Anyone looking for a condominium property in Colombia is occasionally confronted with the situation that the property of choice is afflicted with a so-called leasing habitacional. Real estate agents often say that this is "something similar to a mortgage". In this scenario, the question then arises as to how the purchase of the apartment can be completed in a legally secure manner.
What is a leasing habitacional?
In a leasing habitacional (hereinafter "leasing"), there is a leasing contract between a bank (the lessor, for example Bancolombia, Davivienda, BBVA or Itaú) and the bank's customer, who wants to take possession the apartment in the short term and acquire ownership in the long term (the lessee). In economic terms, leasing - similar to a mortgage loan - is a financing transaction offered by banks for the acquisition of real estate. In contrast to a mortgage loan, in the case of leasing the bank is entered in the land register (certificado de tradición) as the owner. In the case of a mortgage loan, it is "only" entered in the land register as mortgagee. The customer of the bank / de facto holder of the property therefore does not appear at all in the land register in the case of leasing. He only has purely contractual rights to the property by virtue of his position as lessee / tenant (locatario) vis-à-vis the financing bank, which are regulated in the leasing contract. Essentially, a leasing contract implies that the lessee can exercise a purchase option (opción de compra) towards the bank, provided that he has paid all his leasing installments specified in the leasing contract. After exercising the purchase option, the bank transfers ownership of the apartment to the lessee by notarized lease transfer agreement (escritura pública de transferencia de dominio a título de leasing habitacional).
What are the implications of an existing lease for the buyer of an apartment?
In contrast to the standard real estate purchase contract (escritura pública de compraventa), which is bilateral (seller - buyer), there is a triangular constellation (seller - buyer - bank) in the purchase of a leased property. Since the bank is the legal owner of the apartment, it is also the bank that transfers the apartment to the buyer by notarized contract. For the bank to do so, the following conditions must be met:
- The bank's customer / lessee must have paid in full to the bank all leasing installments, default interest, if any, and the purchase option amount specified in the leasing agreement.
- The lessee must have instructed the bank not to transfer the apartment to him, but to a specific third party (the buyer).
- The bank must have successfully subjected the buyer to a compliance check in application of applicable anti-money laundering regulations, etc., unless the buyer happens to already be a customer of the bank himself.
What are the main advantages of buying a leased home?
- Since the bank is the legal owner of the property until it is transferred to the buyer, there is no real risk of the property being seized by a third party (embargo) prior to the transfer of ownership to the buyer. In the case of direct purchase from a private individual (escritura publica de compraventa), there is always a (more or less significant) risk that the property will be subject to seizure before the transaction is completed and therefore legally unsaleable. Since a bank can be assumed to be solvent, this risk is practically non-existent with banks.
- Transaction costs are significantly lower when buying a leased property than when buying a property from a private individual. The assessment base for the transaction costs (notary fees, registry tax, registry fees) in the purchase of a leased property is the so-called cadastral value of the property (valor catastral), which is usually significantly lower than the purchase price agreed by the parties.
What are the main disadvantages of buying a leased property?
- The necessary involvement of the leasing bank slows down the transaction. This usually delays the closing of the transaction by at least four weeks. In addition, the sellers usually have no experience with the assignment of a purchase option from a leasing contract.
- Often there will still be a significant amount of lease installments outstanding on the part of the bank that must be paid before the bank will transfer ownership. Since the seller usually does not have the means to pay this amount, the buyer must make an advance payment to this extent. He must therefore usually pay a substantial part of the purchase price before the notarized transfer agreement is concluded. In order to secure his position as much as possible, he should enter into a neatly drafted preliminary contract (promesa de transferencia de dominio a título de leasing habitacional) with the buyer and settle the outstanding claims of the bank by payment directly to the bank - not to the seller.