Actual Property 2021 – Actual Property and Building

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1. GENERAL

1.1 Main Sources of Law

For the first 100 years or so from becoming independent in 1844,
the Dominican Republic had a legal system based on French law,
specifically on the Napoleonic Codes – civil, civil
procedure, commercial, criminal and criminal procedure –
under a constitution based on the US model, with three branches of
government: a strong presidency, a legislature and a judiciary with
the power to strike down acts of the other branches found to be
unconstitutional.

Since the first half of the 20th century, however, there has
been a move away from the French model, with the adoption of many
statutes and codes inspired by other legal systems. Examples
include:

  • The Land Registry Law of 1920, founded on the Torrens system of
    Australian origin;
  • The Labour Code of the 1950s and 1992, modelled on South
    American codes;
  • The new Code of Criminal Procedure of 2002, based on the same
    adversarial principles that govern US criminal litigation;
  • The new arbitration statute of 2008, taken from the model
    arbitration code prepared by the United Nations; and
  • The new bankruptcy and insolvency statute of 2015, influenced
    greatly by US bankruptcy law.

The Constitution of the Dominican Republic lays out the
fundamental framework for the organisation and the operation of the
Dominican government and its institutions, and recognises an
impressive list of civil rights for all individuals, Dominicans and
non-Dominicans, including an equal protection clause for
non-Dominican citizens and investors. Article 25 of the
Constitution expressly states that foreign nationals are entitled
to the same rights and duties in the Dominican Republic as
Dominican nationals, except, understandably, for the right to take
part in political activities. Article 221 of the Constitution sets
forth that the government will ensure equal treatment under the law
for local and foreign investments.

Individuals and entities, domestic and foreign, have a quick and
inexpensive remedy for the protection of their constitutionally
protected rights: the writ of amparo, which is granted by all
courts and is subject to an appeal to the Constitutional Court.

Cases in Dominican courts are decided by judges, not by juries.
Judges rule based on the texts of the Constitution and existing
statutes, the precedents of the Constitutional Court (which are
binding) and the precedents of other courts (which are not
binding). They do not rule in equity, as in some common law
countries, but the principle of good faith is recognised by
statutory law and grants the courts some discretion. Punitive
damages are not awarded in injury cases – just compensatory
damages.

Regarding evidence, parol evidence is admissible in criminal,
labour and commercial matters, and, under certain circumstances, in
civil and real estate matters.

Finally, real estate laws are national in scope and
application.

1.2 Main Market Trends and Deals

The main trends in the real estate market in the Dominican
Republic continue to be the development of important projects in
the tourism sector, as well as new projects for the cruise sector
after the success story of the Amber Cove project in Puerto
Plata.

Many well-known international developers have continued with
multiple projects, some of which are already operational, in the
areas of Punta Cana, Bani, Miches, Puerta Plata, Santo Domingo and
the southwest provinces of Pedernales, Barahona and Peravia –
Bani.

Of note in the past 12 months can be mentioned Club Med’s
Miches Playa Esmeralda hotel, a five-star, 400-room hotel just
built in a 93-acre beachfront property in Miches, Dominican
Republic, the first major hospitality project in the Miches area,
destined to become the next Punta Cana in terms of tourism
development in the Dominican Republic. The firm assisted Club Med
in the acquisition, permits and tax exemption matters under the
country’s Tourism Incentive Tax Law (CONFOTUR).

1.3 Impact of Disruptive Technologies

Disruptive technologies have transformed every step of the real
estate value chain, providing massive opportunities for the
industry. The technologies with the highest rate of adoption
include augmented reality (AR) and drones artificial intelligence
(AI), along with instant communication channels and social media,
big data and the 5G network.

So far, the fastest adoption has been on augmented reality and
drones for surveying properties and neighbourhoods and for
providing virtual tours, and obviously, due to the fast-paced
nature of the business, instant communication tools and social
media.

There is still room for improvement in the way big data is being
used by the industry, but this will likely change as AI-powered
customer relationship management and listings become more
prevalent.

There are a lot of expectations of the 5G network, to which the
president has given high priority, which will influence real estate
development, from the way existing structures are used, to the way
new ones will be integrated to the IoT (internet of things). Smart
buildings have been the standard for new constructions in the
country for some time now.

The outlook for the future is that as blockchain technology
becomes more mainstream it will permeate to the industry, for it
has been touted as a far more secure and transparent way to conduct
transactions.

1.4 Proposals for Reform

On the legislative front, the much-anticipated new statute on
real estate evictions, Law 396-2019, has been in force since
October 2019. This new law regulates a formerly relaxed practice in
real estate evictions and at the same time brings added security to
the protection of real estate rights against unlawful eviction
processes.

2. SALE AND PURCHASE

2.1 Categories of Property Rights

Dominican real estate law recognises the following interests in
real estate:

  • Absolute ownership;
  • Usufruct;
  • Easements;
  • Betterments;
  • Leases;
  • Condominium regimes; and
  • Privileges and mortgages.

It does not recognise co-operative ownership arrangements or
other occupancy interests.

2.2 Laws Applicable to Transfer of Title

Registration rules are established by the General Director of
the Registries of Title and are applicable nationwide. The
Dominican Civil Code states that buyers pay all the fees, expenses
and taxes required for conveyances, unless agreed otherwise by the
parties.

2.3 Effecting Lawful and Proper Transfer of Title

The legal requirements for recording conveyances are the
following:

  • Deed of sale (sales contract), authenticated by a Dominican
    notary;
  • Certificate of title, issued to the owner by the Registry of
    Title – a completely different document from the deed of
    sale, which serves as the only proof of ownership;
  • Certification showing that the seller is up to date with its
    property taxes;
  • A receipt attesting to the payment of the real estate transfer
    taxes (currently 3% of the government-appraised value of the
    property); the buyer is exempt from this tax in some cases (eg,
    first purchases in certain tourism projects and low-cost housing
    acquired with a bank loan);
  • A copy of the identity card or passport of the parties, or tax
    card if a legal entity (non-resident foreigners need to provide an
    additional identity card from their country of origin in addition
    to their passports); and
  • A copy of evidence of purchase price or mortgage payment
    through a non-cash method, for operations involving more than DOP1
    million.

Registration rules are established by the General Director of
the Registries of Title and are applicable nationwide. The
Dominican Civil Code states that buyers pay all the fees, expenses
and taxes required for conveyances, unless agreed otherwise by the
parties.

2.4 Real Estate Due Diligence

The typical real estate due diligence overseen by the
buyer’s attorney regarding title consists of the following:

  • Obtaining a certification from the Registry of Title stating
    the legal status of the property;
  • Obtaining a certified report from an independent surveyor
    confirming that the official survey coincides with the property and
    that there are no overlapping surveys;
  • Obtaining a certificate from the Internal Revenue stating that
    the property tax, if any, has been paid;
  • Confirming that the property to be purchased may be used for
    the purposes sought by the buyer;
  • Investigating whether a third party is occupying the
    property;
  • Investigating the property’s environmental status; and
  • Ensuring that the seller, especially if a corporation, has the
    authority to sell and can convey clear title.

As noted above, under the Torrens system, there is no need to do
a chain-of-title search. Title insurance is available but is not
used frequently for various reasons – especially limited
protection and costs – even though the indemnity fund set
forth by the Real Estate Registration Law has not functioned
properly.

The Real Estate Registration Law establishes that whoever
registers first has priority over those who register after.
Registration is deemed to be complete on the date the application
is submitted for registration provided that the application is
approved, not on the date the Registry of Title issues the
corresponding certificate. Priority among different interested
parties can be contractually reordered.

2.5 Typical Representations and Warranties

Warranties typically specify that:

  • The property is registered to the seller and is of the
    dimensions mentioned on the title;
  • There are no overlapping parcels;
  • There are no liens, mortgages or third-party registered
    rights;
  • The conveyance will not be affected by any tax
    liabilities;
  • The seller will have to provide any documentation and sign any
    additional set of documents required for the final conveyance of
    the title to take place; and
  • All liabilities, including utility bills and contractors’
    fees, are paid up to the date of closing.

The warranties are provided both in relation to the property and
to the shares of the holding entity being purchased, if that is the
case.

2.6 Important Areas of Law for Investors

Any investor that wishes to participate in the real estate
market of the Dominican Republic should consider the impact on
their investments from tax law, real estate law, environmental
legislation and administrative law for licences, planning and the
registration of the title of ownership before making a
purchase.

2.7 Soil Pollution or Environmental Contamination

Issues of environmental clean-ups in real estate transactions
are still very rare in the Dominican Republic. So far, this has
been a problem only in the mining sector. Therefore, there are no
general covenants in use. Of course, the parties to a contract are
free to insert mutually agreed terms regarding long-term
environmental liability and indemnity issues.

2.8 Permitted Uses of Real Estate under Zoning or Planning
Law

All planning and land use matters are handled by municipalities,
the Ministry of Tourism (in tourist areas) and the Ministry of
Environment and Natural Resources. The municipalities and the
Ministry of Tourism establish the general rules regarding use (eg,
residential, commercial, industrial, mixed, density, maximum
height). Any construction or development that may affect the
environment must also be approved by the Ministry of Environment
and Natural Resources.

2.9 Condemnation, Expropriation or Compulsory Purchase

The Constitution and Law 344 of 1943 establish the legal regime
for the government’s compulsory purchase or condemnation of
real estate. The Dominican Constitution states that: “No
person shall be deprived of his or her property, except on
justified grounds of public utility or social interest, for which a
person shall be paid a fair value before expropriation, as
determined by the mutual consent of the parties or by the judgment
of a court of competent jurisdiction, pursuant to the law. In case
of the declaration of a State of Emergency or Defence, compensation
may not be paid before the expropriation.”

Law 344 establishes the specific procedure that the government
must follow in any case of expropriation. Because the provisions of
this law are of public order, allocations cannot be modified by
contractual arrangements between the parties.

2.10 Taxes Applicable to a Transaction

A conveyance tax must be paid before registering the purchase of
real estate. The conveyance tax amounts to 3% of the price of sale
or the market value of the property as determined by the tax
authorities, whichever is higher.

A 1% annual tax is assessed on real estate property owned by
individuals, based on the cumulative value of the properties owned
by the same individual, as appraised by the government authorities.
Properties are valued without taking into account any furniture or
equipment to be found in them. For built lots, the 1% is calculated
only for values exceeding approximately USD150,000. For unbuilt
lots, the 1% tax is calculated on the actual appraised value
without the USD150,000 exemption. Individuals pay this tax every
year on or before March 11th, or in two equal instalments: 50% on
or before March 11th, and the remaining 50% on or before September
11th. This threshold is adjusted annually for inflation.

The following properties are exempt from the property tax:

  • built properties valued at USD150,000 or less;
  • farms; and
  • houses inhabited by owners who are at least 65 years old and
    have no other property in their name.

Properties held in the name of a corporation or other entities
do not, at present, pay a property tax per se; however, a 1% tax is
levied on company assets, including real estate.

There are also different tax treatments with regard to leasing
to individuals or to corporate entities: leases to entities are
subject to value-added tax and leases by individual landlords are
subject to a 10% withholding tax that is credited toward the
landlord’s annual income tax.

2.11 Legal Restrictions on Foreign Investors

There are no restrictions on foreign individuals or entities
owning or leasing real estate in the Dominican Republic. The
process for purchasing or leasing real estate for foreigners is
exactly the same as for Dominicans; there are no national defence
or security limitations. Foreign individuals and entities, and
Dominicans, must register locally with the tax authorities before
registering purchases of real estate. Individuals must submit their
application directly at the Internal Revenue office, while entities
must first register at the Chamber of Commerce and obtain a
mercantile registry certificate, before applying for their tax
number. These are mere formal requirements that can be easily
fulfilled.

3. REAL ESTATE FINANCE

3.1 Financing Acquisitions of Commercial Real Estate

In general, Dominican law does not distinguish between
commercial and residential properties; the same rules apply for
both. However, regarding ownership, properties held by commercial
entities are taxed differently from those owned by individuals.

Financing sources are mixed, depending on the type of
investment. For example, major infrastructure financing is obtained
through foreign banks and financial institutions, while real estate
developments in the tourism sector have been more dependent on
local banks, most of which have entire departments catering to the
real estate-tourism industry.

There are major financial institutions, publicly traded funds
and private investors with interests in the country, as it is the
largest recipient of foreign direct investment (FDI) in the
region.

3.2 Typical Security Created by Commercial Investors

Mortgages (financing from third parties) and privileges
(seller’s financing) are the customary security interests. Both
grant the lender a registered right on the property (collateral)
that can be enforced in the event of default through a foreclosure
process, not an automatic defeasible conveyance in the event of
default.

In both cases (mortgages and privileges), in the event of
default, the enforcement is made through a foreclosure process
before the competent civil and commercial court of first
instance.

Dominican trust law offers the possibility of setting up real
estate security trusts.

3.3 Restrictions on Granting Security over Real Estate to
Foreign Lenders

A foreign lender does not need specific authorisation to do
business in the Dominican Republic. To register a mortgage in its
favour, the foreign lender should obtain a local tax number. Once
this tax number has been obtained, the lender is no longer subject
to the general withholding taxes established for payments sent
abroad (28% in general, or 10% for interest paid to foreign
financial institutions). The lender will be taxed as a permanent
establishment, under the same conditions as a Dominican entity.

Regarding required documents and registration taxes, the same
rules that apply for local lenders apply to foreign lenders, as
follows.

Mortgages are created by contract between the owner and the
lender, or by a tripartite agreement between the seller, the buyer
and the lending institution. The contract is authenticated by a
Dominican notary and then registered at the Registry of Titles
after payment of the 2% mortgage tax.

The registration of a security interest is perfected by filing
the documentation at the Registry of Title in the jurisdiction
where the property is located. The documents required for the
filing of a mortgage are:

  • a mortgage contract;
  • an original of the certificate of title of the borrower;
  • a mortgage tax receipt; and
  • certification attesting to the payment of property taxes.

Mortgages and underlying credits can be transferred without
paying additional taxes.

3.4 Taxes or Fees Relating to the Granting and Enforcement of
Security

The Civil Code states that buyers pay all the fees, expenses and
taxes required for conveyances unless agreed otherwise by the
parties. Each party covers their own attorney’s fees.

3.5 Legal Requirements Before an Entity Can Give Valid
Security

There are no mandatory legal rules or requirements that must be
complied with before an entity can give valid security over its
real estate assets, except for those imposed on financial entities
by the Financial and Monetary Code.

3.6 Formalities When a Borrower is in Default

The remedies against a debtor in default are enforced through a
specific judicial procedure at the first-instance court. It is a
three-step procedure, usually based on monetary default: the
creditor notifies a specific notice of payment to the debtor; when
the notice expires without payment being fulfilled by the debtor,
then the creditor files an embargo at the Registry of Title to
completely block any further registrations on the property, and
then initiates the court procedure for the foreclosure, which ends
in a public auction sale of the foreclosed property. All the rules
regarding the foreclosure are of public order. Foreclosure can only
be judicial; non-judicial foreclosure is prohibited by law.
Defaults other than monetary defaults are possible (unauthorised
distribution of dividends, unauthorised changes in the corporate
structure, etc) if properly established in the loan documents or
mortgage act and proven by the creditor.

The usual time for an ordinary foreclosure is around six to
twelve months. Financial institutions benefit from an expedited
procedure that takes around three to six months. In any case,
dilatory procedures can be initiated by the debtor or by any other
party with a registered right on the property.

Law 189-11 introduced trusts and collateral agent structures for
mortgage securities as an alternative to standard
mortgage-foreclosure processes, providing better protection of
collateral and including an expedited foreclosure procedure, now
available to all types of creditors after a 2017 court ruling.

Aside from the mentioned judicial foreclosure process, there are
no other legal avenues available to enforce a loan against a
defaulting debtor.

3.7 Subordinating Existing Debt to Newly Created Debt

Banks usually require a first-rank mortgage and will not accept
subordination to an existing collateralised debt. Most credit
agreements forbid the debtor from entering into additional
agreements without express authorisation from the lender; if they
do, the new debt will be registered as a second-rank mortgage with
second priority after the initial registered lender.

3.8 Lenders’ Liability under Environmental Laws

There is no lender’s liability in the Dominican Republic
with respect to environmental laws.

3.9 Effects of a Borrower Becoming Insolvent

Under Law 141-15, foreclosure or sequestration processes pursued
by creditors affecting more than 50% of a commercial debtor’s
assets, among other conditions, can trigger a bankruptcy and
restructuring process.

Aside from exceptions for certain regulated industries, such as
banks and stock exchange-related entities, as well as
government-owned entities, the law is applicable to any Dominican
or foreign entity or commercial individual person with a permanent
establishment in the country.

All of the following processes against the debtor will be deemed
as automatically stayed or prohibited once the court approves the
bankruptcy petition:

  • all legal, administrative, tax or arbitration claims or
    lawsuits, including foreclosure and sequestration processes;
  • computation of liquidated damages clauses and contractual or
    judicial penalties;
  • disposition of a debtor’s assets, including the filing of a
    non-registered deed of sale, unless otherwise authorised by the
    law; and
  • payment against debts originated prior to the restructuring
    request.

These processes will remain stayed during the restructuring
plan’s execution, thereby prohibiting any asset seizure actions
by the creditors. The stay will be lifted if the restructuring plan
fails and the court authorises the debtor’s asset
liquidation.

During the restructuring’s conciliation and negotiation
stage, all creditors, including secured ones (registered
securities, mortgages and pledges, etc), that wish to have voting
rights assigned to them for the execution of the restructuring plan
must formally register their credits before the Bankruptcy Court,
prior to the court-appointed mediator’s submittal of his or her
final report to the court.

These processes will remain stayed during the restructuring
plan’s execution, thereby prohibiting any asset seizure actions
by the creditors. The stay will be lifted if the restructuring plan
fails and the court authorises the debtor’s asset
liquidation.

During the restructuring’s conciliation and negotiation
stage, all creditors, including secured ones (registered
securities, mortgages and pledges, etc), that wish to have voting
rights assigned to them for the execution of the restructuring plan
must formally register their credits before the Bankruptcy Court,
prior to the court-appointed mediator’s submittal of his or her
final report to the court.

3.10 Consequences of LIBOR Index Expiry

So far, LIBOR uncertainty has created no noticeable change in
the pricing dynamics of real estate properties. In addition, it
could be an even smaller issue for commercial real estate compared
to other types of credit, given the prevalence of fixed-rate
funding.

The authors trust that regulators and policymakers are working
to make sure that the transition towards a new base rate for
valuing floating rate debt is as seamless as possible.

4. PLANNING AND ZONING

4.1 Legislative and Governmental Controls Applicable to
Strategic Planning and Zoning

The main law governing zoning in the country is Law 975/44,
dated 29 June 1944, regarding urbanisation and public
adornment.

Furthermore, Law 64-00, dated 25 July 2000, the General
Environmental and Natural Resources Law, also sets forth a series
of provisions regarding zoning in determined regions of the
national territory, and also includes a series of limitations with
regard to the use of lands declared as national parks, as well as
protected areas.

4.2 Legislative and Governmental Controls Applicable to Design,
Appearance and Method of Construction

In the Dominican Republic, methods of construction are regulated
primarily by the Ministry of Public Works and the Ministry of
Environment and Natural Resources, as they must comply with
environmental regulations and construction must not harm the
environment.

Exceptions apply in some areas designated as protected spaces,
such as the Colonial Zone, where design, construction and
appearance must be pre-approved by the Ministry of Tourism.

4.3 Regulatory Authorities

All land use matters are handled by municipalities, the Ministry
of Tourism (in tourist areas) and the Ministry of Environment and
Natural Resources. The municipalities and the Ministry of Tourism
establish the general rules regarding use (eg, residential,
commercial, industrial, mixed, density and maximum height). Any
construction or development that may affect the environment must
also be approved by the Ministry of Environment and Natural
Resources.

4.4 Obtaining Entitlements to Develop a New Project

In order to develop a new project, approval and permits must be
obtained from the following governmental agencies.

  • City Hall – land use clearance is locally processed. At
    the same time the plans are submitted to the local city hall for
    evaluation and clearance, an environmental authorisation is
    submitted.
  • Ministry of Environment and Natural Resources – the
    environmental impact of the project is evaluated. This process
    includes a public hearing, allowing for third parties to
    participate and object to the request.
  • Ministry of Tourism – for projects being developed in
    tourism areas, the requests and documentations are submitted to the
    Ministry’s Department of planning for evaluation.
  • National Water System – is in charge of evaluation and
    approval of the hydraulic and sanitary design plans.
  • Ministry of Public Works – once the plans are approved by
    the previous entities, the Ministry of Public Works issues a
    building permit.

4.5 Right of Appeal Against an Authority’s Decision

If the application for permission or authorisation has been
denied by any of the institutions involved in the process, the
applicant has the right to appeal to the same institution where it
was denied. If the reconsideration is again denied, an
administrative appeal should be submitted to the immediately
superior government authority.

The applicant can also have the case evaluated directly by an
administrative court judge by submitting its claim to the
administrative court, bypassing the hierarchical appeal previously
mentioned.

4.6 Agreements with Local or Governmental Authorities

Agreements are usually signed with the corresponding city
council so that the taxes collected from the developer are used for
social improvement projects.

Optional agreements can also be arranged with the Ministry of
Environment and Natural Resources, by signing an environmental
management plan, which is compulsory for projects developed in
protected areas.

Large developments in the infrastructure industry can now enter
into development agreements with the government through the
recently enacted Public Private Partnerships Law No 47-20 (20
February 2020).

4.7 Enforcement of Restrictions on Development and Designated
Use

Restrictions are enforced on development and designated use by
employing sanctions designated by the state.

These sanctions include fines and penalties, closing of
operations, and/or removal of licences and permissions. New
regulations on environmental licences and permissions include
provisions on prison sentences for violations.

The government also uses tax regulations to enforce
restrictions.

5. INVESTMENT VEHICLES

5.1 Types of Entities Available to Investors to Hold Real
Estate Assets

The most common entity used by foreign investors is a local
limited liability company (LLC). Some, preoccupied by the
complexities of reporting a foreign entity to the tax authorities
in their home jurisdiction, prefer to register their domestic
entity in the Dominican Republic. Finally, high-income individuals
with complex estate planning in place use the structures existing
in their estate plan to acquire Dominican assets.

There are no restrictions regarding the structure or legal form
of a foreign entity. If it is duly incorporated and recognised in
the jurisdiction where it was formed, an entity can do business in
the Dominican Republic upon registration at the Chamber of Commerce
and Internal Revenue. However, trusts as they are known in most
common law jurisdictions are not recognised as legal entities and
cannot, therefore, directly hold property in the Dominican
Republic.

As for Dominican entities, Dominican company law allows
different types of commercial companies (individually owned
enterprises, LLCs) and corporations (regular or simplified stock
corporations), all of which provide limited liability for their
owners or shareholders. There are other investment entities
recognised under the law, such as business partnerships, limited
partnerships and per share limited partnerships, but they are
seldom used because they do not offer full liability shields to
their members and are subject to the same tax treatment as the
other entities. Also, Law 189-11 introduced, in 2011, local
fiduciary vehicles as a holding option.

Local law does not recognise the concept of pass-through
entities. Any entity, local or foreign, is taxed as an entity,
regardless of its legal structure, except real estate assets held
through a closed-end investment fund approved by the Dominican
Republic Security and Exchange Superintendence. These funds are
considered fiscally neutral investment vehicles and, as such, are
not subject to income tax; their shareholders or beneficiaries,
however, will pay income tax on income received from the funds.

5.2 Main Features of the Constitution of Each Type of
Entity

LLCs must have no fewer than two shareholders and no more than
fifty. To form an LLC, the law currently requires, as a minimum,
that each shareholder holds a share with a value of no less than
DOP100 each. Shares in an LLC are non-negotiable by default. Share
transfers to third parties who are not current shareholders must be
approved by 75% of the votes of the company, except in certain
cases, and if the transfer is rejected, the shares in question must
be purchased or redeemed by the other shareholders or the
company.

Management of an LLC is in the hands of one or several managers
or a board of managers. Managers must be natural persons, not other
companies. Unless otherwise stipulated in the by-laws, no
inspection officer is required to oversee management.

5.3 Minimum Capital Requirement

To form an LLC in the Dominican Republic, the law currently
requires, as a minimum, that each shareholder holds a share with a
value of no less than DOP100 each. After the introduction of law
68-19 there are no established minimum capital amounts required,
aside from the one previously stated, but in practice LLCs are
usually formed with a minimum contribution from shareholders of
DOP100,000, paid in full, and divided into shares with a par value
of at least DOP100 each.

5.4 Applicable Governance Requirements

LLCs are governed by the provisions of their by-laws. The
authority over day-to-day activities falls on the managers or board
of directors and shareholders are the maximum authority regarding
issues relating to the dissolution process, modification of
by-laws, sales of the company’s assets, and transformation of
the company, among others.

Corporations incorporated with the purpose of acquiring or
acting as holding companies for real estate properties are not
required to obtain licences, authorisations or government
permits.

5.5 Annual Entity Maintenance and Accounting Compliance

All foreign and local entities are taxed equally regardless of
structure: a flat 28% on net corporate profits and 10% tax on
dividends or profits sent abroad.

The Dominican Tax Code has a general anti-tax avoidance
provision (“substance over form” principle) and specific
rules for the sale of shares of foreign entities that own assets in
the Dominican Republic.

All companies registered in the Dominican Republic, regardless
of whether they are local or foreign entities, including those with
no income or operations, must file income tax returns with the
Dominican Republic’s Tax Office every year. Aside from the
penalties on overdue taxes, which amount to 11.1% for the first
month and 5.1% for each additional month, entities that do not
comply with the filings and subsequent payments of both income and
asset taxes run the risk of having the Tax Office begin a lien
registration process against the entity’s properties.

6. COMMERCIAL LEASES

6.1 Types of Arrangements Allowing the Use of Real Estate for a
Limited Period of Time

Leases are the most common arrangements that Dominican law
recognises for a person, company or other organisation to occupy
and use real estate for a limited period of time without buying it
outright.

6.2 Types of Commercial Leases

Dominican law only considers leases in general terms.

6.3 Regulation of Rents or Lease Terms

Rents or lease terms are freely negotiable for the most part as
general contract law applies to them. Provisions are, however,
limited by various statutes that protect tenants. For example, if
there is no escalating clause for rent in the lease, the landlord
cannot raise it unilaterally without undertaking a lengthy
administrative procedure. Also, evictions cannot happen unless a
judicial eviction process is undertaken, regardless of what has
been contractually agreed.

Key lease provisions include:

  • a lease term;
  • tacit renewal clauses;
  • ownership of betterments made by the tenant during the
    lease;
  • default clauses and waiver of certain tenant-friendly statutory
    provisions not of public order;
  • a clear distinction between minor and major repairs and which
    party will be responsible for covering these; and
  • specific use of the property during the lease term (type of
    business or family residency).

6.4 Typical Terms of a Lease

There is no typical lease term or restrictions on such a term.
Tenants of business premises do not have security of occupation or
rights to renew the lease.

The law clearly assigns minor maintenance repairs to tenants,
while major structural repairs are covered by landlords; all of
which can be modified contractually between the parties.

The rent is commonly paid monthly; however, the parties are free
to agree otherwise.

6.5 Rent Variation

Leases commonly provide for periodic rent increases.

6.6 Determination of New Rent

There is no legal rent level protection. Rent can be increased
as long as it has been agreed contractually, otherwise it is not
permitted.

6.7 Payment of VAT

Rent payments to individuals but not to companies are subject to
a 10% withholding at source. All rents are subject to 18% VAT.

6.8 Costs Payable by a Tenant at the Start of a Lease

At the start of the lease agreement, the tenant pays a security
deposit, usually equivalent to two months’ rent, to guarantee
the fulfilment of its obligations. This amount is to be returned by
the landlord once the property is received at the end or
termination of the lease.

The landlord has the obligation to deposit this money, with a
copy of the lease agreement and other documentation at the
Agricultural Bank. Legal fees and other applicable fees are usually
paid by each party.

6.9 Payment of Maintenance and Repair

The expenses of maintenance and repairs of common areas,
especially in commercial buildings and shopping centres, are paid
by each of the tenants and are usually established as part of the
agreed rent.

For residential spaces, the costs arising from common areas
maintenance are covered by each tenant, by payment of a maintenance
fee, usually on a monthly basis, either to the building
administrator or to the landlord, if agreed as part of the
rent.

6.10 Payment of Utilities and Telecommunications

Utilities such as electricity, cable TV, water and
telecommunications are solely covered by the tenant. Expenses
related to common areas of a condominium are usually covered
proportionally and distributed between tenants as part of the
monthly maintenance fee.

6.11 Insuring the Real Estate That Is Subject to the Lease

There is no legal obligation to obtain insurance for real estate
subject to lease; this will depend on the terms and conditions
agreed between the parties. Rental insurance is not commonly
used.

6.12 Restrictions on the Use of Real Estate

The parties can agree on the uses of the rented property. There
is no regulation and/or law that imposes further restrictions. On
occasions, municipal regulations can restrict the use of real
estate property for exclusively housing purposes, depending on the
zone in which the property is located.

6.13 Tenant’s Ability to Alter and Improve Real Estate

Lease contracts usually include provisions allowing tenants to
waive their rights to claim any ownership to property improvements
(betterments) and that they will all remain attached to the
property and their ownership transferred to the landlord on
termination of the lease.

6.14 Specific Regulations

In general, Dominican law does not distinguish between
commercial and residential properties; the same rules apply for
both. However, properties held by commercial entities are taxed
differently from those owned by individuals.

Leases to entities are subject to value-added tax and leases for
residential purposes are subject to a 10% withholding tax that is
credited towards the landlord’s annual income tax.

6.15 Effect of the Tenant’s Insolvency

Insolvency can be included as a default clause allowing the
landlord to terminate the lease. This said, under Law 141-15, if
the tenants initiate an insolvency process, they cannot be evicted
from the property during the process, nor can the property suffer
any type of seizure. The owner is then assigned by a judge a
position in the range of creditors.

6.16 Forms of Security to Protect against a Failure of the
Tenant to Meet Its Obligations

The most common form of security the landlord holds against the
tenant in the event of failure to meet its obligations is the
deposit made by the tenant in advance of the commencement of the
lease. The provision of a third-party guarantor can also be agreed
between the parties, and/or that failure to comply with any of the
obligations agreed upon shall result in the termination of the
agreement.

6.17 Right to Occupy after Termination or Expiry of a
Lease

Upon termination of the lease agreement, the tenant should leave
the property and return it to the landlord in the same condition as
it was originally received. If the tenant does not vacate the
property upon expiry, and the landlord does not object to the
tenant’s occupancy and continues to receive the rent payment
without complaint, the lease agreement is considered effectively
renewed but as an oral lease, not a written one, to which different
rules apply in terms of eviction prior notice.

6.18 Right to Assign a Leasehold Interest

Most leases provide that any subletting or assignment is subject
to obtaining the landlord’s prior consent. Landlords do not
have to provide a reason for an assignment or a sublease. Where
there is a legal reorganisation or transfer/sale of the tenant,
there are no effects as long as the tenant remains the same legal
entity.

6.19 Right to Terminate a Lease

The circumstances in which leases are usually terminated by the
landlord and/or the tenant are:

  • reaching of the term of the agreement without renewal;
  • by the initiation of an eviction proceeding by the landowner in
    the event that the tenant fails to comply with payment
    obligations;
  • mutual consent among the parties;
  • the destruction of the leased property;
  • in the event the tenant uses the property for a different
    function than agreed upon in the lease agreement, and only in the
    event that such situation negatively affects the landowner;
  • in the event that the tenant subleases the property in whole or
    part if the lease agreement expressly prohibited subleasing;
  • if the tenant performs modifications to the property; and
  • renewal or extension of the lease period must be mutually
    agreed upon by the parties.

Usually, termination terms provide that the non-compliant party
is forced to pay a penalty for the early termination. Furthermore,
compensation for termination must be contractually agreed upon by
the parties.

6.20 Registration Requirements

At the start of the lease agreement, the tenant pays a security
deposit, usually equivalent to two months’ rent, to guarantee
the fulfilment of its obligations. This amount is to be returned by
the landlord once the property is received at the end or
termination of the lease.

The landlord has the obligation to deposit this money, with a
copy of the lease agreement and other documentation at the
Agricultural Bank. Legal fees and other applicable fees are usually
paid by each party.

6.21 Forced Eviction

Tenants can sue landlords for the specific performance of any
obligation assumed by the landlord in the lease and damages. The
landlord, likewise, can sue for specific performance and damages,
as well as for eviction; remedies available to landlords do not
differ depending on whether the nature of the lease is commercial
or residential.

The customary procedure to evict a defaulting tenant is to sue
in court. The process is very time-consuming for two reasons:

  • before suing, the landlord is required in many cases to go
    through an administrative procedure that usually grants the tenant
    grace periods of six months or more; and
  • eviction orders by lower courts are subject to appeals to two
    higher courts, which lengthens the process to three or more years
    if the tenant retains the services of a savvy lawyer; evictions
    cannot enforce while appeals are pending.

General contract law applies to the lease but is limited by
various statutes that protect the tenants. For example, if there is
no escalating clause for rent in a lease, the landlord cannot raise
it unilaterally without undertaking a lengthy administrative
procedure.

6.22 Termination by a Third Party

No third parties are allowed to initiate the termination process
of a lease agreement. However, the government can initiate an
expropriation process against the property, by following the due
process.

7. CONSTRUCTION

7.1 Common Structures Used to Price Construction Projects

The most commonly used structures are:

  • the fixed price system, which gives the owner of the project a
    comprehensive idea of the final cost of the project, establishing a
    fixed fee for the construction process; and
  • the construction management system, in which the project owner
    pays the contractor just a construction fee and the owner covers
    the cost of construction materials and labour.

7.2 Assigning Responsibility for the Design and Construction of
a Project

The parties are free to establish the conditions that govern
their relationship, allowing any scheme to be developed for
assigning responsibility for the design and construction of a
project, but with the caveat that plans must be executed by a
licensed architect or engineer.

7.3 Management of Construction Risk

Construction risk is usually managed contractually through
provisions and the establishment of penalties agreed in the event
of delays, performance bonds and insurance cover, among others.

The Dominican Civil Code establishes a warranty on structural
and hidden damages in a property, enforceable against architects
and contractors for up to ten years. In practice, this timeframe is
usually limited by the parties.

7.4 Management of Schedule-Related Risk

These types of risks are managed contractually through
provisions and the establishment of penalties in the event of
delays; it is also common to ask for a performance bond from the
contractor issued in favour of the owner and/or developer.

7.5 Additional Forms of Security to Guarantee a
Contractor’s Performance

Owners or developers often require the contractor performing the
work to provide security in the form of monetary compensation
through available financial tools, in case they are not able to
deliver the work on time or to meet the quality standards for which
they have been paid.

These risks are usually managed contractually by means of
warranties, indemnity provisions, retention provisions, penalties
agreed in the event of delays, performance bonds and insurance
cover, among others.

In addition, the Dominican Civil Code establishes a warranty
covering structural and hidden damages in a property that is
enforceable against architects and contractors for a period of up
to ten years.

7.6 Liens or Encumbrances in the Event of Non-payment

According to the Dominican Civil Code Article 2103, architects
and builders are able to register court-ordered liens in the event
of non-payment after the construction in question has been
delivered to the owner. Additionally, under Dominican law,
contractors and/or designers are not permitted to register any
liens or encumbrances in property from non-payment, but can sue the
owner for breach of contract, and if the debt is recognised by the
court, then they may proceed to register the lien or encumbrance in
the property. For an owner to remove the lien or encumbrance, they
must provide evidence of successful completion of the obligation to
the land registry.

7.7 Requirements Before Use or Inhabitation

In the Dominican Republic, a site certificate issued by the
parties or by an independent engineer is usually required,
certifying that the project has been finished and is ready to be
delivered and inhabited.

8. Tax

8.1 VAT

There is no VAT or equivalent tax liability applicable to the
sale or purchase of real estate.

8.2 Mitigation of Tax Liability

Other than the exemptions mentioned above and the option of
purchasing the shares of the holding company, there is no way of
avoiding the payment of the 3% title transfer tax. Large
institutional holders are advised to seek the advice of expert real
estate law and tax professionals to mitigate other tax
liabilities.

8.3 Municipal Taxes

There are no municipal occupation taxes. All planning and land
use matters are, however, handled by the municipalities, and a land
use tax is levied on developers or owners planning new construction
projects.

8.4 Income Tax Withholding for Foreign
Investors

The basic tax withholdings in the Dominican Republic are as
follows:

  • withholding for interest paid abroad – 10%;
  • withholding for payments abroad – 27%; and
  • dividends – 10%.

8.5 Tax Benefits

There are no tax benefits from owning real estate in the
Dominican Republic. Corporations may be compensated on the
property’s depreciation in accordance with the Dominican Tax
Code and exemptions may apply depending on the type of real estate,
the activities developed in the property and its location, among
others.

Originally published by Chambers Global Practice Guide
– Real Estate 2021.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.