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Housing in El Salvador

Buying a Property

Foreigners can invest and buy property in El Salvador, and can hold dollar accounts and use these accounts when seeking local financing. No single natural or legal person, Salvadoran or foreign, can own more than 245 hectares. Rural lands cannot be owned by foreigners except for industrial purposes.

There are no restrictions on foreigners buying urban land. Foreigners should be aware of the need to be cautious about property rights.

All property is registered in the Instituto Libertad y Progreso, a state owned registry that clearly identifies the owner of the property. The accuracy of this registry, which is currently being computerised, makes property insurance obsolete. This type of registry system is common in Central America and is considered a safe way to guarantee ownership.

A notary prepares and notarizes the sale agreement. He then facilitates the payment of the registration fee (Derechos de Registro por Venta de Inmuebles, also known as the Alcabala), which is 0.63% of the property price. An additional 3% over the excess of $27,371 should also be paid as the Transfer of Real Estate Tax (Impuesto de Transferencia de Bienes Raices). After which, the deed is presented to the Registry office, and finally to the Municipality.

The whole process of registering a property can be completed in around 52 days.

Renting a Property

Landlord and tenant may freely negotiate and determine the rent by mutual consent.

The mechanism for the adjustment or increase of rent can also be agreed between the parties. It is common practice to determine a fixed annual rate of increase, or to stipulate that the rent will be annually increased proportionally to the previous year’s inflation rate, as published by the Central Reserve Bank. It is strongly recommended that this kind of clause should be included in the wording of the agreement.

However if the agreement is silent about rent adjustments, or the parties do not reach an agreement, and if the property is used for housing, or for offices for public institutions or authorised professionals, the law provides that a Rent Court may authorise the increase in the following events:

where the landlord executed improvements whose value represents at least 20% of the value of the property, with prior consent of the tenant or authorisation of the Court – if authorised, the rent may be increased by up 10% annually in relation to the value of the improvements; usually, the value of the increase is estimated by an expert as per the judge’s request;

where the tenant sublets the whole or a part of the property and there is an evident disproportion between what the tenant pays and the aggregate of what he collects from the sub-tenant (however unless otherwise agreed by the parties, the tenant may not sublet either the whole or a part of the property, without the landlord’s prior written consent).

The above rules are not applicable if the property is leased to a business establishment.

The parties may determine by common consent the amount of the security deposit, and the conditions. The security deposit commonly amounts to a month’s rental installment.

Rental deposits are not customary in housing contracts.

If the property is leased for housing, the parties may determine the duration of the lease. However stipulating the duration has no effect, other than compelling the tenant to pay the rent for the whole period unless otherwise agreed by the landlord.

The determination of a term does not entitle the landlord to insist on eviction of the tenant at maturity. The tenant may continue inhabiting the property on the same conditions originally agreed, as long as he pays the rent agreed and no “termination cause” has occurred.

Notwithstanding the law’s provisos above – not applicable to business rentals – it is common practice for the parties to determine the duration of the contract, and to agree that it terminates when maturity is reached. Indeed, civil and mercantile law provide that whenever the term for the accomplishment of an obligation has not been determined, the obliged party may request the judge to establish the term for its completion.

Upon the occurrence of one of the termination causes stated either by law or by the agreement, or if both parties consent, the agreement may be terminated before the end of the contract period. In this event, and if the agreement is terminated by the tenant’s initiative, usually the landlord gets to receive the rent for the rest of the duration.

Also, Salvadoran law allows the establishment of a “Diplomatic Clause”, which entitles tenant to terminate the lease any time, without any liability.





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