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When it comes to buying real estate in Peru, making sure you fully grasp the property sales contract is essential.
Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.
We've heard countless stories of people making costly mistakes when signing their property agreement in Peru. We want to help you avoid the same experience.
We'll give here a very brief overview regarding the property sales contract in Peru ; if you want a full checklist, please check our property pack for Peru.
What is the Minuta de Compra-Venta in Peru?
In Peru, the property purchase agreement for real estate transactions is commonly referred to as "Minuta de Compra-Venta."
It's a formal document outlining the terms and conditions agreed upon by the buyer and the seller.
This agreement is legally binding and plays a crucial role in ensuring the transaction's legitimacy and fairness.
The Minuta de Compra-Venta typically includes details like the property's description, the agreed-upon price, payment terms, and the obligations of both parties.
It's essential for both buyer and seller, serving as a guarantee and a clear record of the transaction's terms. This agreement is typically drafted by a notary public and is an integral part of the legal process in transferring property ownership in Peru.
For international buyers or non-residents, the process is mostly the same, but they may face additional requirements.
For example, non-residents might need to obtain a Peruvian tax identification number (RUC) or might be subject to specific regulations related to the transfer of funds from abroad.
However, there's no legal restriction on foreigners owning property in Peru, making it relatively straightforward for international buyers.
Regarding the timing of the agreement, it's usually signed after initial negotiations and once both parties are ready to formally commit to the transaction.
At this stage, a deposit is often required. The deposit, often around 10% of the purchase price, serves as a commitment from the buyer and a form of security for the seller. If the buyer backs out without a valid reason, they may forfeit this deposit.
The Peruvian real estate transaction process can differ from other countries in specific ways.
For instance, the involvement of a notary public is more prominent in Peru, and the legal requirements might be more stringent.
Additionally, the process can be slower due to bureaucratic procedures, and there's a significant emphasis on formal documentation.
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What should be included in the property purchase agreement in Peru?
In Peru, the property purchase agreement, or "Minuta de Compra-Venta," must adhere to specific requirements outlined in Peruvian property law to ensure its validity and enforceability.
The main legal framework governing these transactions is the Peruvian Civil Code ("Código Civil Peruano"), which details the essential elements and mandatory clauses for such agreements.
The agreement should contain key elements such as the identification of the buyer and seller, a detailed description of the property (including its location, size, boundaries, and registration details), the purchase price, and the terms of payment.
It's also essential to include the property's legal status, ensuring it's free of encumbrances, liens, or any legal issues that could affect the transfer of ownership.
Mandatory clauses typically include the commitment of the seller to transfer the property's title, the obligations of the parties (like payment schedule, delivery of the property, and transfer of utilities), and a declaration that the property is sold free of liens or encumbrances.
Additional clauses may address specific conditions or contingencies related to the property or the transaction.
These can include clauses for inspections, financing terms, or any agreed-upon repairs or modifications to be made before the sale. These additional clauses provide flexibility for both parties to negotiate terms that cater to their specific needs or concerns.
A crucial aspect of the property purchase agreement in Peru is its authentication. The agreement must be authenticated by a notary public. This notarization process ensures that the document is legally valid and enforceable.
The notary also plays a role in confirming the identities of the parties involved and in registering the transaction with the relevant public records.
Regarding the role of real estate agents, they often facilitate the negotiation and drafting of the purchase agreement.
However, they do not have legal authority to authenticate the document.
Their involvement is primarily advisory and organizational, helping both parties reach an agreement and ensuring that all necessary steps are taken for a successful transaction.
What's the signing process like?
In Peru, the signing process of a property purchase agreement, known as "Minuta de Compra-Venta," involves several steps and specific requirements.
The agreement is bilateral, meaning both the buyer and the seller must sign it. If there are multiple buyers or sellers, each individual must sign the agreement.
For instance, if a married couple is buying or selling a property, both partners are typically required to sign.
Both parties need to provide personal identification, usually a DNI (Documento Nacional de Identidad) for Peruvians or a passport for foreigners.
Additionally, the seller must provide documents proving property ownership, such as a title deed, and evidence that the property is free of liens or encumbrances.
Here is the signing process timeline:
After agreeing on terms, the parties draft the Minuta de Compra-Venta. This step can take a few days to a couple of weeks, depending on negotiations and drafting time.
Once the draft is ready, it is sent to a notary public. The notary reviews the document, which can take from a few days to a week.
After the notary's approval, both parties are called for the signing. This is typically scheduled a few days after the notary’s review.
Post-signing, the notary public registers the agreement with public records, a process that can take several weeks.
Traditionally, signing is done in person, especially for the final notarization.
However, depending on the regulations at the time and the specific notary's practices, remote signing might be possible, especially for parties who are abroad.
There is no fixed deadline for signing; it depends on the agreement between the parties.
However, once the terms are agreed upon, it’s usual to proceed without undue delay to avoid changes in market conditions or the parties' circumstances.
The contract remains valid until the transfer of property is complete, which includes registration with local authorities. The timeframe for this can vary but is usually a few months.
The notary public handles the registration of the contract with public records, ensuring legal recognition of the transaction.
Any amendments to the contract after signing are difficult and require agreement from both parties. If changes are needed, it’s typically handled through an additional written agreement.
After signing, completing all paperwork and obtaining necessary approvals can take several weeks to months.
This includes the time taken by local authorities to update land records and recognize the new ownership.
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How is the payment handled when signing a property purchase contract in Peru?
In Peru, when you're involved in a real estate transaction, understanding the financial aspects is crucial.
Here's a breakdown of what you need to know.
When signing the "Minuta de Compra-Venta" (sales agreement), you're typically required to make a down payment. This amount can vary but is often around 10% of the purchase price.
The standard down payment for a property sale in Peru ranges from 10% to 30% of the total property value. This rate can depend on the seller's requirements and the negotiation between the buyer and the seller.
In addition to the down payment, there may be additional upfront costs associated with the signing of the sales agreement.
These can include notary fees, legal fees, and possibly an initial real estate agent's fee. These costs vary and should be clarified before signing.
The down payment is typically made directly to the seller or into an escrow account managed by a notary or a real estate agent. The escrow account option provides security for both parties, ensuring the funds are only released upon completion of agreed terms.
The due date for the down payment is usually at the time of signing the sales agreement, although specific terms can be negotiated differently.
There are tax implications for both buyer and seller. The buyer is usually responsible for paying a property transfer tax (Alcabala), which is a percentage of the property value.
The seller might need to pay capital gains tax if applicable.
You can negotiate the down payment amount with the seller, but it depends on the seller's willingness and the property's demand.
If the sale falls through, the conditions for refunding the down payment depend on the terms set out in the sales agreement.
Typically, if the buyer backs out without a valid reason (like a failed inspection or financing contingency), the down payment might not be refunded.
However, if the sale falls through due to the seller's fault, the buyer is usually entitled to a refund.
You can use a mortgage loan for the down payment, but it depends on the terms of your mortgage agreement. Some lenders might require the down payment to be from your personal funds.
An attorney or real estate agent can play a crucial role in ensuring the payment process is smooth. They can help with setting up escrow accounts, handling the transfer of funds, and providing legal advice on the terms of payment.
You should always request a receipt or confirmation of payment when making the down payment. This serves as a record of the transaction and is important for your financial records.
Both parties have tax obligations. The buyer typically deals with the property transfer tax, while the seller must consider any capital gains tax.
It's essential to consult with a tax professional to understand these implications fully.
What are the potentials risks and pitfalls?
You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in Peru.
Understanding the risks and pitfalls associated with property purchase agreements in Peru is important for navigating real estate transactions safely.
Both buyer and seller can withdraw from the agreement under specific circumstances. For the buyer, a common circumstance is the inability to secure financing. For the seller, it might be due to a change in personal circumstances or a better offer.
However, the conditions under which withdrawal is permissible are usually outlined in the agreement itself.
Unlike some other countries, Peru does not typically have a statutory cooling-off period in real estate transactions.
Once the agreement is signed, it is legally binding unless specific conditions for withdrawal are included in the agreement.
If a party withdraws without a valid motive as stipulated in the agreement, they could face penalties. For instance, if a buyer backs out without cause, they might lose their deposit. Conversely, if the seller withdraws without cause, they may have to return the deposit along with additional compensation.
If one party fails to fulfill their obligations, the other party can seek legal remedies. Penalties can include forfeiture of the deposit, compensation for damages, or legal action to enforce the agreement.
If a transaction falls through, the handling of money already exchanged depends on the terms of the agreement and the reason for the transaction's failure. Deposits are often at risk if the buyer is at fault, but may be returned if the seller is at fault.
In many countries, real estate transactions might include a cooling-off period, more stringent financing contingencies, or different processes for dispute resolution.
In Peru, the emphasis is more on the legal formalities at the initial stages, and less flexibility once the agreement is signed.
Buyers should be wary of properties with unclear titles or legal encumbrances.
Sellers, on the other hand, face risks if the buyer fails to secure financing. Both parties should ensure clear and legal title, proper valuation, and a thorough understanding of the agreement's terms.
In case of disputes, parties usually resort to legal proceedings. Resolving disputes can involve negotiations, mediation, or, as a last resort, litigation. It's crucial to have legal representation to navigate these disputes.
If defects or issues with the property are discovered after signing, the buyer might seek compensation or nullification of the agreement, especially if these defects were not disclosed prior to the sale. The specific course of action depends on the agreement's terms and the nature of the defects.
Disputes in real estate transactions in Peru commonly arise over property defects, failure to disclose information, or failure to meet the agreement's terms.
These are usually resolved through negotiations or legal action, depending on the severity and nature of the dispute.
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.