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Market spotlight

Trends and prospects

What are the current trends in and future prospects for the real estate market (both commercial and residential) in your jurisdiction?

The development of construction projects and thus the expectation of measured growth in both sectors remains stable. 

Rights and registration

Rights

What types of holding right over real estate are acknowledged by law in your jurisdiction?

The law gives holders ownership rights – the right to use, enjoy and dispose of the land. There are also other rights which are separate from these and which allow the title holder to retain the right to dispose of the land and to trade the right to use and enjoy it (eg, via leasing, possession, usufruct and mortgages). 

Are rights to land and buildings on the land legally separable?

Yes, but there is a legal presumption that all buildings constructed on the land owner’s property are owned by its title holder. A building and the land on which the construction is based may have different owners where the building only is traded and this event is filed in the real estate register. The legal consequences of building on someone else’s land depend on whether or not the building party has acted in good faith.

Which parties may hold and exercise rights over real estate? Are there restrictions on foreign ownership of property?

In Colombia both natural persons and legal entities with legal capacity may hold and exercise rights over real estate. With regard to foreign investors, there are restrictions over properties located in border areas and around the coast.

How are rights, encumbrances and other interests over real estate prioritised?

Rights, encumbrances and interests are prioritised depending on the lien priority order and the seniority of the credit. With regard to mortgages, the mortgage with the oldest date of registration will be paid first if the property is seized and eventually auctioned.

Registration

Must real estate rights, interests and transactions be registered in your jurisdiction? What are the legal effects of registration?

Yes, all rights, interests and transactions must be registered in order to be effective against third parties but not all of these registrations are legal conditions for constituting these rights. In order to transfer the property, rights such as usufruct, mortgages and other encumbrances 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?

There is no national real estate register; every registration must be carried out in the municipality where the property is located. The procedure is first to create the contract subject of registration, then to formalise this with a notary public and present this notarised deed before the register office. The 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 following information must be recorded in the register:

  • the means by which the property was acquired;
  • any encumbrances (mortgages);
  • any domain restrictions (eg, usufruct, easements or condominium regimes);
  • any protective measures (eg, seizures and other claims);
  • any use of the property, such as leasing, possession or usufruct; and
  • the date, time, location and municipality of every act.

This information is publicly available to anyone. 

Is there a state guarantee of title?

No. However, Colombian law makes provisions for a liberty and tradition certificate which shows trades and encumbrances carried out on the property, although this does not guarantee that the land is free from other interests and rights. For this reason, due diligence by a professional is always recommended.

Sale and purchase

Brokerage

How are real estate brokers regulated in your jurisdiction (eg, through caps on commission or disclosure obligations)?

While there is no entity specifically responsible for monitoring and controlling real estate brokers in Colombia, the Superintendence of Industry and Commerce is in charge of protecting consumer interests. Caps and commission are not regulated directly, although traditionally they range from between 3% and 5% for sale and purchase transactions.

Due diligence

What due diligence should be conducted before conclusion of a real estate sale contract?

Due diligence should focus on both the real estate register and the liberty and tradition certificate. As good practice we recommend that a professional check the following:

  • Confirm basic data by looking for the address, real estate number and cadastral reference and compare this to the property under consideration.
  • Check whether the real estate register file is still active, otherwise see if the property has been split and, if so, find the new active file.
  • If the real estate register shows that the property is associated with another building, check every relevant register.
  • Confirm the current owner of the property and how this property was transferred.
  • Look for any entries and alterations to documents such as encumbrances and ownership limitations.

Other recommendations regarding transfers are designed to ensure that the project or building fulfils all applicable environmental and residential requirements. 

Preliminary agreements

Are any preliminary agreements typically entered into before conclusion of a sale contract?

Yes, a promise purchase agreement is a common and suggested practice in the Colombian real estate market. This is particularly so because the right of ownership of a piece of real estate is fully transferred to another party only when it is entered into the real estate register, so this gives the parties a contract to execute liabilities in case of breach. 

Contracts

Must sale contracts be concluded in writing? If so, must they be notarised?

Yes, in Colombia it is a legal requirement for the contract to be written, notarised and then registered in the real estate register.

Can sale contracts be concluded electronically?

No. Such contracts will be considered as a preliminary act which could allocate some rights to the parties. However, as stated above there are minimum legal formalities that establish the presence of the parties before the public notary.

What provisions are usually included in a sale contract?

The main provisions that should be included in a real estate sale contract are:

  • basic information – this includes the date, the parties (with proof of their identity), the property – including the municipality and the address – and the public notary;
  • the reason for the sale;
  • the price and terms;
  • a declaration that the estate tax and valuation have been paid;
  • registration costs; and
  • power to amend and 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’s main obligations are to transfer the property to the buyer and to guarantee him or her peaceful and useful possession of the property. This includes disclosing every relevant aspect of it. If the seller fails to do this it will be responsible for any hidden defects in the property. Further, the seller must assist the buyer in case of any third-party complaints regarding the property.

In case of breach, Colombian law entitles the non-breaching party to initiate a judicial procedure against the breaching party in order to:

  • force the breaching party to fulfil its contractual obligations; or
  • terminate the contract.

In either case the non-breaching party may claim damages and losses from the breaching party.

What contractual warranties are usually given by the seller?

It is not a common practice in the real estate market to offer any kind of warranty. However, the seller may add contractual warranties such as joint liabilities, down payments or penalty clauses.

Are there any other obligations on the buyer, aside from paying the purchase price?

The only obligation other than paying the price is that the buyer must receive the property in the place and time agreed in the contract.

Taxes

What taxes are payable on the sale and purchase of real estate? Are any exemptions available?

The taxes payable on the sale and purchase of real estate are:

  • value added tax;
  • local taxes levied by each district entity;
  • taxes charged by the Registration Office; and
  • taxes charged by notaries publics.  

Transfer of title

When does title in the property transfer?

The title in the property is transferred only when the sale is properly registered in the real estate register.

Timeframe

What is the typical duration of a sale transaction?

The estimated duration of a sale transaction is about 15 days, taking into consideration the time it takes to register the public deed at the Registration Office.  

Leases

Contracts

Must a lease agreement be concluded in writing?

No, the lease is a consensual agreement. All that is needed is agreement on the price and the property – the parties may settle whether the lease contract should be concluded by public or private deed.

Are there any regulations setting out mandatory or prohibited provisions in lease agreements?

Yes, any clause that prohibits the owner of the property from selling will be null, as it would effectively give the tenant the right to stay in the lease only until its contractual term. Further, there is ambiguity regarding clauses that prohibit the tenant from withholding the property in case of a breach by the landlord – some argue that such clauses should also be null.

What provisions are typically included in lease agreements?

The main provisions which may be includes in a lease agreement are the following:

  • basic information – this includes the date, the parties (with proof of identity) and the identification of the property;
  • use of the property;
  • the rent fee and payments;
  • any rent increases;
  • the date or timeframe for paying the rent;
  • any aqueducts, energy or other public utilities related to the property; and
  • the deposit (where this is relevant).

What are the standard forms of lease agreement used in your jurisdiction?

There are no standard forms for lease agreements. These will vary depending on the conditions of the agreement.  

Length of term

Are there any regulations on minimum and maximum terms of leases?

There is no legal minimum or maximum term for leases. However, where no term is specified for a residential lease, it will be considered to last for one year. 

Are long-term tenants accorded any special rights as to extension or renewal of leases?

No. However, in the event of a commercial lease, if the tenant has stayed in the property for at least two years with the same commercial establishment, he or she will have the right to renew the contract under the same terms.

Rent

What regulations (if any) govern rent increases?

In the case of a residential lease agreement, the landlord may increase the rent every year – but this increase cannot exceed the consumer price index of the previous year.

What regulations (if any) govern rent security deposits?

In the event of a residential lease, there is a prohibition on landlords requiring a deposit.  

Can the tenant withhold rent payments on any legal grounds?

No. However, a tenant may withhold the property in the event of debt in his or her favour as a result of compensatory damages and necessary building work.

Sub-letting

Under what circumstances is sub-letting typically allowed?

Sub-letting is permitted only where this is authorised by the landlord.

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?

The general obligations of a landlord include:

  • delivering the property to the tenant – in case of failure, the tenant may force the landlord to fulfil its contractual obligations or else terminate the contract;
  • carrying out proper and necessary maintenance to the property – in case of failure, the tenant may claim the value of the maintenance at the end of the lease by withholding the property; and
  • guaranteeing that the tenant’s use of the property is free from disturbances – in case of failure, the tenant may ask for a proportional reduction of the rent or else terminate the contract.

If the lease is for a residential property, the landlord must also maintain the utilities in good condition and provide copies of the lease agreement and condominium rules.

What are the general obligations and liabilities of the tenant in respect of the property and what are the consequences of breach?

The tenant’s general obligations are:

  • to receive the property at the time specified in the contract;
  • to use the property properly – this includes under the terms set out in the contract, the natural use of the property and the common practices of the area. If the property is a commercial property, the tenant may change the terms of use;
  • to maintain the property in good condition – in case of failure, the landlord may claim any damages and losses from the tenant. In the event of severe damage, the landlord may terminate  the contract; and
  • to return the property to the landlord at the end of the lease.

If the lease is for a residential property, the tenant must also pay for the public utilities and follow the condominium rules.

Taxes

Are any taxes payable on rental income? If so, are any exemptions available?

Yes, taxes are payable on rental income corresponding to value added tax for each rental payment. 

Insurance

Are the landlord and tenant bound by any insurance requirements?

No. However, the parties may agree to establish this as a clause in the contract. 

Termination and eviction

What rules and procedures govern termination of the lease by the landlord and the tenant’s eviction from the property?

The general grounds for termination of a lease include:

  • the destruction of the property subject to the lease;
  • the expiration of the terms; and
  • the extinction of the owner’s property rights.

However, the termination of the lease agreement varies depending on whether the property is residential or commercial.

In the case of a residential property, the landlord may terminate the contract without the tenant’s consent if any of the contractual duties are violated. In addition, it may terminate the contract by giving the tenant three months’ notice or paying the non-breaching party compensation equivalent to three months of rent, in lieu of notice.

In the case of a commercial lease with a term of at least two years with the same commercial establishment, the landlord may terminate the lease if he or she needs the property as his or her own housing, or to place a different business there. In addition, the landlord may terminate the contract when the property must be reconstructed or repaired and such work cannot be carried out while the property is occupied. In these cases, the landlord must give the tenant six months’ notice.  

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 most usual providers of real estate financing are financial institutions. The restrictions on who may provide financing are set out in the relevant financial laws; such activities are restricted to permitted entities.  

Financing structures

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

The most common structure for securing real estate financing is a mortgage; this involves only minimum legal formalities (ie, to authenticate the mortgage as a public deed and then to register it at the Registration Office).  

What covenants are typically made in financing agreements?

The covenant typically made in financing agreements is to make no other guarantee in favour of another creditor.

Enforcement of security

How are security interests enforced in the event of default?

In the event of breach, the creditor of the main obligation backed by the mortgage may ask in a special judicial procedure for the seizure and auction of the property in order to pay the credit. The creditor will be paid following the lien priority order and the seniority of its credit. 

What is the typical timeframe for the enforcement of security?

The timeframe will vary depending on the type of property secured and the method of enforcement used. 

Investment

Investment climate

What is the general climate of real estate investment in your jurisdiction?

There is some slowing of the growth rate of investment, especially with regard to warehouses. Nevertheless there are high expectations with regard to rural properties.  

Investors

Who are the most common investors in real estate?

In the case of commercial real estate, investment funds are the biggest investors, followed by private sector companies. When it comes to residential real estate, the biggest investors are always natural persons.

Are there any restrictions on foreign investment in real estate?

There is just one restriction on foreign investment in real estate – the prohibition on investing in property located at the Colombian borders.  

Investment structures

What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?

The most common structure used to invest in real estate is a trust structure, as this provides asset protections and limits liability in relation to the business.  

Planning and environmental issues

Planning

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 planning authorities are:

  • the Cadastral Authority;
  • the Planning Authority; and
  • the Geographic Institute Agustín Codazzi.

What are the eligibility, procedural and documentary requirements to obtain planning permission?

Under Colombian law all municipalities are required to make territorial ordering plans, which should be respected for at least 12 years. Once the plan has been issued it is extremely difficult to change the rules that apply to residential properties.

Can planning decisions be appealed? If so, what is the appeal procedure?

Planning decisions cannot be appealed; they are designed to be adopted for 12-year terms.

What are the consequences of failure to comply with planning decisions or regulations?

The consequences are fines and demolition.  

What regime governs the protection and development of historic and cultural buildings?

Under Colombian law, historical and cultural buildings are subject to conservation rules. The national or a municipal government can declare a building to be an historical landmark. Depending on the characteristics of the structure, there are different levels of protection available. In the cases of national monuments, the law protects the structure as well as its surroundings; therefore neighbouring buildings and plots can be affected by such protection.  

Government expropriation

What regime applies to government expropriation of real estate?

The right of property is a fundamental right in Colombia. However, the law empowers certain government agencies to expropriate a citizen’s goods in the public interest. This will happen only if an agency is unable to acquire the property any other way.

What is the required notice period for expropriation and how is compensation calculated?

Once the acquisition offer is delivered to the owner of the property, he or she has 30 business days in which to answer before the expropriation process can be initiated.

The price of compensation is calculated by the Geographic Institute Agustín Codazzi, the Cadastral Authority or experts. In the event of no agreement being reached, the price of compensation will be the cadastral value. 

Environmental issues

What environmental certifications are required for the development of real estate and how are they obtained?

These certifications vary depending on the size and purpose of the project. Under normal circumstances, the constructor must acquire the following, as well as the normal construction licence:

  • an environmental impact authorisation;
  • authorisation to forestall use; and
  • a land-use licence.

Other projects may also require the following certifications:

  • a concession title for the use of domestic water;  
  • a wastewater disposal permit; and
  • a solid waste permit.

The process for obtaining such certifications varies depending on the local authorities. 

What environmental disclosure obligations apply to real estate sales?

There is no legal obligation to disclosure information regarding environmental obligations. However, the need for disclosure may be established by contractual deed.  

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?

There are no specific rules for environmental clean-up of property. However, the licence or certificate titleholder must fulfil the obligations associated with the property. 

Are there any regulations or incentive schemes in place to promote energy efficiency and emissions reductions in buildings?

The incentive scheme for energy efficiency projects includes:

  • a 50% deduction on income tax over a five-year term;
  • a faster tax depreciation on the goods associated with the project;
  • exemption from paying value added tax; and
  • a reduced duty rate.

There are no incentives for the reduction of emissions.