Although being a modern country, with an updated legislation based on a Civil Law system, there are several topics and peculiarities within the process of acquiring a property in Panama that will certainly make it stand apart from any other process of its kind in the region. Our positive law establishes flexible enough guidelines to allow common practices to self-regulate the purchase process, referring mainly to how title registration should take place and what elements must be included and detailed. Parties complete names and identifiable particulars, as well as, all specific property related data should be stated, the agreed selling price and the seller’s obligation to guarantee the transfer of the title and right of possession, together with both parties expressed will or acceptance of the deal must be included in order for a purchase process to be concluded successfully. However, these all refer to the actual closing deed or final step of a sales purchase agreement in Panama, it all starts with more complex steps and stages.
Once both parties have express their intentions of both, selling and buying a property, along with its agreed selling price, it is customary to prepare an initial agreement, which will regulate all steps, obligations and foreseeable scenarios for the next weeks or even months of the transaction; this document is commonly known as the “Promise of Purchase and Sale Agreement”.
In this initial contract, parties are referred to as “the Promissory Seller and the Promissory Buyer”, where the former promises to sell and the latter promises to buy. If a party is a legal or fictional person, registry details, along with all general data of its legal representative or authorized attorney-in-fact should be included, as well.
These types of contracts often start with a declaration of title of the Promissory Seller, describing all legal/registry information of the property object of the transaction, as well as its location, size and limitations, however, these last details are already part of the property registered data, making it easier to simply refer all of these to the “described recorded information at the Public Registry”.
The mention of the selling price is usually expressed in letters and numbers, to avoid confusions, and it’s often split into two or more down payments, starting with a lower one (10% – 20% is expected). This common practice has more than one purpose, first it allows the Promissory Seller to take care of certain obligations, such as paying all property transfer-related taxes (around 5% of the selling price) and bring the property up to date with any existing debts, such as back property taxes or home owner association late fees.
But beyond handling funds to the promissory seller, it also represents a token of commitment for both parties to comply with each other’s obligations, since this deposit will become the penalty to bear in mind when one of the parties defaults: on the one hand the Promissory Buyer will lose this initial deposit if he/she can’t finalize the deal successfully for any reason, and on the other, if it is the Promissory Seller the one that defaults, he/she will not only have to reimburse this initial down payment, but add an identical amount as penalty. Even though this is not only a common legal practice but is also stated in our Civil Code (art. 1224), parties may agree something else, such as committing to lose only a percentage of this first down payment or even none at all.
A Promise of Purchase and Sales Agreement must also include the parties’ obligations, where the promissory buyer will have to comply with the established payment schedule and bear with all closing fees and costs, and the promissory seller should provide in due time all documents and information required to draft and register the closing deed. Among these documents, the promissory seller should be ready to provide before closing, the following ones:
A Bill of Sale, drafted in accordance with Panamanian regulations, and countersigned by an Attorney.
Good standing certificates from both, local tax authorities and the water utility public offices.
If the property is subject to the horizontal property regime, a good standing certificate from the building’s Home Owner Association fees should be included, as well.
Proof of payment of all real estate transfer related taxes involved in the transaction, along with its respective application forms.
If the Promissory Seller is acting through a legal entity, a Shareholders’ Assembly Resolution approving the transaction and authorizing its attorney-in-fact should be included, as well.
Once the promissory buyer gains access to all of the above, their attorney (or the bank’s attorney, if the purchaser is financing the transaction) should start working on the closing deed, which will eventually be registered to transfer ownership.
Our constant advice when it comes to these types of investments is to always hire legal representation from day ONE, guaranteeing you an uncomplicated, straightforward transaction.
By: Emilio Cornejo Vernaza LL.M.
Founding Partner of PGS Attorneys and PGS Realty