The property rights and real estate transactions in the Dominican Republic are governed by the Constitution of the Republic, the Civil Code, the Real Estate Registry Law 108-05 and its regulations, and Law 5038 of 1958 and its amendments, which regulate the condominiums or, as they are called in some Spanish-speaking countries, horizontal property or communities of owners.
Real estate registration system
Since 1920, the Dominican registry system is based on the Torrens system, of Australian origin. Under this system, the State creates and maintains a registry of real estate properties, which must be previously subjected to a judicial process of purification called «sanitation». Once the property is «sanitized», its owner is issued a certificate of title as proof of his rights over the property. The certificates of titles have the absolute guarantee of the State and are opposable to the whole world; that is, its content is presumed true as regards the indication of the owner of the property, as well as with respect to any other right or interest that may affect it. Hence, for example, in the purchase of a registered property, the buyer does not have to look beyond the content of the record.
From the date of registration, any act that affects or limits the property rights of the owner over his property must be submitted to the corresponding Title Registry, where the regularity of the act will be checked and, if its validity is confirmed, it will proceed to registration in the registry. The ownership of a property is acquired through the inscription in the corresponding Registry of Titles of an act of sale, legalized before a notary, that complies with the legal requirements. Once the act has been registered, the Title Registrar will issue the title certificate in the name of the buyer, which protects the ownership of the property.
As it happens in other jurisdictions where the Torrens system has been adopted, in the Dominican Republic there are still a few properties for «sanitize», called in the legal jargon «unregistered real estate». The rights over unregistered property are governed by the old ministerial system, according to which the acts that affect them are registered in a registry without any type of guarantee as to the ownership of the rights that fall on it.
Administration of the real estate registration system
The General Directorate of Registry of Titles and the General Directorate of Cadastral Measurements, as well as the local offices that depend on them, are the State bodies responsible for coordinating and directing the registry of properties and real estate operations. A specialized jurisdiction of land courts has exclusive jurisdiction to hear disputes over real estate rights and their registration.
Steps to follow in a real estate purchase
• Preliminary aspects: Unlike other countries where sellers and buyers generally sign an agreement or private document without any prior legal advice, in the Dominican Republic it is recommended that the buyer take over an office specializing in real estate before signing any agreement or disbursing funds, due to the particularities of Dominican real estate law. The attorney-in-fact will take charge of carrying out the necessary steps and verifications to ensure the protection of the buyer’s rights before the signing of the preliminary purchase contract, generally called the sale promise, or alternatively, prepare the sale promise first, but conditioning its execution to the results of the pertinent legal checks
• The promise of sale: Most real estate transactions in the Dominican Republic begin with the signing of a contract of sale promise or purchase option, under which the buyer delivers a deposit, advance or reservation to the seller or a third party, and the seller agrees to sell his property to the buyer according to the terms indicated in the promise or option. The contract is signed by the parties in the presence of a notary, who testifies that the signatures were placed in his presence. The promise or option must contain a detailed description of all the relevant aspects of the negotiation, such as the description of the property, the sale price, the form of payment, the guarantees, the causes of resolution, etc., since its function it is to regulate the sale from its beginnings until the payment of the price is completed and the definitive sales contract is signed, which will serve to transfer the property to the buyer. A well-written promise must contain the following information and minimum mentions:
(a) Complete and general names of the parties. If the seller is married, his spouse’s signature will be required.
(b) Cadastral description of the property subject to the sale.
(c) Sale price and method of payment.
(d) Resolving clause in case of default of payment, if it has been agreed.
(e) Date of delivery of the property.
(f) List of legal and environmental checks that must be carried out regarding the state of the property and conditioning of the payments to the positive result of said checks.
(g) Obligation of the seller to sign the Purchase Agreement upon receipt of the entire sale price payment.
Unfortunately, many Dominican lawyers and notaries, when drafting the promise or option, do not adequately protect the interests of the buyer. The most common deficiencies are the following:
(a) The buyer is allowed to pay a large part of the sale price without any security or real right over the property. In case of improper use of payments or default by the seller, the buyer’s only recourse is to sue the seller personally. In recent years, many buyers of apartments in Santo Domingo and the rest of the country have suffered from the effects of the lack of foresight of their legal advisers. The classic case is that of the developer that uses the advances of its buyers, as well as bank loans, to finance the construction of its project. The lender bank, of course, taxes the property with a mortgage in its favor to guarantee the payment of the loan. When the developer, either due to poor planning or bad faith, fails in its management and can not finish the project, the bank executes the property and the buyers lose both their money and their property. In a certain sense, the buyers play the role of obligated partners of the promoter, with the painful peculiarity that only the losses share and not the profits: if the project is successful, they do not receive, in exchange for their advances of funds and the risk taken, nothing additional to the apartment purchased; If the project fails, they lose everything.
(b) The payments of the price quotas are not conditioned to the existence of a certificate of title free of charges and encumbrances or to the progress of construction or other conditions that could be of capital interest to the buyer. As a result of this lack of foresight, the seller reserves the right to rescind the promise or declare the option expired by the mere fact of expiration of the payment term, without taking into account that the buyer’s lack of payment may be the legitimate response to the lack of fulfillment by the seller of substantial obligations.
(c) Escrow depositories are not used for payments, so the seller handles, for good or bad, the disbursed funds, without any guarantee in case they are handled for bad.
• The definitive contract of sale: Like the promise or option, the definitive contract of sale is signed before a notary. The purpose of this contract is the transfer of the property right over the property sold from the owner to the buyer and is equivalent to the public deed used in Spain and Latin America.
• Determination and payment of transfer and registration taxes: The definitive sales contract must be deposited with the Local Administration of the General Directorate of Internal Taxes, in order to request the appraisal of the purchased property. The Local Administration of the General Directorate of Internal Taxes verifies if the seller is up to date in complying with his fiscal obligations and commissions an inspector to take the property and determine the amount of the taxes to be paid. This procedure may take several days or several weeks depending mainly on the workload of the inspector assigned to perform the appraisal or on the distance between the location of the Local Administration offices and the place where the property is located.
• Registration of the sale in the Registry of Titles: Obtained the appraisal of the property and paid the transfer taxes, the definitive contract of sale and the certificate of title of the property sold must be deposited, together with the documentation provided by the Administration Local of the General Direction of Internal Taxes, in the Registry of Titles corresponding to the jurisdiction where the purchased property is located. In practice, registration is subject to the most varied formalities that require that in most cases the lawyer or notary must appear at the Registry of Titles to complete the transferee, which represents a marked difference with other countries such as Spain, where The registration of the public deed can be done even by mail or by fax, then sending the original by mail or in a personal way, in any Land Registry of the country.
• Issuance of the certificate of title: Once the sale is registered in the corresponding Registry of Securities, a new certificate of title is issued in the name of the buyer and the certificate previously issued to the seller is canceled. It is important to note that the buyer’s property right exists from the moment in which the purchase is registered. The issuance of the new certificate of title can take from a few days to several months, depending on the office of the Registry of Titles in question.
Required legal checks
Many Dominican lawyers do not take care to perform the preliminary checks required in real estate transactions, usually limited to obtaining certification of the status of the property in the Registry of Titles. Many times the real estate agent and the seller press the buyer to a festive closing despite the warnings of his lawyer.
To initiate place checks, the seller must provide the buyer or his legal advisor with the following documents:
• Photocopy of the title certificate of the property.
• Photocopy of the survey or the plan of the property. Under the new Real Estate Registry Law, the sales of real estate that have not been demarcated, that is, that do not have a unique cadastral designation and an individual measurement plan duly approved, can not be registered in the Registry of Titles, except in the following cases: (1) purchases made before April 4, 2007, which may be registered during a two-year grace period that ends on April 4, 2009; and (2) purchases of full properties without demarcating. Sales of portions of such properties are not allowed. No second transfers are allowed without demarcations.
• Photocopy of the identity card of the seller (or his passport) and that of his spouse if he is married.
• Photocopy of the receipt of the General Direction of Internal Taxes (DGII) in which the last payment of the property tax (IPI) or photocopy of the exemption certificate of the payment of said tax is recorded, as well as a copy of the DGII certification stating that the seller is up to date with his tax obligations.
If the seller is a company:
• Photocopy of the constitutional file of the company, of the certificate of registration of the company in the Mercantile Registry, up to date, and of the minutes authorizing the sale;
• Certification issued by the DGII, stating that the company is up to date with the payment of their taxes.
If the property is part of a condominium:
• Photocopy of the declaration of condominium;
• Photocopy of the condominium regulations;
• Photocopy of the construction plans, duly approved by the corresponding authorities;
• Certification of the condominium stating that the seller is up to date with the payment of maintenance fees;
• Photocopy of the last three assemblies held by the condominium;
If the property is a house:
• Photocopy of the construction plans, duly approved by the corresponding authorities;
• Inventory of existing furniture effects;
• Copies of the latest receipts for water, electricity, telephone, etc.
After obtaining the aforementioned documentation, the lawyer’s job is to make sure that the property included in the certificate of title is free of all third-party rights and that it is exactly the property that your client wants to buy.
For these purposes, the following steps should be taken:
• Investigation in the Registry of Titles: The lawyer must be issued a certification of the Title Registry that shows the legal status of the property.
• Verification by a surveyor: A surveyor or independent surveyor should always be hired to verify that the property to be purchased is the same as that shown on the plan submitted by the seller, unless it is a question of previously verified developments. There have been cases in which, for reasons of errors in the measurement or fraudulent maneuvers of the seller, the property presented to the buyer is not the same as stated on the certificate of title. It is advisable to carry out the verification of the plan even in the case of lands that have been demarcated or subdivided with the approval of the General Directorate of Cadastral Measurements.
• Inspection of the improvements: A civil engineer or architect must be hired to inspect any improvement object of sale of the house, apartment or flat, in order to verify that the plans presented by the buyer are correct and that the improvements are in good condition. structural conditions.
• Permits: The buyer’s attorney must confirm that the property being purchased can be used for the desired purposes and that the environmental requirements are met. Although urban planning in the Dominican Republic is very deficient, there are many legal restrictions that must be taken into account before making the purchase. For example, Law 305 of 1968 establishes a sea area of 60 meters, starting at high tide, along the entire coast of the country, which in effect makes all Dominican beaches pass into the public domain. No constructions are allowed within the maritime zone without a special authorization from the Executive Power. In addition, in the tourist areas there are construction restrictions administered by the Ministry of Tourism.
• Ownership: The buyer must verify that the seller is in possession of the property to be purchased and that there are no occupants or improvements belonging to third parties. Special care should be taken in the case of properties that are not fenced and that are outside known urbanizations. It is recommended to close them before concluding the business in order to discover in advance any claim from third parties. If there are tenants, tenants or settlers in the property, the buyer should be informed that the Dominican law overprotects these people and that, consequently, evicting them could prove to be an arduous and expensive task.
• Employees: The seller must pay the labor benefits corresponding to the employees related to the exploitation of the property subject to purchase.
• Services: The lawyer in charge of the operation or the client himself must verify that the seller has no outstanding debts for water, electricity, telephone, cable or other services.
Expenses and fees to transfer ownership
The expenses for the transfer of the property from the seller to the buyer amount to approximately 3.1% of the market value of the property, broken down as follows:
• 3% for the tax on real estate transfers (Law # 288-04).
• Small expenses for various stamps, such as check or heel certification, stamps, tips, etc.
It should be noted that taxes are calculated on the market value of the property transferred (Article 20 of Law # 288-04), through appraisal made by government authorities, and not on the price stipulated in the final sales contract as in other countries
As for professional fees, the standard rate is from 1 to 1.5% of the purchase price, depending on the complexity of the operation, with a minimum for low-value purchases, which normally includes advice in the negotiation of the purchase, the procedures required to verify the state of the property, the drafting of the sales promise and the definitive purchase agreement, as well as its legalization before a notary, the diligence of payment of transfer taxes, the registration of the contract of purchase and sale in the Registry of Titles and the withdrawal of the certificate of title issued in the name of the buyer. The responsibilities of the lawyer-notary in the Dominican Republic correspond, then, to those in Spain that concern the lawyer, the notary and the collegiate administrative manager.
Property taxes (IPI)
The properties whose owners are natural persons are taxed with the IPI at a rate of 1% per year on their cumulative value, according to government valuation. It is not taken into account when carrying out the appraisal or the furniture or the equipment that stores the properties.
For building lots with homes, 1% is calculated on its value for 6,858,885.00 pesos (approximately 150,000 dollars), a figure that is adjusted annually for inflation. For unbuilt lots, 1% is calculated on the value of the property without the exemption.
The IPI is payable annually, no later than March 11, or in two equal installments, the first, no later than March 11 and the second no later than September 11.
The following properties are exempt from IPI: (a) rural land dedicated to farming; (b) dwellings whose owner has reached 65 years of age, provided it has not been transferred from the owner in the last 15 years and is the only one owned by the owner; (c) the homes subject to the tax on assets.
Purchase of real estate by foreigners
There is currently no restriction on the purchase of foreigners from real estate in the Dominican Republic. Previously, Decree No. 2543 of 1945 and its amendments required foreigners to obtain prior authorization from the Executive Power, with few exceptions. This regulation was repealed by Decree No. 21-98 of January 8, 1998, which established as the only requirement that the Registry of Title maintain a record, for statistical purposes, of all sales made to foreigners.
Real estate and inheritance law
Foreigners can freely inherit real estate in the Dominican Republic. However, the succession of immovable property located in the Dominican Republic is subject to Dominican law, which establishes a mandatory hereditary reserve for the benefit of the deceased’s children, unless the foreigner who does not reside in the Dominican Republic expresses in writing, his will to govern the law of his habitual residence.
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