The Legal Steps to buy Real Estate in Uruguay
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Navarro Abogados , Montevideo Uruguay
Purchase of a Real Estate Property by an Individual
After the individual (the “Individual”) has identified the real estate property it intends to acquire, it should seek the legal advice of an attorney and the services of a Notary Public to assist in the purchase process.
In general, pursuant to the current Uruguayan laws and regulations applicable to real estate transactions, the purchase of a real estate property is structured through the following steps.
Step 1: The Individual enters into a preliminary purchase agreement with the Seller (Boleto de Reserva) to set out the main terms of the transaction including price, form of payment, term to grant the final document, representations and warranties, penalties, etc. This is a private document and does not have to be registered. The parties will set a deadline to enter into the definitive agreement (usually between 30 to 90 days), to allow them to analyze the deeds and ownership documentation during that period. Further, the parties will establish a penalty for breaching any of the obligations assumed by the parties that is usually a 10% of the purchase price, which is deposited with the Notary Public (Escribano) of the respective party as guarantee.
Step 2: After the preliminary agreement is executed, the Notary Public of the Individual will review and analyze the ownership documentation (titles, deeds, etc.) relating to the property and will ascertain ownership of the property for the previous 30 years (statute of limitations for real estate properties).
During this time, the Notary Public and the attorneys will also request all necessary certificates and Registry information, as well as confirming payments of all taxes, contributions, duties, fees and any other obligations corresponding to the Seller or the real estate property. The most relevant and time-consuming certificate is the one issued by the Social Security Authority that certifies that the property does not have any debts outstanding relating to the social security obligations of the owner.
In addition, the lawyer of the Individual will also analyze any legal documentation relating to the property. In case of farms, the seller will have to first offer the property on sale to the Instituto Nacional de Colonización that is a government agency which has a right of first refusal over farms (that meet certain conditions) sold in Uruguay.
Step 3: The review and analysis described in point 2 above will normally take between 30 to 90 days. After this process is completed, the parties may set a date to execute a commitment to acquire the property. This is a public document executed in the public deed of the Notary Public of the Individual. The commitment to acquire is not required under Uruguayan laws although it is convenient under certain circumstances. Generally, should the parties enter into a commitment to acquire they will stipulate the delivery of the property (possession) to the Individual and the payment of at least 50% of the purchase price. The Notary Public will have to pay the stamp taxes at the moment of the execution of the commitment to acquire or the definitive purchase deed (whichever occurs first). The convenience or need to execute a commitment to acquire prior to the definitive purchase agreement should be analyzed with the attorneys and Notary Public on a case-by-case basis.
Step 4: After the review of the documentation by the Notary Public or the commitment to acquire the property (in accordance with the structure the parties chose), the parties will enter into a definitive purchase agreement which will be granted in the public deed of the Notary Public and registered with the Registry of Commerce. This deed will be the title of the Individual over the property and will be enforceable against third parties.
At the execution of the definitive purchase deed the Notary Public will be responsible to withhold a 4% of the cadastral value of the property to pay for the tax on the transfer of properties (Impuesto a las Transmisiones Patrimoniales). The 4% is contributed by 2% each party unless otherwise stipulated. The cadastral value of the property is usually significantly lower than the market value so this is not a significant cost in most real estate transactions.
Step 5: The Notary Public will deliver the original first copy of the purchase deed along with all the background documentation (titles, plans, etc.) to the Individual.
Expenses: The expenses for the Individual involved in real estate transactions are the following:
– Notary Public Fees. Pursuant to the applicable regulations the Notary Public should charge a 3% (plus Value Added Tax) of the purchase price to cover fees and stamp taxes. Currently the VAT is 22% thus, the amount payable to the Notary Public would be 3.66%. This amount will be payable in full by the Individual.
Notwithstanding the foregoing, it is common market practice that in relatively large transactions the Notary Public charges a lower fee of as low as 1.5% plus VAT (or 1.83% of the purchase price). This will have to be negotiated with the Notary Public on a case-by-case basis.
– Real Estate Agent. It is market practice and case law that real estate agents involved in the transaction shall receive a 3% plus VAT (or 3.66%) of the purchase price from each party. Thus, the Individual will have to pay 3.66% to the real estate agent that introduced it to the property.
– Tax on the Transfer of Properties: The Individual will have to pay 2% of the cadastral value of the property as tax on the transfer of properties.
– Attorneys. The Individual will have to pay for legal fees relating to the transaction that will depend on the amount of legal work required.
Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.
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