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What should you consider before signing a real estate contract in the Dominican Republic? This is the question we will try to answer by providing you with a guide on what to take into account before signing and making any payments, to help you avoid potential issues.
The Dominican Republic consistently ranks among the top countries in Latin America on the economic index, showing strong stability and growth, with an increase in both its nominal GDP and GDP per capita over the years. For this reason, it has become an ideal path for “investment,” and one of the easiest investments to make is investment in real estate.
Over the years, the Dominican Republic has not only managed to increase its nominal GDP but also its GDP per capita.
Given the impact of real estate investment in the Dominican Republic driven by the country’s economic growth, we find it necessary to discuss real estate purchase contracts, due to the concerns they raise and the lack of security that most contracts currently present for buyers.
It is important to remember that before purchasing a property, you should conduct your due diligence, which involves more than just reviewing the contract. In this article, we list everything you should take in consideration when making a real estate purchase.
We understand that this is a crucial step, as cases of real estate fraud have become common in the country, and you may notice many projects may have red flags before investing, but these can be spotted by reviewing everything properly.
Some of these cases have even been reported in the press, such as:
1- The Consumer Protection Institute has received at least 1,400 complaints about real estate scams over a two-year period. 70% of these complaints refer to cost increases not stipulated in the contract.
2- Real estate fraud in the Dominican Republic: Challenges, prevention, and the role of surveyors.
Regarding real estate contracts in the Dominican Republic, when discussing the purchase of a property, which can be land, an apartment, a villa, or a house, the first document typically provided is a “Contract,” which may be called:
In this regard, we have identified significant risks and issues that may arise for the buyer of a property.
The problem with most contracts is that they are often excessive and unreasonable, sometimes extremely lengthy and written in complex language, where the buyer ends up with:
As a result, this article is aimed specifically at anyone interested in acquiring any type of real estate. Before signing, you should review your contract carefully (or have a lawyer review it and explain what you’re committing to). Otherwise, if you are the developer, builder, or promoter, consider these points and aim to present a fair and balanced contract that is beneficial for both parties. That should be the proper way to do business: respecting both sides.
Who is the representative signing the contract, and do they have the legal authority to do so?
In this case, it is essential to review the company’s Commercial Registry and verify who has authorized signing power.
Or at the very least, ensure that the person identified as the owner of the property is the one signing.
It might be hard to believe, but in the Dominican Republic, many Construction Companies and Developers are selling complexes, projects, apartments, houses, and villas, without even owning the land.
We must emphasize that this is a highly sensitive matter. When a party does not have a title it means that someone else is the actual owner of the land, which can lead to serious consequences, such as:
The sale does not materialize.
The titleholder or signer could pass away (in which case, the process becomes more complex).
It could be a fictitious sale (a scam). Without ownership, a development or construction project cannot legally take place.
This is very important. Contracts specify characteristics, layout, and size in square meters; therefore, before signing, you must review and verify the details of what you are purchasing by obtaining a copy of the plans for the project and the property to be acquired.
There are some absurd and strange points listed in most contracts. Some of these points are:
A) If the buyer cancels, they might lose the amount paid up to that date or face a penalty of 100%, 50%, or 40%.
B) If the buyer cancels, there will be a retention of 50% of the total contract value, not just on the amount paid. I have personally seen cases where an individual has to make additional payments in order to cancel.
C) If the seller fails to comply, for instance with the delivery date, the buyer does not have the option to cancel without penalty (even if the delay is caused by the seller, builder, or developer).
D) The time frame for refunds is set to be when the apartment is sold.
These are just some examples; the reality is that many abusive clauses are often included.
And believe it or not, anyone can find themselves having to cancel a contract, because our financial situations can change drastically, forcing us to do so. If you don’t pay attention to this at the right time, it can mean losing very large sums of money in some cases.
The seller can cancel the contract at any time, whenever it suits them.
“In both cases, whether the seller or the buyer cancels, there should be a penalty percentage that is equal for both parties, for cancellation and/or breach of contract, not just for one of the parties.”
This is where developers have become creative, setting outrageous conditions, in which the builder or developer can take as much time as they want without any responsibility or breach of contract, such as:
A) “Delivery will be subject to the terms and execution of the project”
This means that if the builder chooses to postpone the project for as long as they see fit, delivery may be delayed without any penalties or liability to the buyer.
B) “The PARTIES agree that the delivery date may be justifiably postponed as a consequence of delays in obtaining the necessary permits from the corresponding authorities, for reasons not attributable to the SELLER.”
This claim is unfounded because any project being marketed and built is presumed to have the necessary permits in place.
This can result in:
A) Permits might never be secured (permits are essential to confirm project viability; without them, viability remains unclear)
B) The process being delayed for years, not only due to government inefficiency, but also because the project may not be in compliance, and authorities may continue to request modifications or additional requirements.
Most of the real estate projects currently being marketed and/or advertised in various areas (Punta Cana, Bávaro, Higüey, Santo Domingo, Samaná, Las Terrenas, Puerto Plata, Cabarete, Sosúa, among others) do not have construction permits.
And the key question would be: How can you make a payment or sign a contract when the project doesn’t even have the required construction permits? What guarantees that the developer will actually obtain them?
A) The property is not delivered on the specified date.
B) What is delivered is not what was sold.
C) The project does not come to fruition.
D) Among other things.
– Such occurrences are possible and, in fact, do happen.
– Compensation for the Buyer under any of these situations.
– How payments made by the Buyer to the Seller will be refunded.
These are some of the most notable reasons why it is important to review a potential real estate contract in the Dominican Republic, although a comprehensive review and complete understanding by the buyer is always recommended. This allows you to fully understand the consequences and responsibilities of your undertaking. If you require more information, we encourage you to contact us through our lines of communication here.
At our law firm, Morillo Suriel Attorneys at Law, we have a specialized division in Real Estate Law and Business, through which we can assist you with any questions or concerns related to verifying real estate documentation in the Dominican Republic or property verification. Our lawyers are available to assist you anywhere in Santo Domingo, Dominican Republic, or worldwide, either through Online Virtual Attorney services or in person at our firm.
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