REAL ESTATE LAWYER

TRANSACTION COSTS

Who Pays?Legal Fee2.00%buyerRegistration Fee0.30%buyerTransfer Tax2%sellerReal Estate Agent´s Fee3.00% - 5.00%sellerCosts paid by buyer2.30%Costs paid by seller5.00% - 7.00%ROUNDTRIP TRANSACTION COSTS7.30% - 9.30%

How difficult is the property purchase process in Panama?

There are no restrictions on ownership of property by foreigners, except that article 121 of the Panamanian Tax Code says that foreign persons, or Panamanian corporations with foreign ownership, cannot purchase property located less than ten kilometers from the frontiers, nor on islands under the jurisdiction of Panama. Foreigners may engage in commerce or industry without limitations.

Panama encourages long-term foreign investment and offers a retiree incentive program, the Pensionado program, which is not necessarily age-related and whose benefits are considerable such as tax exemptions and big discounts on utilities and basic services.

It is advised that a good way to protect all rights as a foreigner to hold real estate is through the establishment of a Panamanian Corporation. This will protect you from frivolous legal proceedings or asset seizure in your home country and has advantages under Panamanian law as well. Constitutionally, the government cannot seize private property unless it follows a procedure similar to eminent domain in the U.S. The owner receives fair market value for land and improvements.

The two most common alternatives used by foreigners are (1) to ensure that the property purchased is already titled, and (2) to purchase a "possession right".

1. Titled Properties

The Public Registry Office (Registro Publico) keeps record of all titled properties in all nine provinces of Panama. Information regarding titled properties is readily available through the Public Registry, and thus it is fairly simple to undertake a preliminary due diligence.

The following are the steps necessary to successfully buy a titled property:

1. Perform a complete due diligence of the property, including a complete title search, review of cadastral maps, verification of tax good standing of the land, verification of good standing in utility bills (water and sewage, electricity, telephone, etc.) as well as verification of any other special characteristic, limitation or encumbrance over the property.
2. Enter into a Promise to Purchase Agreement to secure the property, which will give the buyer time to properly execute the due diligence, and to obtain financing. This agreement must be recorded in the Public Registry in order to affect third parties.
3. When due diligence has been completed, enter into a Purchase and Sale Agreement. It is important to include an indemnification clause in the event of hidden defects of the property.
4. Ownership is confirmed once the public deed containing an annotation regarding change of ownership is registered at the Public Registry Office.
5. Generally, payment is not delivered to the seller, until transfer of ownership has been registered. But in some other cases the parties agree to appoint an escrow agent (lawyer or banker) to receive the funds under an escrow agreement, which states that payment will be made immediately upon presentation of the deed of transfer of ownership of the property, duly recorded at the Public Registry Office.

2. Possession Rights Properties
(Derecho Possessorio)

Not all properties in Panama are subject to registry in the Public Registry Office. Many beach front properties, islands and real estate in special tourism zones such as Bocas del Toro and Portobelo are owned and managed by the national or local municipal governments, and only "possession rights" are granted over these lands for a determined period of time.

Persons interested in investing in projects located in these restricted areas should be very careful to ensure that the award of the "possession right" or "limited ownership" is granted by the pertinent national or local municipal government authorities. It is important to verify the following:

1. That the award of the piece of land has been issued by the correct authorities.
2. That the award contains a complete description, including limits, boundaries, encumbrances, and other important details of the land. A complete blueprint should have been drawn and approved.
3. That the activity to be undertaken by the purchaser is allowed, that is that the construction or building to be made is acceptable to the national or local government.
4. That the award be extensive for a period of time suitable for the purchaser.

Due to the lack of uniformity regarding the granting entity for "possession rights," it is of utmost importance to review each purchase individually and make recommendations especially for each land option. The length of the transaction process for the possession rights transfer will vary, and can take up to 6 months.

Derecho Possessorio can refer to two situations:

1. Government land occupied by peasants. After a length of time, the occupant can claim the occupied piece of land, and officially obtain the "right of use" for an indeterminate period (it has been known to pass from one generation to another.) This right can be sold.
2. Unused idle private land occupied and worked by third parties for an extended period (at least 5 years), which can be claimed by the people who have worked the land. Establishing the Derecho Possessario is a legal process, that requires probes and witnesses. Conversely, owners must periodically inspect expanses of land, or people them with live stock or buildings, in order to establish proof of use, and to discourage claims against the owner.

An important difference between a owning a Titled Property and a Rights to Possession is that a titled property can be mortgaged, whereas possession rights cannot.

Be careful in dealing with Panamanian Real Estate Agents. Some agents have been known to ask 100% more for a property, without the owner knowing it. They then pocket the mark-up, plus their commission. When buying real estate through an agent, it is advisable to talk to the property owner. If the real estate agent refuses to allow this, best walk away from the deal.

The whole process of registering a property can take around 22 days to complete.

Transaction Costs Table
The round trip transaction costs include all costs of buying and then re-selling a property - lawyers´ fees, notaries´ fees, registration fees, taxes, agents´ fees, etc.Transfer tax is levied at a flat rate of 2%. The tax base is the selling price of the property or the cadastral value of the property, whichever is higher.

Transfer tax is levied at progressive rates for first sale of residential properties, as of 2020.

Transfer tax is levied at a flat rate of 4.50% for commercial constructions.

Rents: Can landlord and tenant freely agree rents in Panama?

Rents can be freely agreed between landlord and tenant.

In general, lease agreements can freely incorporate increases in the rent every certain amount of years, as agreed between the parties. Nevertheless rents equal or lower than US$150 per month, which are regulated by Law No. 93 of October 4, 1973, can only be increased with prior a written authorization of the Ministry of Housing, which will issue its approval depending on the fairness of the sums charged to the tenant and the reasonableness of the return on the landlord's investment.

Security Deposits

A security deposit equal to one month's rent must be consigned by the tenant to the Ministry of Housing, via the landlord. This will be returned to the tenant once the lease agreement has terminated, unless there is a claim on behalf of the owner for any amount owed by the tenant, or for any damage caused by the tenant to the property .

What rights do landlords and tenants have in Panama, especially as to duration of contract, and eviction?

In general, there are no restrictions or limitations in regards to the duration of a lease agreement. The parties can freely agree on the duration of the lease contract, as well as the extension period, unless the rent payments are equal or lower than US$150 per month.

The tenant however is not bound by the agreement as to the duration of a lease, but can terminate the contract any time, with a thirty calendar day notice to the landlord.

In those contracts regulated by Law 93 of 1973, the term of duration must be of a minimum of three years. In addition, the tenant has the right to have the lease agreement extended for the same amount of time if upon the termination of the contract, if the tenant is up to date in all the rent payments.

How effective is the
Panamanian legal system?The eviction proceedings for the lease agreements not subject to Law 93 of 1973 must be filed before the municipal or circuit courts of the Panamanian Judicial Branch. Enforcement of the order is carried out by the Corregidor, the highest authority of the borough where the tenant resides.Eviction procedures for those lease agreements regulated by Law 93 of 1973 are filed before the Housing Commission of the Ministry of Housing.In general terms, the court systems works, although the caseload is substantial and it may take several months to finalize the evictions.Executive proceedings for collection of payment are also under the jurisdiction of the municipal or circuit civil courts of the Judicial Branch.LegislationThe general provisions of the Civil Code of 1917 regulate the lease of urban and rural real properties, following the provisions of the Spanish Civil Code.The lease of urban real properties is in addition regulated by Law No.93 of 1973. The lease of privately-owned real properties to be used as residence, commercial establishments, professional use, industrial and educational, will depend on private agreement between the parties and will be regulated by the Panamanian Civil Code Law No.93 of 1973 also regulates sub-leases and the lease of rooms and furnished apartments.The following leases are subject to the provisions of Law No.93 of 1973:

• Leases of properties to be used as residence with a monthly rent of US$150.00 or less.
• Leases of vacation properties if the term exceeds six months.

The following leases are partially subject to the provisions of Law No.93 of 1973 (the provisions of the Civil Code and the Judicial Code are also applicable):

• Leases of furnished rooms in private properties destined to this activity on a permanent or occasional basis.
• Leases of private properties to be used as residence entered into as of January 7, 1995.
• Leases of private properties to be used as commercial establishments, professional use, industrial or educational activities.
• Leases of private properties to be used as residence with a monthly rent exceeding US$150.00.

The following leases are excluded from the application of the provisions of Law No.93 of 1973:

• Leases of rural properties.
• Leases of properties reverted from the former Canal Zone.
• Leases of properties which rent is fixed per day (hotels, motel, boarding houses and inns).
• Leases of vacation properties if the term and its renewals do not exceed six months.
• Leases of properties in which the Nation and the Municipalities are parties (if these entities are landlords, the eviction provisions of Law No.93 may be applied).

Brief history: Recent changes in Panamanian landlord and tenant lawFrom 1917 until the beginnings of the decade of the 1970, laws regarding lease contracts were dispersed and without practical impact because they were mostly not enforced.In 1944 the Urbanization and Rehabilitation Bank (URB) was formed as an entity to try to solve the urban tenancy problem. In 1953 the Economic Fostering Institute was created and the URB became part of this entity. In 1958 the Urban Housing Institute (IVU) was created and finally the Ministry of Housing was organized in 1973. Law 93 of 1973 was enacted as an integral solution to a previously dispersed and anarchic regulation of a very complex situation.In the past decades since the enactment of Law No.93 of 1973 there have been no substantial changes in the landlord-tenant regime, but the Ministry of Housing has issued regulations on issues such as deposits, payment of water services, increase of rent payments, eviction procedures, among others, all of which are provisions of Law No.94.Market PractiseReal estate agents act as intermediary between landlords and tenants. Lease duration is usually 3, 5, 10, 15 or 20 years. The tenant has the right to terminate lease with penalties agreed. Rent is usually indexed annually to an agreed rate of 3% - 5% per year. Rental deposit is usually 2 - 3 months with 1 month deposit to the ministry of housing and 1 - 2 months for the lessor. The rent is payable monthly in advance.There are approximately 2,000 real estate agents working for about 230 firms in the Republic of Panama. A licensing law was passed in July 1999. Most real estate firms provide full services, such as sales, leasing, management, and valuations. The commission structure is ranging from 3% to 6 % depending on whether the seller commits to a substantial advertising budget. Commission is usually paid by the seller and is at 5%What inheritance laws apply in Panama ?
Inheritance is governed by the main residence of the deceased.The principal law which applies to inheritance issues in Panama is the Civil Code, Third Book, Titles I to V, articles 628 to 938. This applies to everyone who owns property in Panama, both nationals and foreigners, regardless of the religion, nationality, or place of residence of the deceased.According to the Civil Code, the law that applies to inheritance issues is that of the main and permanent residence of the deceased, i.e., where a person lives, has his permanent business/work place, and where his family lives. The place of residence does not change, unless the person declares the change before a public authority.Civil courts deal with inheritance issues. Depending on the amount of the estate, it may be cognized by a municipal civil court (up to US$4,999), or by a circuit civil court (from US$5,000). Inheritance cases typically take from 8 to 12 months, with no extra time required for a non-resident foreigner´s property.No reserved portion in PanamaIn Panama, there is no reserved portion. The testator can freely leave all his property in his will, as he chooses.In the absence of a will, the distribution of the estate is established by law. The surviving spouse inherits the same proportion as the children of the deceased. In the absence of children, the surviving spouse inherits the same proportion as the parents of the deceased.It is advisable to male a local willIt is normal in Panama to formally make a will, but recently, more and more people have been using private interest foundations to protect their assets, and to make sure inheritors receive them after the founder´s death.Private interest foundations are constituted for the protection of assets. They have no shareholders, and the founder does not acquire such rights in connection with the assets. The goods of the foundation cannot be seized, confiscated or subject to any action or preventive measures; they are not subject to taxes, contributions, rates, burdens, or tributes of any kind, except for the payment of the annual tax fee. If the applicable law in the founder´s domicile does not oppose the foundation, then the foundation or any of the acts made by the founder cannot be revoked.It is advisable for a foreigner who owns property in Panama to make a local will to lower the cost, since inheritance proceedings are dealt with in Panama and documents must be submitted.If a will is made abroad, it must be authenticated, legalized and translated for filing in Panama, thus increasing the cost.Property may be gifted during the lifetime of the ownerProperty in Panama can be freely given by the owner to anyone prior to his/her death, but property mortgaged in favour of a bank or entity cannot be gifted.Under the Family Code, such a gift is open to challenge after death, by the spouse only, to recover assets given by his spouse to a third party. Such action is time barred in four years. The way to avoid such a challenge is to obtain authorization from the spouse when giving the property, so that the gift is not challenged later.The courts look to the title deed to determine ownershipOwnership of real property under Panamanian law is based on the title deed. Courts look at the title deed and either the will, or the legal rules of inheritance, to distribute real property. Determining the pre-death ownership of property between spouses is therefore not an issue.If real property, or part of it, goes on death to a child or children under legal age, or to others not legally adult, a guardian may be appointed in the will. The Family Code establishes parental rights under which parents are the primary guardians of their child; however any other person may be appointed as guardians in the will.