
The guaranteed return period begins on the day the Tourism Transaction Contract is signed, i.e. the day the final deeds are exchanged for the Pine Cliffs Residence unit, and lasts for three calendar years after this date.

Why is the guaranteed income fixed at 5%?
A guaranteed return of 5% during the first 3 years in any tourism operation is an attractive investment opportunity, higher than normal incomes practiced in Europe. This represents a guaranteed return of 15% in the first three years of investment. In granting this guaranteed income to the management company is confirming its commitment and confidence in the product, assuring at the same time an attractive income for the owner, during the initial, development and stabilisation phases of the project. From this moment, the return on the investment is dependent on a stable market environment and normal market conditions.

What happens when the guaranteed period is over?
When the guaranteed return period expires, the owner’s income is based on the normal market conditions, i.e. there is no guaranteed investment return and the owner’s income will be dependent of net tourism revenue calculated in accordance with the applicable formula foreseen in the Tourism Transaction Contract, which establishes, essentially, that the owner has the right to proportionally calculated revenue, based on the property owned, the size of the property and the periods in which the property was available and took part in the network of the tourism system, in all operational costs, expenses, condominium costs, management costs, reserve funds/operating funds and any other costs as foresee in the Tourism Transaction Contract.

Will my apartment increase in value?
Portugal has enjoyed continued, stable growth in property investment, with average annual growth of 10% in the majority of the country, and in particular in the Algarve. It is clear that the Algarve also offers a sustainable and safe holiday destination, easily accessible from the majority of European countries, by plane or car. Every indication and forecast points to the Algarve continuing in this vein, and, at least, benefiting from the same levels of growth of the last ten years, under normal conditions and a stable economic environment.

Do different owners receive different revenue levels?
Each owner of the same kind of apartment receives the same level of return. The calculation is made using the periods in which the individual apartments are available and participate in the tourism system as foreseen in the Tourism Transaction Contract – i.e. a fixed guaranteed return of 5% p.a. on your investment, during a guaranteed period of three years, and, from this moment onwards, the income is based on the effective performance and sales results, which are subject to normal market conditions. Thus, independent of the owner, or the way in which the property was purchased, after the property has been purchased every owner with a two-bedroom apartment will receive exactly the same revenue and every owner with a three-bedroom apartment will equally receive exactly the same revenue guaranteed in the first three years, based on the sale price of the apartment. From the forth year onwards there is no guaranteed return and income is subject to normal market conditions, calculated as per periods in which the individual apartments are available and participate in the tourism system as foreseen in the respective Tourism Transaction Contract, and can vary from owner to owner, depending on the fact the owner is using his apartment during his period of use, or not.

How is the tourist apartment revenue distributed?
The total revenue generated by the tourist apartments is distributed in the account belonging to the Tourism System, deduced of every operational costs, costs and payments to the management company, condominium and reserve fund, as foreseen in the Tourism Transaction Contract, identified as Tourism Net Income, which is subsequently periodically distributed to every owner, and calculated according to the formula determined in the contract.

What happens during the periods of owner use when I use my apartment?
In the periods in which the owner uses the apartment during the period of use reserved for owners, the property is removed from the Tourism System and the owner receives no revenue, nor is he responsible for any operational costs during the period in which the apartment is removed from the Tourism System. The owner is only responsible for the payment of the effective cost of operation expenses during his period of occupation, based on utility costs incurred and expenses relative to service provision.

What happens if my apartment is never let for tourism purposes?
If the apartment is available within the Tourism System and is not being used by the owner or by guests of the owner, in this case the owner will not be effected as to whether the apartment is being let or not to paying guests, since the Total Net Tourism Income of every available apartment is distributed into the Tourism System and distributed in accordance with the provisions of the contract.

How often do I receive my revenue payments?
Tourism Network revenue payments will be made in full to owners every six months.

In which currency is the payment made?
Owners will be paid in Euros (€).

Are the apartments furnished?
Hotel residences are furnished in accordance with five-star standards and matching design quality of the Sheraton/Starwood brand. FFF&E is not included in the purchase price and should be purchased from the management company in accordance with the established furniture, fixtures, fittings and equipments options available, in order to endow every apartment with the same FFF&E standards and quality levels.

Who takes care of repairs and maintenance?
The management company will be responsible for apartment repair and maintenance issues, including FFF&E within the apartments. Costs related to repairs and maintenance will be considered operation costs and will be paid by the revenue generated by the apartments. Additionally, a reserve fund for replacements will be created, with 5% of the total revenue placed in the reserve account for replacements, fundamental improvements, whenever necessary, according to provisions in the Tourism Transaction Contract.

Who pays for vital improvements?

A sum equivalent to 5% of the total revenue is transferred into a Reserve Fund for Replacements, so as to cover future vital improvements subject to the conditions foreseen in the Tourism Transaction Contract. Tourist Apartment and Hotel Room refurbishment every 5 to 8 years is normal practice in the hotel industry.
The management company predicts that his sum will cover refurbishment and any other such costs related to the apartments. However, in the case that the reserve fund for replacements is insufficient, owners will be requested to cover this insufficiency, in accordance with same percentage held in the percentage of the Net Revenue of the Transaction.

Who owns the furniture?
The FFF&E in the apartments belongs to the owner, although the owner grants the exclusive right and control of these FFF&E to the management company as a compulsory element of the Tourism Transaction Contract which came into effect at the same time as the purchase of the property.

Can I take the television home with me?
No. A FFF&E should remain in the apartment, and always at the disposal of the management company, to manage and run the apartment as a unit with a brand image.

Who replaces any damaged or stolen goods?
The management company will be responsible for any responsibilities related to the management and operation of the apartment, with the result that it was replace any damaged or stolen goods. Whenever possible the management company will recover the cost of the damaged or stolen goods from the guest responsible for the act, but, in the event that the cost cannot be recovered the costs will be sustained by the owners and financed using the total revenue, as an operational cost.

Are there restrictions on resale of my apartment?
Owners are obliged to notify the management company of their intention to sell as soon as they make this decision and before putting the property up for sale.
The owners or agents designated by the owners cannot advertise or place any kind of advertisement on the property, and/or in the resort concerning the sale of the property.
Additionally, the owner and/or the agents designated by the owners, should take the necessary care and coordinate their actions with the management company and the operator of the tourism system, when providing access to potential buyers to their property.
Any resale is subject to the signing on the part of the buyer of the tourism agreement.

How can I sell my apartment?
Given the nature of the product, the management company encourages the owner to designate Pine Cliffs’ own Real Estate Mediation company, or another credible and experienced Real Estate Agency when selling this kind of product.

What does my monthly contribution cover?
The monthly contribution covers operational costs, including all of the above mentioned expenses.

What expenses can I expect?
Owners pay for operational costs, which include administration costs for the property, maintenance costs for the property, room cleaning services, basic service charges and insurance premiums. To this end the owner should deposit a certain sum for use within 30 (thirty) days after being notified to do so by the management company. If during any month the funds are insufficient to cover all operational costs, the owners can be requested to provide additional funds. Besides operational expenses, owners should also pay condominium fees, 25% management costs and a 5% to be transferred to the reserve fund account for replacements.

What is the cost of operational expenses?
The operational expenses are proportionally included in the monthly contributions, based on proportional distribution in line with the number of properties of in the owner’s possession. The management company will produce an Operational Budget for the first year of operations and the owner will be notified of the sum to be contributed a period of 30 days prior to the contribution payment date, accompanied by the relevant budget.

Can I use my apartment?
Owners can use their apartment in accordance with the owner use calendar. The owner should notify the management, prior to the end of the November of each year, of the dates which he wants personal use of the apartment for the following year (not applicable in the first year). In the event the owner does not hand in a use calendar it will be assumed that the owner does not want to use the apartment personally in the course of the following year, and as a consequence the property will be available for guests throughout the entire subsequent year. The owners use calendar is subject to seasonal restrictions, in that these restrictions aim to ensure maximal revenue for distribution to owners, with highest rates of guests in these periods.

Who can use my owner use period?
The owner, family members of the owner, and owner friends, with reservations made under the owner’s name and in accordance with policy and procedures established in the Tourism Transaction Contract.

If I choose not to use my periods of personal use or other periods, will my revenue increase?
Yes. It is in every owner’s interest to use as few days personally as possible as the revenue is distributed amongst the owners with available apartments. Thus the revenue will depend on the number of days in which a specific apartment is available for paying guest use and the number of days in which the apartment is being used by paying guests.

What do I have to pay when I use my occupation period (period of use by the owner in accordance with the owner use calendar).
Owners will only pay accounts related to their expenditure, such as bar or restaurant tabs, as well as apartment operational costs during the period in which the owner occupies the apartment, such as the domestic cleaning service, cleaning of the apartment, and services related to the apartment, to be calculated in accordance with the owner’s occupation rate.
Any occupation of the apartment made by the owner outside the owner occupation period (period of non use) should be paid in accordance with the daily fee of a value equivalent to the lowest season applicable to guests in the same period.

Can I save up my occupation period and subsequently sublet the apartment to someone else?
No, this is strictly prohibited.

How is the management company encouraged to maximise the return on my investment?
Starwood Hotel Management Company, under the brand name Sheraton Luxury Collection, is encouraged through a standard management contract, in which it is stated that its income is directly linked to the revenue and profit that the company generates. This is the normal modus operandi in the hotel and tourism industry. As such, the management company is financially motivated and its interests directed so as to ensure the optimal performance of the business, to the benefit of owners too.

Who manages the assets in which I am investing and who supervises the Tourism Operations?
Starwood Hotel Management Company, under the brand name Sheraton Luxury Collection, is an experienced International Management Company of Hotels and Resorts, and the management company is an experienced asset manager, which will supervise and organise the performance of Pine Cliffs Residence. Starwood Hotel Management Company will deliver reports to the management company, which will then regularly deliver them to the owners, reports containing key information as to operation concerning the apartments, starting from the date in which the Tourism Transaction Contract comes into effect.

What is the purchase price?
The purchase price depends on the kind, location and views of the property, amongst other factors.

What are the payment conditions?
The payment conditions are set out in the letter of intent or in the offer to purchase contract.

When are the apartments available for use?
The construction of the tourist apartments is underway and will be completed. The completion of the first phase of tourist apartments is expected for July 2007, at which time they will be operational.

Is a parking space included?
No, but free parking is available in communal areas for owners while they are in Pine Cliffs Resort.

Who represents my interests and who is my point of contact?
The management company is the contractor and immediately responsible for your investment and interests, and will be your point of contact. The management company can delegate this function however to the Starwood Hotel Management Company.

Can I leave personal belongings in my apartment?
No. Unlike a typical residential apartment, the owner acquires an investment, and consequently cannot leave any personal goods in his tourist apartment.

Who is the operator?
The operator nominated by the management company for every operational responsibility is the Starwood Hotel Management Company. The management company reserves the right however to nominate another international management company of equal stature and experience.

Do I pay the bank the mortgage or does the management company pay and administrate it for me?
The responsibility and guarantee of the management company only covers apartment ownership. Apartment owners will have to make their own mortgage payments to the financial institution.

Is property purchase subject to taxes? How much? Who is responsible for this?
The transfer of property is subject to Property Transfer Tax (IMT), which is paid by the buyer.
Transfer tax, on the purchase of a property is due, as a general rule, with relation to the greater of:
(i) The declared purchase price; and
(ii) Value of the property, as it is register for tax purposes.
The tax rates applicable are, amongst others, the following:
(iii) Urban properties used exclusively for residential purposes – progressively up to 6% of the highest category;
(iv) Urban properties with other uses, for example offices – 6.5%.
(v) Property purchased by offshore companies – 15%.
Property promissory contracts and transfer of contractual position of the promissory buyer in such contracts are also subject to IMT, to be paid by the promissory buyer and the transferee. To determine the tax to be paid in these cases special rules are used. If certain requirements have been met, this tax can be credited against the payment of IMT at the time of purchase.
The transfer of property is also subject to Stamp Duty, which is due at a rate of 0.8% on the declare purchase price and also the responsibility of the buyer.

When are the taxes paid?
IMT is payable before the property purchase. The buyer is required to present proof of IMT payment, a document issued by the Portuguese Tax Authorities, to the notary on the date the title deeds for the property are exchanged.
In the event of transfer of the contractual position of the buyer in a promissory contract, the IMT is payable prior to the transfer.
The Stamp Duty is fixed and paid to the notary.

Is property transfer subject to IVA (VAT)?

The transfer of property is exempt from IVA. The parties can, however, agree to remove exemption and apply IVA, determining the fulfilment of the following conditions:

• The buyer has to use the property for an activity subject to taxes.
• The vendor cannot be an individual/company to which the “Regime dos Pequenos Retalhistas” (small retailers tax regime) is applied.
• The profits and costs related to the conveyance of property should be register separately in the vendor’s accounts.

In these situations the vendor is required to obtain a certificate indicating the removal of exemption from IVA from the Portuguese Tax Authorities before the sale. The rate of IVA  (VAT) is currently 21% and should be paid by the buyer to the vendor, who should then deliver the IVA to the tax authorities.
In the event that the parties remove the mentioned IVA exemption, stamp duty is no longer due on the property sale, unlike the IMT, which remains payable.

Is property ownership subject to taxes? How much? Who is responsible?
Property ownership is subject to Municipal Tax. This tax is payable every year, whoever the owner, by December 31 of any year. The rate is calculated and due in accordance with the property value registered for tax purposes. The rates applicable vary according to the nature of the property and the tax residency of the owner (offshore companies):
(i) New urban property, registered for example for tax purposes on or after November 13 2003, or registered before, but which was only acquired on or after January 01, 2004 – 0.2% to 0.5%.
(ii) Properties owned by offshore companies – 5%.
Municipal Tax is paid by the owner (individual or company) in April and September (if the tax amount due is over €250) or only in April (if the tax amount due is less than €250).