Real Estate and Condominiums

Real Estate and Condominiums

The Dominican Republic deserves international attention as a desirable place for real estate investment and retirement or second homes. Rippled with breathtaking beaches along approximately 800 miles of coastline, connected by modern highways from north to south and east to west, serviced by six international airports, and governed by a stable, democratic government, the country offers a wealth of real estate options.

The primary laws governing property rights and titles to land are the Constitution, Property Registry Law 108-05 and its enabling regulations, and Condominium Law 5038 of 1958, as amended.

The Constitution of the Dominican Republic permits foreigners unrestricted access to real estate investments. Article 25 expressly grants foreigners the same rights as Dominican nationals except the ability to participate in political activities. Under Article 221, both public and private business activities are treated equally, and domestic and foreign investments are guaranteed equal conditions, with very few restrictions.

Specific to property rights, Article 51 grants all persons the right to enjoy, make use of, and dispose of their property. In addition:

  • A person can be deprived of property only for public utility or social interest and then, only with fair compensation.
  • Neither individual nor corporate property may be confiscated for political reasons.

Property Registry Law 108-05 enacted 23 March 2005, as amended, and its enabling regulations, govern the recording and conveyance of land ownership, and establish the land court system. Condominium Law of 1958, as amended, regulates the creation and governance of condominiums.

The National Department of Title Registrations (Dirección Nacional de Registro de Títulos) and The Cadastral Measurements Directorate (Dirección General de Mensuras Catastrales) are in charge of administering land registration and property measurement. Special land courts (tribunales de tierras) have exclusive jurisdiction to hear property disputes.

Evidence of Ownership

Legal ownership of real property is evidenced by a “Certificate of Title” issued, under the supervision of the National Department of Title Registration, by one of the Title Registry Offices around the country. Property records are available to the public and can be found in the Title Registry Office for the jurisdiction where of the land is located.

Some properties in the Dominican Republic are still not “titled”, meaning that they have not gone through the special process, called saneamiento in Spanish, legally required to issue a Certificate of Title. Purchasing an “untitled” property is more time-consuming and involves more risk than purchasing a property with a Certificate of Title.

Other properties may consist of a legally undivided interest in a parcel of land with a Certificate of Title, evidenced by so-called cartas constancias (notations of record). In other words, the Certificate of Title has been issued in the name of several owners without specifying the specific location of each owner’s property within the parcel. To improve transparency and reliability in land transactions, the issuance of cartas constancias have been severely limited since 2009 and new regulations have been enacted requiring the individualization of these properties through a segregation process called deslinde in Spanish.

Condominiums

Condominiums can only be built on a single parcel of real property with a Certificate of Title. Condominium property may be divided in any manner as long as it allocates space for individual units and common areas. Forming a condominium involves, in essence, the following steps: (a) obtaining a construction license for the condominium building(s); (b) preparation by a licensed surveyor or architect of the division plans; (c) approval by the Cadastral Measurements Directorate of the plans; (d) preparation by the developer of the condominium regulations; (e) recording of the condominium plans and the regulations at the local Title Registry; and (f) issuance by the Title Registry of a Certificate of Title for each individual condominium unit, and of another Certificate of Title for the common areas. A condominium exists legally once it is recorded with the Title Registry Office.

Dominican condominium law differs widely from its American counterpart in several aspects. For example, Dominican law is very restrictive regarding changes in voting rights, common areas, etc. once the condo regulations have been recorded. In addition, special majorities are legally required for important decisions, despite any provisions to the contrary in the regulations. It is, therefore, extremely important to obtain the counsel of an experienced Dominican condominium attorney throughout the condominium formation process, especially in the preparation of the condo regulations.

Real Estate Transactions

All real estate transactions should be performed with the aid of an experienced Dominican real estate attorney to ensure that your rights are protected. You should not sign any documents or make any deposits without consulting a real estate attorney (solicitor). Dominican real estate law is in many ways different from American or English real estate law, and it would be unwise for you to attempt to navigate its waters without the help of a knowledgeable professional. In this regard, it should be noted that real estate agents in the Dominican Republic are not licensed or regulated by the government.

Real estate purchases in the Dominican Republic do not usually follow the North American pattern of a written offer tendered by the buyer to the seller, followed by the seller’s written acceptance. Instead, after verbal agreement is reached by the buyer and seller on the price, a binding Promise of Sale is prepared by an attorney (solicitor) or notary public which is signed by both parties. (Notaries in the Dominican Republic are required to have a law degree.)

Depending on the wishes of the parties, the attorney (solicitor) may proceed with the due diligence first, before preparing the Promise of Sale, or alternatively, prepare the Promise of Sale first, conditioning the purchase to the results of the due diligence to be done in a specified term.

Promise of Sale

The Promise of Sale is a formal document, binding on both parties, and signed by them in the presence of a Notary Public. From a practical point of view, it is more important than the Deed of Sale, since it generally contains a complete and detailed description of the entire transaction up to the time when the purchase price has been paid in full and the property is ready to be conveyed to the buyer. A well-drafted Promise of Sale should contain at least the following provisions:

(a) Full name and particulars of the parties. If the seller is married, the spouse must also sign.
(b) Legal description of the property to be purchased.
(c) Purchase price and payment terms.
(d) Default clause.
(e) Date of delivery of the property.
(f) Due diligence required or done.
(g) Representations by the seller and remedies in case of misrepresentation.
(h) Obligation by seller of signing the Deed of Sale upon receipt of final payment.

Many attorneys (solicitors) and notaries in the Dominican Republic do not protect the buyer adequately in the Promise of Sale. Among the most common deficiencies are the following:

(a) The buyer is allowed to pay a large percentage of the price of sale without any security or direct interest over the property. In case of misuse of these funds, the buyer’s remedies may be limited to suing the seller personally. Many condo buyers in Santo Domingo have suffered through this experience in the last few years. Generally, the developer uses the buyers’ funds, along with a bank loan, to finance the construction. The bank collaterizes the loan with a mortgage on the property. If the developer runs into financial difficulties or misappropriates the funds, the bank forecloses and the buyers lose both their money and their property.

(b) Payments are not conditioned on the availability of clear title or the adequate progress of construction. Sellers, therefore, may demand payment or place the buyer in default without performing their own basic obligations.

(c) Escrow agents are rarely used. The seller, therefore, has control over the funds as they are paid.

Deed of Sale (Contrato Definitivo de Venta)

This is also a formal document binding on both parties, and signed by them in the presence of a Notary Public. It is used primarily for conveying the property from the seller to the buyer.

In case of a cash purchase, it is simpler and cheaper to go directly from verbal negotiations to the signing of the Contrato Definitivo de Venta instead of taking the preliminary step of signing a Promise of Sale.

Determination and Payment of Transfer and Registry Taxes

The authenticated Deed of Sale is taken to the nearest Internal Revenue Office where a request is made for the appraisal of the property. The Internal Revenue Office checks if the seller has met his tax obligations and selects an inspector to do the appraisal. The determination of the amount of taxes to be paid may take a few days or weeks, depending on the availability of the property inspector.

Filing at the Registry of Title

Once the property has been appraised and taxes paid, the Deed of Sale and the Certificate of Title of the seller are deposited, along with the documentation provided by Internal Revenue, at the Title Registry Office for the jurisdiction where the property is located.

Certificate of Title

At the Title Registry Office, the sale is recorded and a new Certificate of Title is issued in the name of the buyer. The property belongs to the buyer from the time the sale is recorded at the Registry. The time for the issuance of the new Certificate of Title may vary from a few weeks to a few months depending on the Title Registry Office where the sale was recorded.

Due Diligence

Proper due diligence is the most important step in every real estate transaction. Unfortunately, many attorneys (solicitors) in the Dominican Republic do not perform it adequately, often under pressure from the real estate agent or the seller, and limit themselves in many cases to obtaining a certification on the status of the property from the Title Registry Office.

A noted American real estate attorney1 has remarked that closing a real estate transaction properly is probably one of “the largest icebergs in the practice of law,” in the sense that most of the lawyer’s work and worry –especially regarding due diligence– cannot be seen by the parties involved. He concludes stating that “the acceptance of a closing by a lawyer is like donning ice skates and venturing onto a great lake of thin ice.”

To start the due diligence, the seller should provide the buyer or the attorney with the following documents:

  • Copy of the Certificate of Title to the property.
  • Copy of the official survey to the property or plat plan. Under the new Property
  • Registry Law, the sale of properties without a government-approved plot (deslinde) are restricted.
  • Copy of his or her national identification card (cédula) or passport, and that of the spouse.
  • Certification showing the seller is current with his or her property tax obligations.

If the seller is a corporation:

  • Copy of the corporate documentation, including bylaws, up-to-date registration at the
  • Mercantile Registry, tax I.D. card, and resolution authorizing the sale.
  • Certification from the Internal Revenue Office showing the corporation is current with its tax obligations, specially Income Tax and Tax on Assets.

If the property is part of a condominium:

  • Copy of the condominium declaration.
  • Copy of the condominium regulations.
  • Copy of the approved construction plans.
  • Certification from the condominium administration showing the seller is current with his or her condo dues.
  • Copies of the minutes of the last three condominium meetings.

If the property is a house:

  • Copy of the approved construction plans.
  • Inventory of furniture, etc.
  • Copies of the utilities contracts and receipts showing that the seller is current.

Once the documentation listed above is obtained, the attorney should address every item on the following checklist:

Certification re status of the property: A certification must be obtained from the appropriate Title Registry Office regarding the status of the property, stating who the owner is and whether any mortgages, liens or encumbrances affect it. In some cases, a search in the records of the Land Court should also be done.

Survey: An independent surveyor should verify that the property to be sold coincides with the one shown on the survey presented by the seller, unless the property is located in a previously inspected subdivision. Cases have occurred in which a buyer acquires title over a property some distance away from the one he or she believes to be purchasing due to careless work by a previous surveyor or to fraud by the seller. The survey should be checked even when the seller provides a government-approved plat.

Inspection of Improvements: A qualified builder or architect should examine any improvements to be sold (house, condo) to confirm that the plans presented are correct and that the improvements are in good condition.

Permits: The attorney should confirm that the property to be purchased may be used for the purposes sought by the buyer. There are many legal restrictions that should be taken into account before purchasing. For example, Law 305 of 1968 establishes a 60-meter maritime zone along the entire Dominican coastline, measured from the high tide mark inland, which in effect converts all beaches into public property. No building is allowed within the maritime zone without a special permit from the Executive Branch. Also, in tourist areas, there are building restrictions administered by the Ministry of Tourism.

Possession: The attorney should check that the seller is in possession of the property. It should be ensured that no squatters’ rights of any kind exist. Special precautions should be taken with unfenced properties outside known subdivisions. Fencing them before closing is advisable. If there are tenants on the property, the buyer should be informed that Dominican law is protective of a tenant rights and that evicting a recalcitrant tenant is time-consuming and expensive.

Employees: The seller should pay any employees working on the property their legal severance, otherwise the buyer may find himself liable for the payment later.

Utilities: The attorney or buyer should check that the seller does not have any utility bills pending by enquiring at the appropriate power distributor, water, cable and telephone companies.

Taxes and Expenses on Property Transfers

Taxes must be paid before filing the purchase at the Title Registry Office. Taxes and expenses on the conveyance of real estate are approximately 3.1% of the government-appraised value of the property, as follows:

  • 3% Transfer Tax (Law # 288-04)
  • Minor expenses such as cost of certified check required to pay taxes to Internal Revenue, sundry stamps and tips at the Registry.

Taxes are paid based on the market value of the property as determined by the tax authorities, not on the price of purchase stated in the deed of sale.

Property Taxes

Properties held in the name of an individual are subject to an annual property tax (Impuesto sobre la Propiedad Inmobiliaria or IPI) of 1% of government-appraised value in excess of than RD$5,000,000 pesos except the following: (a) unbuilt lots or farms outside city limits; and (b) properties whose owner is sixty-five years old or older, who has registered it in his or her name for more than fifteen years, and has no other property.

If the property is held by a corporation, no property tax is due. Instead, the corporation must pay a 1% tax on corporate assets. However, any income tax paid by the corporation will constitute a credit toward the tax on assets, so that if the amount of corporate income taxes paid is equal to or higher than the taxes on assets due, the corporation will have no obligation to pay taxes on its assets.

Title Insurance

In the Dominican Republic, as in many Latin American and European countries, the government provides title insurance. The old Land Registry Law established an indemnity fund with which to pay claimants who due, for example, to an error of the Registrar, were deprived of their property. Unfortunately, the funds collected were used by the government for other purposes.

The Property Registry Law in effect since April 4, 2007 has created a new 2% tax on all conveyances to establish an indemnity fund. It is also possible to obtain title insurance from private insurers.

Purchase of Real Estate by Foreigners

There are no restrictions on foreigners purchasing real property in the Dominican Republic. Formerly, Decree 2543 of March 22, 1945 and its amendments required that foreigners obtain prior Presidential approval in most cases. Decree 21-98 of January 8, 1998 abolished this regulation and established as the only requirement that the Title Registry Offices keep a record, for statistical purposes, of all purchases made by foreigners.

Inheritance of Real Estate by Foreigners

There are no restrictions on foreigners inheriting title to real property in the Dominican Republic. Inheritance taxes have been recently lowered to 3% of the appraised value of the estate. If the beneficiary resides outside the Dominican Republic, inheritance taxes are subject to a 50% surcharge, raising the tax rate to 4.5%.

Inheritance of real estate is governed by Dominican law which provides for “forced heirship”: part of the inheritance must go to certain heirs by law. For example, a foreigner with a child must reserve 50% of the estate to that child despite the existence of a will or of the law of his country of residence. To avoid the application of Dominican rules of inheritance to the estate, it is advisable for foreigners to hold real estate indirectly through a holding company.

GUZMÁN ARIZA ON REAL ESTATE

Guzman Ariza is the foremost authority on real estate in the Dominican Republic and has been for decades. Our senior partner, Fabio J. Guzmán Ariza, has published the only annotated versions in existence of the Property Registry Law 108-05 and the Condominium Law 5038.

Our services encompass all aspects of the Dominican real estate industry. With offices located in every major tourist and business center in the country, we offer you first-hand knowledge of the area where the real estate is located whether it be the North Coast (Montecristi, Luperón, Puerto Plata, Sosúa, Cabarete, Rio San Juan, Cabrera, Nagua); the Samana Peninsula (Las Terrenas, Samaná, and Las Galeras); the Santo Domingo metropolitan area, including Boca Chica and Juan Dolio; the East ( Bávaro, Punta Cana, Bayahibe, La Romana, Miches); the Southwest (Barahona and Pedernales); or the metropolitan area of Santiago in the heart of the Cibao valley.

Our knowledge, experience, and presence allow us to advise more clients on real estate matters in more locations than any other firm in the Dominican Republic.

1 K.F. Boacke, Real Estate Closing Book, American Bar Association, p. xi.

For more information, go to our publications on Real Estate and Condominium.

 

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