Fixing Panama Real Estate Pre-Construction Contract Problems
There are more than 200 condominium buildings being erected in Panama City in 2012. Foreigners who may be purchasing Panama pre-construction condos need to know about the types of problems which can arise with such contracts.
Types of Problems
The issuance of the Occupancy Permit by the government triggers two important events. One is paying off the balance owed and the other is getting the keys to the apartment.
Accepting the Keys
The Act of Deliverance (Acta de Entrega) is a legal document required to be signed by the buyer upon accepting the apartment keys. Do not sign this document if there are repairs needing to be completed such as a leaking roof or windows, plumbing or electrical problems, wall cracks, or broken fixtures. Make sure everything is working properly and installed correctly before signing this document and accepting the keys. Once the keys are accepted, the Panama developer can claim that the damages were caused by the buyer (or workers or guests) after the buyer took possession. If the Panama developer still has sole access to the apartment he cannot blame the damage on someone else. Once everything is in place and working then you can sign the document and take possession of the keys.
Balance Owed Problem
A second possible problem can occur once the occupation permit is issued involves paying off the balance owed. In Panama, not every apartment is finished when an occupancy permit is issued. Why should you make your final payment when the apartment isn’t finished? If your mortgage is pending, or you are an all cash buyer, deposit the cash into an escrow account with a Panama bank. The Panama bank will prepare a Promise to Pay letter for the developer who is obligated to accept it. In essence, the bank guarantees that total payment will be made when the condo is ready to be moved into. This allows time to make sure all agreed upon fixtures and appliances will be installed and in working order with no pending repairs.
Hidden Fees Problems
More problems can happen if the pre-construction contract has hidden fees. These are known as the “full of surprises fees” amongst Panama real estate lawyers. One of these hidden fees is a rental clause where it states that the purchaser must pay rent when the occupancy permit is granted until final payment of the balance due is paid. Such rent can be expensive.
Many pre-construction contracts call for monthly rent ranging from 1% to 1.5% of the balance owed. If $200,000 is owed the monthly rent could range between $2,000 and $3,000. An all cash buyer would have to pay off the balance immediately to avoid paying rent. On the other hand, a mortgaged buyer will have to wait for the Panama bank to approve the mortgage and then have a formal Closing which could take two to three months. There is always a delay when the title deed is recorded with Panama’s Public Registry and the title transfer is recorded. The Panama bank check will take a few days to be deposited by the Panama developer and to clear. While all of this occurs the purchaser is paying monthly rent.
Extra % Increase Problem
Yet another surprise fee comes up in a normal pre-construction contract clause providing the Panama developer the option to charge an extra percentage increase for the cost of materials. Even if the cost for purchasing construction materials may or may not increase by the prescribed percentage, many developers will claim they did and charge the extra percentage. Try to delete this clause or agree on the actual rate of inflation to be the percentage.
Monthly Maintenance Fee Problem
Another surprise fee can be the monthly maintenance fee if it is not included in the contract. The Panama developer controls the homeowner’s association during the first year of completion when the owners take over the association. In the meantime, homeowner’s fees are collected monthly to pay for maintenance and repairs of common areas shared by the owners. The Panama developer may over charge this fee. When the owners assume control of their association an evaluation will determine what the pro rata share for each owner will be to maintain the outside building, elevators, lobby, pool, parking area, hallways and other common areas.
In Conclusion, avoid all of these problems by taking an unsigned Panama real estate pre-construction contract to a competent Panama real estate lawyer to review and advise you on which clauses to delete or to negotiate better terms.