Life in Panama: Renting a Residence

November 6, 2016

 

 

Moving to a new country can be a daunting experience; it can be made all the more confusing if one is not familiar with the local language, customs and legal environment. Panama is no different in this respect and is a popular destination for many expats relocating from the US and Europe. Many of these new arrivals will choose to rent a residence, even if only temporarily, while they settle into a new environment.

 

If you’re thinking of moving to Panama and renting a residence as an expat, this article will explore a few of the general points of which you should be aware.

 

Property rentals are governed by a variety of laws in Panama. In the case of most residences rented by expats, the governing law will be a mix of the Civil Code of 1917 and Law 93 of 4 October 1973 (henceforth “Law 93”) along with the subsequent regulations and executive decrees that have modified the application and content of this law.

 

Here are a few key points to keep in mind:

 

  • The Ministry of Housing and Territorial Regulation (known as MIVIOT or just MIVI) has a General Department of Renting (Dirección General de Arrendamiento), which oversees residential rental contracts. In fact, MIVI has model contract forms, which are meant to be used for these purposes. The Type B (Tipo B) form is for residential rentals with rent above $150/month. It can be found on MIVI’s website here. Most people tend to ignore these required model contract forms or are simply unaware of them. The key point is that any contract should comply with the applicable legal provisions. The law requires that three copies of any rental contract be signed for precisely this reason. One copy is for the landlord, one for the tenant, and the third should be turned over to MIVI by the landlord.

 

  • The governing law(s) in Panama favor renters in several respects that are quite different to what one might find in the United States; some key examples of this include:

 

  • The required security deposit (equivalent to one month of rent) must be held by MIVI’s General Department of Renting and NOT the landlord. Again, this is a legal provision that is mostly ignored, either intentionally or otherwise, but it is meant to protect the tenant’s right to recoup his/her deposit at the end of the lease term. MIVI’s model rental contract states that the General Department of Renting will maintain control of the deposit, which, “will be returned to the depositor at the end of the lease contract except in cases of a claim by the landlord due to unpaid rent or damages caused [to the property] by the tenant that are not due to normal wear and use.”

 

  • The lease term and any agreed-upon renewals in the lease contract are obligatory for the landlord but can be renounced by the tenant (Article 10 of Law 93 of 4 October 1973). The tenant’s only obligation in canceling the lease contract is to provide written notice to no later than 30 calendar days prior to abandoning the property. Failure to provide such written notice will result in the landlord receiving all or part of the security deposit in proportion to the number of days of notice received. For example, if a tenant provides no notice at all, the landlord will keep the full deposit. If a tenant provides 15 days of notice rather than 30 the landlord should receive 50% of the deposit. A landlord cannot decide, on a whim, to cancel a lease contract but a tenant who moves in and later decides he/she does not like the apartment, can, in fact, cancel the contract by providing the appropriate notice.

 

  • The Judicial Code (Código Judicial) establishes that eviction of tenants will be decreed when, inter alia, the tenant owes rent payments for two or more consecutive periods (usually the “period” specified for payment of rent is on a monthly basis) for an “urban” property or one period for a “rustic” property (Article 1401). Eviction proceedings in Panama deserve their own article but the key takeaway for both tenants and landlords is that they can be long and tedious.

 

  • The landlord is also required to notify MIVI of any renewal or extension of the lease contract.

 

  • In properties subject to the Condominium Regulations (Régimen de Propiedad Horizontal), which include apartments, a landlord wishing to sell a residential property that is under a lease agreement must first offer the tenant the option of purchasing the property. The tenant has a maximum term of 90 calendar days to decide whether he/she wishes to purchase the property (See Article 16 of Law 93 and Housing Ministry Decree 42 of 2 June 1978). The established rent must still be paid during these 90 days. Importantly, the landlord cannot subsequently sell the property to any party for a price inferior to that which was offered to the tenant. A violation on the part of the landlord can result in MIVI sanctions as well as exposure to a civil damages claim on the part of the tenant.

 

  • However, should the tenant decide not to exercise the above-described option to purchase the property, the tenant will be granted one (1) month for every twelve (12) months of rent paid in order to abandon the property. In any case, the period of time granted to the tenant in order to abandon the property in this situation should be, “not less than one (1) month and not more than six (6) months.” The tenant has a right to remain at the property during the established period of time with no obligation to pay rent unless he/she opts to abandon the property in which case the landlord must pay the tenant, “a sum equal to what corresponds [to the tenant] for every month the tenant is entitled to [remain at the property].” In other words, a tenant who has paid 12 months of rent at an apartment and opts not to exercise his/her purchase option would be entitled to one month, “rent free,” or, alternatively could leave the property and be entitled to receive the equivalent of one month of rent from the landlord (See Articles 47 and 48 of Law 93).    

 

  • If you plan to use a real estate agent, you should use a licensed one. Real estate agents are required to pass an exam administered by the Ministry of Commerce and Industries (MICI), which covers a number of relevant legal areas. This is not a guarantee that they will have a sufficient knowledge of your legal rights or that they will necessarily protect your best interests. However, it’s a worthwhile precaution. You can verify your real estate agent’s license status by checking this list maintained by MICI’s Technical Board of Real Property (Junta Técnica de Bienes Raíces) or simply calling MICI, which should be able to tell you your agent’s status.

 

  • Before signing any contracts, always have a competent attorney review them. Once you do decide to sign a contract, you should make sure that this is done before a notary and that the contract is duly notarized. Notaries and notarial acts in Latin America are quite different, legally speaking, from their US counterparts. A document that is notarized is imbued with praesumptio veritatis et solemnitatis; it is assumed to be legally valid in form, true, and the act is assumed to have taken place. In other words, there can be no disputes about the fact that the parties signed the contract.

 

In short, Panamanian law(s) on rental contracts tend to favor tenants over landlords. In our experience, the law on real property rental contracts is an area where many of the parties involved (tenants, landlords, real estate agents, and attorneys) are often confused about or ignorant of the applicable regulations. We have seen reputable property management companies and real estate agents misinform (intentionally or otherwise) potential tenants by telling them that they will lose their security deposit if they leave before the term of the lease contract or that the landlord can unilaterally cancel their lease contract. Some of those involved in the property rental business may simply think that this is an area of the law that allows for leeway in drafting contract terms as long as both parties agree (similar to cases of contracts for professional services), however; this is not the case.

 

Foreigners moving to Panama may wish, quite prudently, to rent a property rather than make a commitment to buying if they don’t know a particular neighborhood well or would simply like to try living in a few places before purchasing a home. However, they are also a particularly vulnerable group when it comes to entering into lease agreements and should be equally prudent about protecting their rights when it comes to renting a property.

 

The content on our blog is intended to provide a general overview on matters of interest. It is not intended to be comprehensive nor is it intended to constitute legal advice; it should not be construed as such. We make every attempt to ensure the content is current but cannot guarantee its currency. You should seek out legal or other professional advice before acting or relying on any of our content.

 

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