Special Features
Condo buyer advice
How to handle contracts and closing
By: Jessyca Angulo, attorney for Panama Offshore Legal Services
E-Mail: jessy@pos-inc.com || Phone: (507) 227 - 6645
As more condominium buildings near completion, problems may arise in the final phase of delivering the unit. Foreign buyers should need to be aware of some of these “contractual land mines” and know how to work through the final stages of purchasing an apartment or condominium unit.
When the occupancy permit is issued in a newly built condominium building in Panama, there are two important events. One is payment of the balance owed and the other one is obtaining the keys to the apartment.
“Acta de Entrega” literally translates as the “Act of Delivery”. This is a legal document which the purchaser must sign to acknowledge receipt of the keys to the property. If there are pending installations, broken fixtures, cracks in the marble, a leaky roof or anything else in need of repair, it is best not to sign this document. Wait until everything completed and ready before you sign this all-important document and legally move in.
If you do sign it and receive the keys, the developer has no liability. But if the developer has exclusive access (i.e. you, the buyer do not) they cannot claim someone else broke it. Wait until everything is in order to sign the document, get the keys and move in.
The second major potential problem occurs when the occupancy permit is issued. If your apartment isn’t finished, yet you are still obliged to make full payment of the pending balance, you can avoid paying cash by either having a mortgage pending or taking your cash and depositing it into escrow with a Panama bank. The bank will issue a Promise to Pay letter which the developer is obliged to accept. The bank guarantees full payment when the apartment is duly registered in the Public Registry and any other condition established by the parties is met. This gives you time to ensure that all promised appliances and fixtures are installed – and working.
Additional problems occur when the pre-construction contract contains hidden fees. One is a rent clause requiring the buyer to pay rent once the occupancy permit is issued until the day the developer is paid in full. Rents could vary from 1% to 1.5% of the balance owing every month. If $150,000 is still owed that’s between $1,500 to $2,250 rent each month. In order to avoid paying rent, once the buyer has the apartment fully inspected to his satisfaction the balance can be paid in cash.
However, if a mortgage approval is pending or the buyer chooses the bank Promise To Pay letter, the closing could take up to three months. There is a delay when the deed is filed with the Public Registry and transfer of title is recorded. A bank check issued for the developer needs several days to clear. In the meantime, the buyer is paying rent to the developer. Eliminate this rental clause from the contract if you can.
Another surprise fee is the typical pre-construction contract clause allowing the developer to charge an extra 5% for increase of materials costs. Many developers take advantage of this clause at closing. Some developers get greedy and increase the percentage. Before signing a pre-construction contract make sure the percentage is below the rate of inflation or try to eliminate the clause altogether.
Monthly maintenance fees can also become a surprise if not clearly stated in the contract. Expect this rate to change after the first year of completion when the developer hands over the building to the new homeowner’s association. That’s because the homeowner’s association will evaluate the monthly costs and assess each owner with their pro rate share of all maintenance expenses. Another factor that comes in to play is that of the unsold apartments not paying their share of the maintenance fees which owners may have to make up.
In conclusion, it is advisable to hire an experienced real estate lawyer to protect you from any surprises when accepting the keys or paying the balance owed on your new apartment.