Court of Appeals in Favor of Real Estate Investors

According to the Third Court of Appeals decision dated November 27, 2007, all property purchase and sale agreements must follow new rules in regards of the conditions agreed between developers and buyers, affecting all new property sellers and buyers from what is called Abusive Conditions.

The abusive conditions are understood as those conditions where one of the parties (buyer) is limited or unavailable to negotiate its content, granting as a result abusive control to the seller/developer over the buyer. This was a very common practice by developers until Court of Appeals decision declared it illegal.

Panamanian legislation consider consumer rights as a matter of public Interest, therefore even when the affected party ceased any legal complaint due to abusive conditions or illegal clauses in an purchase/sale agreement, the Autoridad de Protección al Consumidor y Defensa de la Competencia (formerly CLICAC) is entitled to verify, pursue and file a formal complaint before any competent judicial authority in order to protect consumers within the Panamanian jurisdiction.

Due to the above, from now on purchase/sale agreements should avoid stating the following conditions:

1. Any condition entitling the developer to increase the price of sale agreed due to construction costs will be considered illegal as long as the agreement does not represent an exact date of project delivery.

The Court of Appeals decision considered that the developers were benefiting in purchase/sale agreements by not stating an exact date of delivery, having a high chance of increasing the sale price of real estate using as an excuse the construction cost increases.

2. Purchase agreements must not contain any condition that may limit the rights of the purchaser to demand compensation when developers decide to abandon the construction or finalization of an ongoing project.

The Court of Appeals considered this illegal due to the fact that developers are considered as real estate market experts; therefore their capability of market prediction to estimate the success of a real estate project is higher.

3. When it comes to outstanding balance or past due payments arising from force majeure situations, purchases/sale agreements shall state mechanisms to settle the breach of payment.

The Court of Appeals decision based on sound judgment, considered consumers rights protection as paramount when it comes to avoiding the breach and default of payments.

4. International statistics show that 90% of the homeowners’ population consider their home as the most valuable asset. This fact does not escape Panamanian reality.

No agreement shall bind the parties to renounce or waive the right of judicial assistance.

5. The lack of legal knowledge or poor legal counsel, many times allowed developers to subdue investors in conditions were legal assistance such as arbitration courts and arbitration rules, is controlled by them, avoiding illegally the possibility to submit the controversy by judicial courts.

The court decision did not affect the penalty of 1% charged by the developer for any outstanding balance once the occupancy certificate is issued.

Lic. Eduardo Achurra

eachurra@padela.com