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Finance

Finance providers

What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?

The main source of funding is direct investment from national and foreign private companies and real estate investment funds. There are no restrictions on who may provide financing.

Financing structures

What are the most common structures used to secure real estate financing and how are these security interests perfected?

Typical security packages include the following:

  • Mortgages, which are created by concluding a public deed between the owner of the affected property (usually, the debtor) and the lender, and by registering this in the public records. Only when the public deed is duly registered in the property's registry file will the mortgage be considered valid and enforceable against third parties.
  • Share pledge agreement, which according to Peruvian commercial legislation must be registered in both the company's share register and the contract registry of the public records (registro mobiliario de contratos) to be effective against third parties.
  • Warranty trusts, which have become common in lending transactions in Peru, particularly because they are seen as insolvency remote, in contrast to mortgages. They are created by concluding a public deed of warranty trust. To be effective against third parties, trusts must be registered in the public records. Specifically, if a trust affects real property, it must be registered in the property’s registry file, otherwise it must be registered in the contract registry of the public records (registro mobiliario de contratos).

What covenants are typically made in financing agreements?

Typical covenants in financing agreements include the following:

  • compliance with laws and any governmental regulation applicable to the borrower or the project (including environmental legal requirements);
  • the operation and maintenance of the project in all material respects, in accordance with any contractual and legal requirements;
  • the preservation and maintenance of the main property assets of the project;
  • the maintenance in full force and effect of any project document (including the construction contract);
  • the payment of taxes, assessments and government charges;
  • the maintenance in full force and effect of all governmental approvals required for the project’s development;
  • the maintenance of insurance policies for the project’s main assets;
  • the preservation of corporate existence;
  • keeping financial records;
  • inspection rights to visit and inspect any of the borrower's properties related to the project;
  • the use of loan proceeds solely to develop the project;
  • financial covenants; and
  • additionally, lenders may request that the borrower grant a negative pledge over one or more assets (including receivables and account balances) of the borrower, to protect themselves against any event of default under the loan agreements.

Enforcement of security

How are security interests enforced in the event of default?

Lenders seek to ensure repayment of their loans through security packages. Typical security packages include mortgages, pledges over shares and warranty trust.

To enforce a mortgage, a judicial procedure is required, although these are not necessary to enforce a pledge over shares (through a sale or adjudication), or to enforce a management and warranty trust over property or other assets of a project.

What is the typical timeframe for the enforcement of security?

For enforcements that require a judicial procedure, the timeframe is three to four years. On the other hand, extrajudicial enforcements of securities usually take around one year.

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