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Trends and prospects
What are the current trends in and future prospects for the real estate market (both commercial and residential) in your jurisdiction?
Real estate investment lost momentum as a result of the depressed economy, the freezing of real estate surplus and the high prices achieved in the past four years. However, it has not stopped completely, mainly because there are few other safe investment alternatives.
About 10% of new offices are unoccupied and institutional investment in real estate leases has been shifting from commercial and office rentals to housing rentals. Projects are being developed for housing rentals constituting long-term investments, as was traditionally the case with offices.
Rights and registration
What types of holding right over real estate are acknowledged by law in your jurisdiction?
The property right grants its titleholder the ability to use, enjoy and dispose of land. However, there are other rights (eg, usufruct, easements and mortgages) which grant the titleholder a restrictive right over the land.
Are rights to land and buildings on the land legally separable?
The law regulates what happens when a party builds on another party’s property with no previous agreement between the parties and when building materials are permanently affixed to the ground. The legislation applies the principle in which the accessory follows the principal (ie, the land).
Which parties may hold and exercise rights over real estate? Are there restrictions on foreign ownership of property?
The parties which may hold and exercise rights over real estate include those that have a right over land (eg, property right, easement, mortgage and usufruct), are in possession of the property or have at least mere possession over it. Foreigners face certain restrictions when acquiring property, especially properties located in bordering areas.
How are rights, encumbrances and other interests over real estate prioritised?
It depends on the type of right, the preference that the parties give to that right, and the date of its registration.
Must real estate rights, interests and transactions be registered in your jurisdiction? What are the legal effects of registration?
In order to transfer a property or create, among other things, a right of usufruct, use or mortgage, the title must be registered in the Real Estate Register.
What are the procedural and documentary requirements for entry into the national real estate register(s)? Can registration be completed electronically?
In general terms, the most important requirement is that the transfer title must be granted by public deed. There is no national real estate register, each department or geographical area has its own register; therefore, the title must be registered in the Real Estate Register where the property is located. Registration cannot be completed electronically.
What information is recorded in the national real estate register(s) and to what extent is such information publicly available?
The most important information regarding a title is recorded in the corresponding Real Estate Register. The registration must contain:
- the date of registration;
- the nature of the title, its date and details of the public notary where the original title was granted;
- the first names, surnames and addresses of the parties;
- the name and boundaries of the property;
- the signature of the real estate registrar; and
- information regarding the property’s previous registration.
All registrations are public and anyone can request copies.
Is there a state guarantee of title?
There is no state guarantee title in Chile, which is why it is important to request professional due diligence of a property. This typically involves a review of:
- all titles, property registers and documents;
- the owners;
- the urban conditions; and
- other regulatory conditions.
Sale and purchase
How are real estate brokers regulated in your jurisdiction (eg, through caps on commission or disclosure obligations)?
There is no law that regulate real estate brokers; therefore, the obligations of the broker, owner, seller and buyer are regulated by the parties.
What due diligence should be conducted before conclusion of a real estate sale contract?
Due diligence usually involves the study of the previous 10 years’ property titles and documents, in order to review whether the seller is the real owner and whether there are any problems, defects or vices on the property titles. It is also important to review whether the zoning allows the kind of project that the buyer wishes to pursue at the property.
Are any preliminary agreements typically entered into before conclusion of a sale contract?
Normally the parties execute a promise purchase agreement, where they establish all conditions and requirements that must be fulfilled prior to the purchase of the property.
Must sale contracts be concluded in writing? If so, must they be notarised?
Sale contracts must always be concluded in writing and be granted in a public deed.
Can sale contracts be concluded electronically?
What provisions are usually included in a sale contract?
The main provisions of a purchase agreement include:
- identification of the property;
- a sale clause;
- the price and purchase terms;
- delivery of the property;
- a declaration of the state of the property and its rights and liens;
- declarations of the seller;
- an agreement ending any previous settlements;
- a dispute settlement clause;
- a power to amend; and
- a power to register the title in the Real Estate Register.
Obligations and liabilities
What are the seller’s disclosure obligations and other liabilities, and what are the consequences of breach?
The seller is responsible for guaranteeing the buyer’s peaceful enjoyment of the property. The seller must defend the buyer against third-party complaints against the property and indemnify should the buyer be evicted. Further, the seller is responsible for all hidden defects in the property which make it unsuitable for the purpose for which it was purchased. Consequently, the buyer can request the resolution of the purchase agreement or ask for the restitution of part of the price.
What contractual warranties are usually given by the seller?
Normally, the seller offers no warranty in the purchase agreement, which is why it is important for the buyer to carry out a proper due diligence of the property. However, the seller has legal obligations with the buyer – for example, if the seller is a real estate company that has constructed a building, the company will also have obligations and liabilities regarding the construction.
Are there any other obligations on the buyer, aside from paying the purchase price?
If the parties have not agreed any special obligations, the buyer’s only obligation is paying for the property and receiving it from the seller.
What taxes are payable on the sale and purchase of real estate? Are any exemptions available?
In general terms, there are two types of tax that may affect a purchase contract. The first is income tax, which is applicable to the greater value obtained in the sale of real estate. Also, the purchase agreement may by subject to value added tax (VAT), subject to certain conditions, if the seller is deemed to be a regular seller of real estate according to VAT law. Not everyone is subject to VAT and there are exceptions for both types of tax.
Transfer of title
When does title in the property transfer?
The title in a property transfers when it is registered in the name of the buyer in the Real Estate Register.
What is the typical duration of a sale transaction?
There is no standard duration for a sale transaction. It depends on how many conditions the parties establish and how many properties are involved in the operation.
Must a lease agreement be concluded in writing?
The lease is a consensual agreement. However, because of evidence limitations, it should be granted in writing. Further, in rural property leases, the agreement must be granted by public deed or in a private document before two witnesses.
Are there any regulations setting out mandatory or prohibited provisions in lease agreements?
There are regulations that establish certain prohibitions regarding leases for properties of legally incompetent people and of real estate deemed to be part of a marriage community property. There are further mandatory provisions, including that when a rural property is leased the landlord must declare to which tax calculation system he or she is subject.
What provisions are typically included in lease agreements?
The following provisions are included in lease agreements:
- the use and purpose of the property;
- the term;
- rent amounts and payment;
- payment methods;
- other payments of the tenant;
- the deposit;
- prohibition to sublet;
- early termination;
- joint debtor and voluntary bond;
- tenant obligations;
- force majeure;
- delivery of the property;
- dispute settlement clause; and
- power to register the lease in the Real Estate Register.
What are the standard forms of lease agreement used in your jurisdiction?
Regarding real estate properties, there are different regulations for urban and rural leases.
Length of term
Are there any regulations on minimum and maximum terms of leases?
There is no special regulation regarding minimum and maximum lease terms of lease agreements.
Are long-term tenants accorded any special rights as to extension or renewal of leases?
No. However, in urban property leases, there is special regulation for the notification and termination of the lease, whether the term runs month-to-month or is indefinite.
What regulations (if any) govern rent increases?
There is no special regulation for rent increases.
What regulations (if any) govern rent security deposits?
There is no special regulation for rent security deposits.
Can the tenant withhold rent payments on any legal grounds?
There are no legal grounds to withhold rent payments, therefore if there is no special agreement among the parties, the tenant cannot withhold rent payments.
Under what circumstances is sub-letting typically allowed?
The tenant cannot sublet if he or she was not previously authorised to do so by the landlord. However, there is a special regulation in urban property leases with a term exceeding one year, the tenant can sublet the property if the parties have not agreed otherwise.
Obligations and liabilities
What are the general obligations and liabilities of the landlord in respect of the property and what are the consequences of breach?
Landlords must deliver the leased property to the tenant. If the property is not delivered, the tenant can request the enforcement of the obligation or termination of the agreement.
Landlords must maintain the property for the purpose for which it was leased. This implies that the landlord must make the necessary repairs, without which the property would be destroyed or fail to be used for its intended purpose.
Landlords must guarantee that the tenant’s use of the property is free from disturbances. Should disturbances arise, the tenant may have the right to request a proportional reduction of the rent or terminate the lease.
What are the general obligations and liabilities of the tenant in respect of the property and what are the consequences of breach?
The tenant is obliged to:
- pay the rent, as failure to do so may result in the landlord terminating the contract;
- use the property in accordance with the terms agreed in the lease contract;
- keep the landlord free of any liability related to the ordinary negligence derived from the use of the property;
- make all repairs that are not the landlord’s responsibility; and
- return the property to the landlord at the end or termination of the lease.
Are any taxes payable on rental income? If so, are any exemptions available?
In general terms, there are two types of tax that may affect a lease contract. The first is income tax, which is applicable to the income obtained by the owner of the property arising from the contract. Also, the lease agreement may be subject to value added tax (VAT), which applies to agreements for furnished or equipped property for the development of commercial or industrial activities. Under certain conditions, VAT applies to the quotas or final payment made under a lease contract. Certain exceptions for the application of VAT exist.
Are the landlord and tenant bound by any insurance requirements?
If not specified in the lease agreement, the landlord and tenant are not legally obliged to obtain insurance.
Termination and eviction
What rules and procedures govern termination of the lease by the landlord and the tenant’s eviction from the property?
There is a special law that regulates the termination of a lease agreements in urban properties.
In contracts where the lease term has been agreed on a month-by-month basis or is of an indefinite duration, the eviction notice issued by the landlord can be made in court or through personal notification made by a notary.
In fixed-term contracts that do not exceed one year, the lessor may request only the restitution of the property and, in such event, the tenant is entitled to a two-month response period from the notification of the claim. This is a summary procedure where a hearing is held on the fifth day following notification of the claim. The claim will be answered at the hearing. Parties are called to conciliation and must render all available evidence.
If the claim is accepted, the court will declare the lease terminated and order the property to be evicted. Should there be an appeal, the ruling of the first-instance court can still be executed while the appellate court hears the resource.
Enforcement of the judgment is governed by the general rules. However, when the delivery of the property is ordered, Article 595 of the Civil Procedural Code applies “If, after the eviction has been ratified, the appointed date for the restitution of the property arrives without the tenant having evicted the leased property, the tenant may be released from it at its own expense, prior order of a court.”
If the tenant does not comply with the order to evict the property, he or she will be forcibly evicted.
What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
Commercial banks, financial institutions and borrowing companies are the typical providers of real estate financing in Chile. There are generally no restrictions on who can provide financing in Chile; however, there are restrictions regarding financing conditions, such as maximum funding percentages and applicable fees. An example of this is the maximum conventional rate, which corresponds to the maximum interest that can be charged for a financial operation.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
The most common structure to secure real estate financing is mortgages. The structure of financial leasing is also used as a form of real estate financing. The latter is more commonly used in real estate investment and institutional purchases and is unusual in the sale of housing units to end users.
What covenants are typically made in financing agreements?
The most common covenants in real estate financing are the prohibitions to execute:
- acts or contracts that will affect the real estate of the financing, without the prior authorisation of the creditor or financier;
- the sale or disposal of the financed assets; and
- in some cases, change of ownership control.
Enforcement of security
How are security interests enforced in the event of default?
In case of breach of the main obligation, the law grants a series of rights to the creditor of the mortgage for the security of the credit.
First, the creditor has the right to sell the mortgaged property at public auction, so that the credit is paid when the auction is complete. This right of sale is materialised through a so-called ‘mortgage action’.
There are different types of procedure applicable to the mortgage action:
- If the mortgage is exercised against the debtor (owner of the property) or a third party who secured obligations of another person or entity, the rules of the executive or ordinary judgment will be applied, depending on whether the credit is in an executive title.
- If it is a mortgage of a credit granted with mortgage bills governed by the banking law, the special procedure contemplated will be applied.
- If the property belongs to a community, the mortgage action must be exercised against all community members.
What is the typical timeframe for the enforcement of security?
The processing time for a foreclosure procedure will depend on several factors:
- the type of judicial proceeding used;
- the ordinary court in which the trial takes place; and
- the procedural attitude of the counterparty.
Further, the courts have no deadlines to issue their rulings, which means that a final judgment or execution can take up to two years.
What is the general climate of real estate investment in your jurisdiction?
Real estate investment has lost momentum as a result of the depressed economy, the freezing of real estate surplus and the high prices achieved in the past four years; however, it has not stopped completely, mainly because few safe investment alternatives exist. Additionally, since real estate has maintained its value, investment funds have continued to invest in development and real estate income. For these reasons, family offices have emerged as significant investors in real estate.
Institutional investment in real estate leases has been shifting from commercial and office rentals to housing rentals. Projects are being developed for housing rentals constituting long-term investments, as was traditionally the case with offices.
Who are the most common investors in real estate?
The most common investors in real estate include insurance companies, investment funds through companies with real estate purpose and real estate companies.
Are there any restrictions on foreign investment in real estate?
There are no restrictions on foreigners to invest in any kind of business in Chile. The only limitation in real estate is the purchase of property in bordering areas, which is restricted to Chilean individuals and companies.
What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?
Real estate investment can be conducted through a company that owns the real estate. The income obtained by the company for leasing the property is subject to corporate income tax (which is approximately 25% or 27%, depending on the tax system to which the company is subject). Once such income is distributed to the final owners of the company, it is subject to personal income tax or withholding tax at a maximum rate of 35%. Additionally, the capital gain arising from the sale of the real estate owned by the company is subject to corporate income tax and personal income tax or withholding tax.
Real estate investment can also be conducted through an investment fund that owns a real estate company, such company will be the owner of the real estate.
Income obtained by the company is subject to corporate income tax and personal income tax or withholding tax.
In case the investment fund sells the social rights or shares of the company, the capital gain arising from that transaction is not subject to corporate income tax. The income obtained by an investment fund is taxed only when it is distributed to its final owners. As a result, personal income tax or withholding tax apply.
It is important to consider that the fund cannot invest directly in real estate.
Income obtained from the letting of property by a natural person who is not taxed over his or her effective income is subject to personal income tax or withholding tax, depending on whether the owner is domiciled or resident in Chile.
The capital gain obtained by a natural person who is not taxed over his or her effective income in the sale of real estate is not subject to income tax up to a limit of 8,000 indexation units, considering all capital gains obtained by each person for the sale of real estate, subject to the fulfilment of certain requirements. Any excess over this limit is subject to personal income tax or to a sole tax of 10% in case of natural persons domiciled or resident in Chile, at their discretion and subject to the fulfilment of certain requirements. In case of natural persons domiciled or resident abroad, they will be subject to withholding tax at a maximum 35% over such excess.
Planning and environmental issues
Which government authorities regulate planning and zoning for real estate development and use in your jurisdiction and what is the extent of their powers?
The main government authorities that regulate planning and zoning for real estate development are:
- regional governments, which establish the regional development strategy and participate in the approval of communal and intercommunal territorial planning instruments;
- the Ministry of Housing and Urban Planning, which establishes the national urban development policy and participates in regional and intercommunal urban development plans, the national policy for the use of the coastal border and the division of rural land; and
- municipalities, which establish the urban limit, sectional plans, communal and intercommunal regulatory plans, division of rural land and communal tourist planning.
What are the eligibility, procedural and documentary requirements to obtain planning permission?
Planning permission (ie, a building permit) is required for any new construction, or any alteration, repair or reconstruction greater than 100 square metres. Such a permit is granted by the director of municipal works of the corresponding municipality and authorises the petitioner to build in a specific area of the commune, without which no works can be executed.
The following documentation must be filed to obtain the permit:
- an application form;
- title deeds;
- a certificate of previous information;
- a single form of building statistics;
- a certificate of drinking water and sewerage feasibility;
- a favourable report of an independent reviewer (where applicable) or an architect under sworn statement;
- a professional patent of the sponsoring architect and each competent professional involved in the project;
- architectural drawings;
- technical specifications; and
- a structural calculation project.
The Directorate of Municipal Works has a 30-day term, from the date of admission of the application, in which to decide on the requested permit. The directorate may approve the building permit or make observations to be rectified by the petitioner. The petitioner has 60 days to rectify the observations, after which the directorate has another 30 days to approve the building permit. Once the permit is approved, the petitioner must pay the corresponding rights, after which the building permit is granted within three to four days.
Once the construction of the works has been completed, it is necessary to obtain a final reception certificate which declares that the construction is suitable to be inhabited and allows its occupation.
Can planning decisions be appealed? If so, what is the appeal procedure?
Building permits will be approved or rejected depending on whether a specific project complies with legal requirements. If a building permit is rejected, it should be modified in order to comply with the legal requirements established for that specific area. However, if the petitioner disagrees with the decision of the Directorate of Municipal Works, he or she has three main actions to appeal that decision:
- file a claim before the general comptroller of Chile;
- file a claim before the regional secretariat of the Ministry of Housing and Urban Development; or
- file an illegality action before the mayor of the municipality.
What are the consequences of failure to comply with planning decisions or regulations?
No works may be carried out without a building permit. Failure to comply with a building permit may lead to a work stoppage, on the other hand, not having the corresponding final reception certificate may lead to the municipality declaring the inability of the building until it receives its final reception and the eviction of the occupants, with the help of the public force. In addition, in case of any of these faults, the authority may declare the demolition of the constructions, and the local police judge of the respective commune can charge between 0.5% and 20% of the official value of what the works would cost, based on a table issued by the Ministry of Housing.
What regime governs the protection and development of historic and cultural buildings?
There is a specific law which regulates national monuments. The National Monuments Council regulates and governs historic and cultural buildings.
What regime applies to government expropriation of real estate?
Private property is considered a fundamental right and is protected by the Constitution. However, it is possible for certain public authorities to expropriate for reasons of public utility and necessity, in which case the person who had property expropriated is entitled to compensation.
What is the required notice period for expropriation and how is compensation calculated?
Once the resolution that orders the expropriation is published in Diario Oficial (the official bulletin), the property owners affected have 30 business days to file a claim before the civil judge opposing to the expropriation or provisional amount of compensation.
The final expropriation amount may be established by common agreement between the authority and the expropriated party. In this case, they will be able to determine jointly the form and term for payment. The agreement must be made by public deed before a notary, from the notification of the resolution ordering the expropriation until 30 days after the authority took possession of the land that was expropriated.
If the authority or expropriated party disagrees with the amount of compensation provisionally fixed by the expert commission, it may file a claim before the civil judge. The period for claiming starts from notification of the resolution ordering the expropriation, and runs up to 30 days after the authority takes possession of the expropriated land. A complaint to the judge involves a trial and the parties must be represented by a lawyer.
What environmental certifications are required for the development of real estate and how are they obtained?
In certain cases, real estate development requires an environmental qualification resolution.
Regarding the environmental evaluation of a project, the General Environmental law sets out that real estate projects or activities are subject to the Environmental Impact Evaluation System (SEIA) if:
- the real estate projects are located in saturated or latent areas;
- the real estate projects are built in rural areas or extensions of urban areas which require private systems for potable water and wastewater disposal;
- the real estate projects lead to the incorporation of new public roads;
- the real estate projects comprise more than seven hectares; and
- the real estate projects have a capacity to house 5,000 or more people or contain 1,000 or more car parks.
There are two ways in which projects enter into the SEIA:
- through an environmental impact study; or
- through an environmental impact declaration.
This process evaluates all the environmental impacts of the project, as well as asking all bodies of state with environmental jurisdiction to have a say in the process.
The impacts that require an environmental impact study are classified in the General Environmental Law, which establishes that a project will need to submit a study if it:
- risks human health, due to the quantity and quality of effluents, emissions or waste;
- presents significant adverse effects on the quantity and quality of renewable natural resources, including land, water and air;
- presents the resettlement of human communities or significantly changes the life and customs of human groups;
- is located in or near protected areas;
- significantly changes valuable scenic tourist areas; or
- significantly affects national monuments or sites belonging to cultural heritage.
According to time limits established by law, environmental impact studies should take 180 days to obtain approval, while environmental impact declarations take only 90 days. However, in practice the average processing period of an environmental impact study takes around 18 months, and an environmental impact declaration takes around nine months.
Regarding the penalties for failing to register under the SEIA when required to do so, the environmental superintendence can require the developer to register the project under the SEIA, as well as stop all construction or operations. It can also apply a significant fine of up to approximately US$8 million, if the project should have been evaluated through an environmental impact study or a fine of up to US$4 million if the project should have been evaluated through an environmental impact declaration.
What environmental disclosure obligations apply to real estate sales?
Chilean legislation considers no obligations regarding the disclosure of environmental obligations. It is the parties’ responsibility to regulate this issue.
What rules and procedures govern environmental clean-up of property? Which parties are responsible for clean-up and what is the extent of their liability?
The titleholder of an environmental permit is the one responsible for fulfilling its obligations. Therefore, if any environmental damage is detected the titleholder of the permit will be investigated by the Environmental Commission, a public body in charge of applying fines and penalties as a consequence of non-compliance to applicable laws and regulations. Penalties are applied once an investigation is complete. The main penalties are:
- written admonition;
- a fine ranging from approximately US$800,000 to US$8 million;
- temporary or permanent closure; and
- revocation of the environmental qualification resolution.
Regarding environmental liability, the Environmental Act states that "any person that wilfully or negligently causes an environmental damage shall be liable therefore in accordance with this law”.
Environmental damage is deemed to occur if there is any “loss, reduction, detriment or significant impairment inflicted upon the environment as a whole or upon one or more of its components”.
In connection with the environmental actions, the Environmental Law grants the right to file an environmental claim before the competent court to:
- individuals or legal entities, both private and public, that have been affected by the damage or loss;
- municipalities, regarding events that occurred within their respective jurisdictions; and
- the State through the State Defence Council.
Environmental damage occurs through two types of action:
- an environmental action for damages, concerning compensation for the damages caused to the environment; and
- a civil action for damages, concerning compensation of those individuals that have been directly harmed by the action.
The term to claim environmental damages expires within five years from the date on which the damage becomes evident.
With respect to the civil action that arises to compensate or repair the damage caused to any person due to breach of environmental regulations, it is subject to the ordinary tort regimen set out in the Chilean Civil Code, which imposes liability on any person that causes damage to a person or his or her property if the action causing such damage is undertaken with negligence or wilful misconduct. The term to claim civil damages expires within five years from the date on which the damage was inflicted on the person claiming repair or compensation.
In both cases, the person claiming repair or compensation of the environmental or civil damages must prove:
- that the actions undertaken by a third party have caused the damage;
- the existence of negligence or wilful misconduct from the person causing the damage; and
- the existence and amount of damages caused.
Are there any regulations or incentive schemes in place to promote energy efficiency and emissions reductions in buildings?
No legislation incentives are in place at this time.