Author: Mario Costa
Head of Corporate – LatinAlliance El Salvador
Our head of the Corporate area and leader of the Real Estate Law area in El Salvador, Mario Costa, participated in the last edition of the AGENDA magazine with an article about the rise of Real Estate Development in the country and its legislation.
With the growth of the real estate sector in El Salvador in recent years, the creation of regulations that adapt to the current national reality and meet the needs of real estate projects, both in their development and in their operation, become imperative.
In El Salvador, a variety of real estate projects are currently underway, including residential, housing, industrial, commercial, corporate, hotel and "mixed" projects, which has led to a boost in the country's economic growth, with the generation sources of work for the population and tax revenue for the State. This has made the necessary support and incentives from the Government for businessmen and investors imperative, so that they can continue to promote the real estate industry.
From a legal point of view, real estate projects are commonly submitted under a condominium regime, which is defined by the doctrine as: the modality of property right by which its owner(s), the condominium, has on the one hand the exclusive and singular property with respect to a house, apartment, flat or premises, as a private unit of which a property consists and; on the other, a participation in the co-ownership of the common elements of said property, in proportion to the value of its unit.
It is important to highlight that this regime, to date, is regulated in El Salvador by a law that dates back to 1961, and its subsequent reforms in the seventies; that is, the Real Estate Property Law for Flats and Apartments, on which there are legal gaps or gaps that make it impossible to respond to the current needs that arise in practice, during the development and operation of real estate projects.
Need to modernize legislation
Everything seems to indicate that the Law on Real Estate Property for Flats and Apartments, at the time of its creation, focused mainly on regulating those specific rules of community and peaceful coexistence between the different owners of housing or housing projects, which is no longer consistent with the current reality, since there are other types of condominiums for shopping centers, hotels, offices, among others, each with its own particularities and needs.
There are some aspects that the current legislation does not contemplate, or if it does, these legal provisions suffer from deficiencies of a practical nature, which affect the effectiveness of the rights and obligations of the condominium owners (owners) among themselves, against the condominium and third parties. Among these aspects, I mainly mention the following:
Penalties for violation of prohibitions may not be proportional to the severity of the damage caused. By way of reference, the current law strictly contemplates prohibitions for the owners or inhabitants of any floor or apartment, such as: allocating those areas for uses contrary to morality or good customs, carrying out activities that compromise the security of the building, carrying out works that may harm or compromise the strength or safety of the building, among others.
In the event of an eventual action or omission by an owner who incurs in these transgressions, the law provides for very low fines (a fine of US$57.14 to US$114.29, which can be doubled and continue to increase up to 10 times its value in case of recurrences), which are not they are dissuasive enough to prevent violations and repair damage to other owners, third parties and the condominium in general. In such conditions, it is imperative that the law establish sanctions that are proportional to the seriousness of the act and that make it possible to breach the condominium rules.
Likewise, the law does not provide for a prior alternative dispute resolution procedure that may allow for prompt resolution of the same in a short term, without necessarily having to resort to a cumbersome and slow judicial process.
Disadvantages for decision-making in the Assembly of Owners due to the quorum established by law. The Owners Assembly is the supreme authority in the condominium and is made up of all the owners of a home, premises, flat, apartment or private area. In accordance with the law, as a general rule, the assembly is constituted when at least the majority of the owners attend; and any resolution to take effect must be taken with more than two-thirds of the votes of the condominium owners who attend and who represent at least three-fourths of the value of the building, except for the computations for special cases that the same law indicates. .
In short, the quorum established by law for making agreements by the Assembly of Owners, could be disadvantageous for some real estate projects, since the respective quorums are high, which represents a difficulty or obstacle to agree on transcendental resolutions. for the life of the condominium (for example: appointment of condominium manager).
Integration of phases or stages of a condominium. It is very common for some real estate projects to be developed in phases or stages, by first submitting a property under a condominium regime, with other areas gradually being reserved for future development and then incorporated into the project in question.
The current law does not expressly contemplate the way in which these areas can be integrated, so that the properties (phases or stages) that are part of the project are regulated as a unit and under a single administration regulation, without achieving, in that sense, guide the developer of the project to make the above a reality.
There are no sanctions or measures for the defaulting condominium owner. In accordance with the law, the owners are responsible for the administration and maintenance expenses of the common things of the condominium, in proportion to the value of their flat or apartment, without being able to free themselves from such responsibility.
In the event of a condominium owner's failure to comply with his obligation to contribute to these expenses, in order to execute the debt, the respective legal process must be followed, which implies time and cost for the condominium. For this reason, it is recommended that the law provide for legal fines and interest that increase the amount owed for the duration of the state of delinquency. Such a measure would contribute to the condominiums being compensated for the expenses that they must inevitably have to suffer as a result of the judicial prosecution of the debt, as well as it would enable the condominium owners to voluntarily comply with their payment obligations.
On the other hand, it is important to highlight the need to grant legal status to the condominium as such, so that it can exercise rights and contract obligations, which could be achieved with the mere registration of the deed of submission under the condominium regime and the deposit of the respective administrative regulation before the Registry of Real Estate and Mortgages, to give certainty and security to the legal acts that it performs or celebrates.
In conclusion, in much of what is not provided for by the current law, in practice it has had to be resolved by project developers or condominium owners, through provisions contained in their administration regulations; being at the same time important to note that some of the aforementioned aspects have been considered for a condominium bill that is still under study. In this regard, it is essential that the new regulations to be implemented have the purpose of further encouraging the growth of the real estate sector, while guaranteeing the rights and obligations of condominiums that are part of a condominium.
Regulations according to reality
- The growth of the real estate sector is real and evident in El Salvador, as a product of the business effort to increase urban and construction activities in the country.
- It is necessary to have a regulatory framework that adapts to the new prevailing realities in the different real estate projects, both in their development and in their operation.
You can download the online version of the article in this link.