Real Estate Buyer Rights: Recent Developments 2009

Today, Panama is one of the world's top retirement destinations as well as a world class tourist location. Many buyers acquired pre sale apartments in Panama City because of its skyline reminiscence of Manhattan or Singapore: the high rise buildings facing the ocean or rainforest and many other Panama highlights.

We are all aware of the world economic crisis, of unprecedented proportions, which has affected the personal wealth of millions of people all over the globe.

Many buyers/investors will be affected, and, will probably file civil and/or criminal claims against real estate developers, builders and others trying to get refunds on their investments.  Others will more carefully examine the properties they are buying for defects, damages and other problems.

It is therefore essential to review recent developments favoring buyers regarding usual terms and conditions of real estate buy/sell or promise to purchase contracts or agreements.

Abusive Conditions

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

Abusive conditions are understood as those conditions where one of the parties (buyer) is limited or unable to negotiate the contents of the agreement, granting, as a result, abusive control to the seller/developer over the other party. This was a very common practice by developers until a Court of Appeal decision declared it to be illegal.

Panamanian law considers consumer rights a matter of public interest, therefore, even when the affected party did not file any legal complaint due to abusive conditions or illegal clauses in a buy/sell agreement, the “Autoridad de Protección al Consumidor y Defensa de la Competencia” (former CLICAC) is bound and entitled to verify, pursue and file a formal complaint before any competent judicial authority in order to protect consumers within the Panamanian jurisdiction. In practice, most claims are filed at the initiative of the buyer or groups of buyers.

Specific Examples

These are some examples of clauses or covenants that are now considered abusive:

1. Any condition entitling the developer to increase 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.
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.
3. When it comes to outstanding balance or past due payments arising from force majeure situations, purchases/sells agreements shall state mechanisms to settle the breach of payment.
4. No agreement shall bind the parties to renounce or waive the right of judicial assistance.
5. Limitation of liability of the seller.

Term of Liability

One of the most common problems in real estate arises when the unit (house or apartment) is delivered to the buyer. In this moment, the house or apartment may exhibit some construction defects, either in the finishes or the structure itself.  Some defects or damages are not readily obvious, and are considered  “not revealed” or “hidden”, and may not show until one or two years later.  The standard agreement limited the responsibility of the seller to one (1) year. This clause was considered abusive according to the Court ruling dated November 27, 2007 and also contravenes the Panamanian civil code which states a responsibility of ten (10) years to the constructor and even the architect who designed the project, for “not revealed” or “hidden” defects.

Many of the court rulings stated above have been confirmed by means of the Law 29 of 2008, which modifies and improves the present Consumers Rights Law (Law 45 of 2007).

Our law firm, with over 25 years of solid experience in a wide range of maters, will be glad to provide you orientation if you are considering a claim for defects, structural damages and/or others, please contact our experts in the litigation and commercial department.

Lic. Eduardo Achurra

eachurra@padela.com