The Process and Laws around Buying Property In The DR
All property transactions within the Dominican Republic are governed by Law No: 108-5 which has been in place since 2007. To own a property, you must have a Certificate of Title, which is issued by the Title Registry Office. To follow is a guideline of the complete process to keep you informed and properly prepared.
Firstly, the process is a little different here in The Dominican Republic. In some countries the practice is to submit a written tender which normally comes from the buyer to the seller, after which the seller formally replies accepting the bid. Here in The Dominican Republic, a written agreement is reached between the buyer and the seller regarding the price, along with a good faith deposit, typically U$500-1,000. If the bid for the property is accepted, the buying process can move forward. If for any reason the bid is rejected, the good faith payment is returned to the buyer. From this point, a binding “Promise of Sale” document is prepared by a lawyer or Public Notary, which is then signed by both parties.
It is always recommended that the buyer retains a lawyer before signing any documents or making a deposit. Due diligence can proceed through the lawyer before preparing and signing the Promise of Sale document, alternatively, the Promise of Sale document can be prepared and signed but with a clause that conditions the purchase of the property subject to due diligence.
The Promise of Sale Document
The promise of sale document is recognized as a formal document and is binding between both parties and agreed and signed in the presence of a Public Notary. The Promise of Sale document is extremely important as it should contain a very detailed description of the complete transaction in its entirety, and should outline the following:
- Full names and details if the parties concerned, including spouses.
- Legal description of the property to be purchased
- The price and terms of payment
- Any default clause as required
- Date of delivery of the property
- Confirmation of due diligence, done or pending
- Representation / references form the seller with clauses to cover misrepresentation
- That the seller is obliged to sign the Deed of Sale once the final payment is made and the transaction complete
Important: The promise of sale document is of extreme importance and must be prepared professionally and include every aspect of the transaction. As such it is important to have a team around you that you can rely on and not only trust, but that speak, read and write Spanish fluently.
Important Points to remember about The Process and Laws around Buying Property In The DR.
- Never pay money over for a deposit without the correct legal advice or documentation. Generally this happens when a developer is requesting funds in advance to build new property and happens more often than you can imagine. Always get the correct legal advice and direction from a source you can trust.
- Make sure you know who you’re doing business with, and that the seller has a clear and clean title for the property you wish to purchase and that he is the owner. All of this can be covered easily with good legal advice from a reputable lawyer and broker.
- Funds can be held in Escrow so that the appropriate amounts can be paid to the seller at the appropriate juncture and in accordance with your “Promise of Sale Agreement”. FYI, an Escrow account is an account with funds held by a third party as agreed by the buyer and seller.
- When making a cash purchase, a “Deed of Sale” or “Contrato de Venta” can be used instead of preparing a “Promise of Sale” agreement. This is a more simple and cheaper process, but is still a binding document that needs to be signed in the presence of a Public Notary, and always with your lawyer and broker on hand.
Determination and Payment of Transfer and Registry Taxes:
Initiated when the deed of sale document is taken to the Internal Revenue Office and a request is made to appraise the property. Once an inspector has been appointed, the sellers tax records are verified and the property will be appraised and assessed and the property tax applied accordingly. This can take a few days or even weeks depending on the availability of an inspector.
Filing at the Registry of Title:
This stage is completed once the taxes have been paid with supporting documentation, which along with The Deed of Sale and The Certificate of Title (from the seller) can now be deposited at the Title Registry Office. The sale is then registered and a new Certificate of Title is now issued in the name of the buyer. Again this can take either a few days or a few months and is subject to the bureaucracy of the office you are using.
The Importance of Doing Your Due Diligence
Some lawyers and realtors can be anything but diligent which is why the recurring message throughout this article is for you to have confidence and trust in the people around you, we cannot stress this enough. Sometimes deals will be rushed through or pressured because someone is looking for a pay day. DO NOT BE HURRIED INTO ANYTHING! To follow is your due diligence checklist.
Due Diligence Checklist
- You will need a copy of The Certificate of Title for the property from the seller.
- A copy of the official property survey or deslinde. The new Property Registry Law states that the sale of properties without a government approved plot survey or deslinde cannot be recorded at The Title Registry Office. There are a couple of exceptions to this rule which we would be more than happy to go through with you as necessary.
- A copy of the sellers ID card or cedula (and spouse if applicable), or passport.
- A copy of the receipt showing the last property tax payment or IPI. If the property is exempt from tax, a verification certificate would be required along with certification from The Inland Revenue Office that the seller is up to date with his / her taxes.
When Buying a Property that is a Corporation
- You will need a complete copy of the corporate documentation including up to date.registration at the Mercantile Registry and the resolution which authorizes the sale.
- Certification from the Inland Revenue Office to show that the corporation is up to date with it’s tax obligations.
When Buying a Condominium
- You’ll need a copy of the condominium declaration.
- A copy of the condominium rules and regulations.
- A copy of the official / approved construction plans.
- Certification from the condominium administration to show that all dues / payments are up to date.
- Copies of the minutes from the last three condominium meetings.
When Buying a House
- An inventory of contents / furniture / furnishings
- Copies of utilities contracts to show that everything is up to date and in the sellers name.
Once the above is in order, the following check list will need to be adhered to and completed by your lawyer.
Lawyer – Check List
- Title Search – You’ll need certification from The Registry Office to verify the status of the property, the owner and to make sure there are no mortgages, liens or anything else that might affect smooth transition of the purchase of the property.
- Survey – You’ll need an independent surveyor to verify that everything coincides with the property itself against the survey shown by the seller. This may not always be applicable in sub divisions. Basically what you’re doing here is ensuring what you see with your eyes, coincides with the relevant legal paperwork. Always do your due diligence!
- Possession – Your lawyer needs to check that the seller is in full possession of a property. Tenants or squatters on the property can be troublesome and costly to evict.
- Employees – Any employees with any related work history to the property such as gardeners or housekeepers should be paid their legal severance prior to closing to avoid this becoming the new owners legal responsibility.
- Utilities – Your lawyer should double check that all utility bills are paid and up to date, i.e. power, water, cable T.V., Internet & telephone.
Taxes, Legal Fees and General Expenses on The Process and Laws around Buying Property In The DR
All taxes must be paid and up to date before the purchase is registered at the Title Registry office. Taxes to be paid on the conveyance of the property are normally 3% of the government appraised value. Additional minor expenses can be incurred to cover certified checks, sundry stamps and tips if necessary. Taxes are paid on the official market value of the property determined by government authorities, not on the purchase price agreed between the buyer and the seller.
Generally the tax paid for real estate transactions is between 1 – 1.5% of the gross sale price. Tax breaks are given to properties worth more than a million dollars, and also to properties with a value of U$150,000 or less.
There is an annual tax payment of 1% cumulative to the government assessed value of all property or properties owned by an individual not including furnishings. Real estate tax is due on or before March 11th or with prior agreement, can be paid in two separate installments, the first on March 11th, with the second due on or before September 11th.
Properties with a government assessed value of less than RD$8,138,353.26 (approximately U$145,000) are exempt with the amount adjusted annually for inflation.
Exemption from Real Estate Tax
- Farm Properties
- Homes where the owner is 65 years or older and where the owner owns only one property
- Properties that are owned by companies in a corporation where a separate tax is applicable on the companies assets.
The Purchase of Real Estate by Foreigners
There are no restrictions on foreigners purchasing real estate at this time in the Dominican Republic other than the Title registry Office keeping a record of any such purchases.
Inheritance of Real Estate by Foreigners
At this time in The Dominican Republic, there are no restrictions on foreigners inheriting titles to real estate / property. The payment of tax applicable to the inheritance of property has recently been reduced to 3% of the appraised value of the property.
Here in the Dominican Republic there is a law known as “forced heirship” which states that part of the inheritance goes to certain heirs by law, unless a will / testament is made stating otherwise.
For further information regarding The Process and Laws around Buying Property In The DR, don’t hesitate to contact us.
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