Peru: Real Estate

The Real Estate regulation in Peru can be found in our civil law, and is applicable to the entire country in the same way. However, it is necessary to take into account that, in accordance with the Political Constitution of Peru, it is the local government (provincial and district municipalities) that has the power to plan the urban and rural development of its constituencies, including zoning, urban planning and territorial conditioning.

On the other hand, in real estate matters, the National Superintendence of Public Registries is the public entity in charge of the public registry, which proves ownership of real estate and oppose it to third parties. The latter, despite the fact that, as explained later in this questionnaire, registration in the public registry doesn’t have a constitutive effect in our legal system.

It is important to note that there are some property regimes in our legal system -such as state property, property of peasant communities and property of agricultural land- that have particularities that must be taken into account in case of carrying out transactions on such type of properties.

In Peru, the right to property is regulated in article 70 of the Political Constitution of Peru and, more broadly and specifically, in Book V of the Peruvian Civil Code on Property Rights.

3.1. On July 25, 2021, Law No. 31313 – Sustainable Urban Development Law (“DUS LAW”) was published in “El Peruano” newspaper, which aims to establish the principles, guidelines, instruments and regulations for the territorial conditioning, urban planning, use and management of urban land.

Additionally, we must highlight that the DUS LAW provided that the Executive Power had to approve the necessary regulations for its implementation. Thus, on October 5, 2022, Supreme Decree No. 012-2022-VIVIENDA was published, which approves the Regulation of Territorial Conditioning and Urban Planning of Sustainable Urban Development.

Nevertheless, there are some provisions indicated in the DUS LAW that we consider may be harmful and that have been criticized since its publication date:

• In the process of urban development, understood as converting a rustic or wasteland into urban land, Law 29090 and its Regulations establish that free and mandatory contributions are required for public recreation purposes, as well as for complementary public services, education, health and other purposes. In this regard, the DUS LAW establishes as a rule that these contributions must be at commercial value, when the previous legislation established that they were at tariff value.
• The DUS LAW establishes that the owners of properties located in an urban regeneration area, declared uninhabitable or declared part of the Cultural Heritage of the Nation, must carry out conservation works on it. In case the owner does not carry them out, the Local Government may carry out the corresponding works, establishing the conservation charge that must be assumed by the owner of the corresponding property, the same that will be recorded in the category of charges and encumbrances of the Property Registry.
• The DUS LAW establishes that an increase in the value of the land will be understood as the additional commercial value that is generated by the direct or indirect positive externalities generated by projects, urban rehabilitation works, urban renewal or regeneration, public investment in infrastructure, expansion of networks of public services and roads executed by the State. In these cases, the Provincial Municipalities may participate in the increase in the value of the land, and they will establish, by ordinance, the percentage of participation that will be charged to the increase in commercial value generated, which will not be less than thirty percent (30 %) nor greater than fifty percent (50%) of the increase in the commercial value per square meter.

Such participation will be required at the moment in which the owner of the property that has benefited from the increase in land value:

• Request the receipt of urban rehabilitation works, having to make the payment in cash, by transferring additional areas to the contributions established in the urban rehabilitation process.
• Request the approval of the work of the corresponding building, having to make the payment in cash or through contributions.
• Carry out acts that imply the transfer of the property, having to make the payment in cash.

We consider that all the previously mentioned provisions that did not exist in our legal system and that have been regulated by the DUS LAW, may have implications in terms of investment in real estate projects, due to: (i) the high costs that these new obligations will represent; (ii) the lack of clarity on how to determine the increase in commercial value; and, (iii) it can be applied in a discretionary manner by the Municipalities.

3.2. Additionally, the DUS LAW has modified the Municipal Taxation Law, which states that the properties located on urban land that have access to public services and do not have urban authorization with reception of works -or that having urban authorization with reception of works do not have a building-, will be subject to the payment of an additional rate of 100% with respect to the corresponding rate of Property Tax that will be applicable to the value of the land. This rate will be applied from January 1, 2024.

It is important to mention that, in Peru, the registration of ownership of real estate in Public Registries doesn’t have a constitutive effect. In this sense, the property can be proven by means of the document, it is recommended of a certain date, by virtue of which the transfer of the real estate took place.

However, it must be taken into account that article 2022 of the Peruvian Civil Code establishes that, in order to oppose real rights over real estate to those who also have real rights over them, the opposing right must be previously registered. In this sense, in order that the ownership of real estate may be opposable to third parties and in order to generate legal certainty for future purchasers, it is essential to register the ownership of real estate in Public Registries.

Yes, in accordance with article 71 of the Political Constitution of Peru, within fifty kilometres of the borders, foreigners may not acquire or possess, by any title, mines, land, forests, water, fuel or energy sources, directly or indirectly, individually or in partnership, under penalty of losing, to the benefit of the State, the right thus acquired. The case of public necessity expressly declared by supreme decree approved by the Council of Ministers in accordance with law is excepted.

Ordinary ownership: assumes full ownership of real estate, the owner having the right to use, enjoy, dispose of and claim the property.

Co-ownership: in accordance with the provisions of article 969 of the Civil Code, there is co-ownership when a property belongs to two or more people by ideal quotas. In this regard, our civil law states that the shares of the co-owners are presumed equal unless proven otherwise, and that the benefits and charges of the co-owners are in proportion to the respective shares.

There is a right of partition of the common good, as long as the material division of the same is possible. Otherwise, the common good may be awarded, jointly, to two or more co-owners who agree on it or it will be sold by agreement of all of them and the price will be divided. In case they do not agree with the award in common or the sale of the property, it will be sold in public auction. On this point, it is worth mentioning that the civil law allows co-owners to enter into an undivided agreement for a term not exceeding four (4) years, which can be renewed whenever they deem it appropriate.

It is worth mentioning that the co-owners have the right of withdrawal on the aliquots of the other co-owners, in case they decide to transfer them to a third party. This right is exercised within thirty days from the communication of a certain date to the person who enjoys this right.

Lastly, decisions on the common property are adopted: (i) unanimously to dispose of, encumber or lease the property, give it on loan or introduce modifications to it; and, (ii) by absolute majority, for acts of ordinary administration (votes are computed by the value of the fees)

Horizontal property: In Peru, horizontal property is regulated by Law 27157 – Law for the Regularization of Buildings, the Procedure for the Factory Declaration and the Regime of Real Estate Units of Exclusive and Common Property and by its regulations approved by Supreme Decree No. 035-2006-VIVIENDA.

In accordance with such regulations, the owners of the real estate units that are part of a building can opt for the Exclusive and Common Ownership Regime or for the Independence or Co-ownership Regime. In Peru, it is usual for buildings to opt for the Exclusive and Common Property regime. This regime implies the coexistence of sections of exclusive property and common goods and/or services in the buildings. In this sense, it could be pointed out that, although each of the real estate units that make up the building (e.g., apartments, parking lots and/or warehouses) are the exclusive property of the co-owners, they also share real estate that is the common property of all co-owners, such as the land on which the building has been built, passageways, elevators, among others.

Trust Ownership: is the temporary right that grants the trustee the powers over the trust assets (in which real estate may be included), for the fulfilment of the purposes of the trust, always within the limits agreed in the constitutive act. The figure of the trust is commonly used as a guarantee of credits and the fulfilment of other types of obligations, as well as for the development of real estate projects due to the great flexibility that this legal institution allows.

Pursuant to our civil law, the integral parts of a good and its accessories remain in its condition, unless the law or the contract allows their differentiation or separation.

One of the permitted ways of separating the property of the land from the property of the construction is through the constitution of the surface right. Thus, by means of the surface right, the surface owner enjoys the power to temporarily have a separate property construction on or under the surface of the ground. However, this right may not last for more than 99 years.

Likewise, once the term agreed for the surface right has expired, the owner of the land will acquire ownership of what has been built, reimbursing its value, unless the parties have agreed otherwise.

In Peru, one of the following structures is usually chosen for the development of real estate projects for commercial purposes: (i) the acquisition of real estate through purchase agreements; and, (ii) the constitution of a surface right by virtue of which the surface owner (that is, the beneficiary of said right) has the power to temporarily own a construction on or under the ground, and the ground remains owned by the person granting the surface right, for a maximum term of 99 years. In some cases, commercial real estate developers have taken usufruct rights for a maximum period of 30 years, by virtue of which the usufructuary is granted not only the power to use and enjoy the real estate, but also the power to build on it in order to be able to carry out the commercial real estate project of your interest.

However, the aforementioned rights (such as property, surface rights or usufruct rights) are usually acquired by natural persons, companies (mainly closed corporations such as Special Purpose Vehicles – SPVs), funds or trusts. The tax impact, search for risk diversification, the financing structure of the project and limitation of liability, will be the determining factors to define the form of acquisition of such rights.

Thus, for example, in Peru, natural persons are taxed at a rate of 5% for capital gains in the case of the sale of real estate and for the income received for the transfer in use of real estate, as opposed to the rate of 29.5% of net income applicable to legal persons. If the investors are companies from the United States, they will prefer to invest through a commercial limited liability company (S.C.R.L.) instead of a closely held corporation (S.A.C.), since the S.C.R.L. gives them some benefits over the S.A.C. according to American tax legislation.

If natural persons want to diversify the risk so as not to invest in a single asset and limit their liability, they will invest through trusts, ideally those that qualify as Securitization Trusts for Investment in Real Estate Income (Fibra) or through investment funds, ideally those that qualify as Real Estate Income Investment Funds (Firbi). Both figures share the nature of being an independent patrimony that is constituted by the resources of the originators or participants, as appropriate and managed in the case of the Fibras or Firbis, by companies supervised by the Superintendency of the Securities Market (SMV).

The Firbis and Fibras are attractive because, in the case of investors who are natural persons, they allow the application of the 5% rate, unlike other funds or trusts that do not qualify as Firbis or Fibras, respectively, where they will apply the 29.5% rate as they are considered to generate business income. However, an insurance company or AFP will also seek to invest through funds or trusts, whether or not they are Firbis or Fibras, since they are tax-neutral, so they can apply the benefits and tax exemptions to such companies.

The due diligence process for the acquisition of real estate involves reviewing the following:

• The ownership of the property, for which it is required to have the registration item of the same, as well as the title of acquisition of the current owner. In addition, it will be necessary to review the documents that gave merit to the previous transfers in order to verify that they are valid and do not affect the property rights of the future acquirer.
• The charges and/or encumbrances that exist on the property. For such purposes, a review of the real estate registration item is made and, if there are charges (such as leases, easements, etc.) or encumbrances (such as mortgages), the documents by virtue of which they were constituted are requested in order to determine to what extent they would affect the property right of the future acquirer.
• In case there are constructions on the property, that they have had the respective authorizations (such as urban authorization license, building license, among others) for their realization.
• That there are no overlaps with other properties or duplication of items, for which the Cadastral Search Certificate of the property is requested, which is issued by the National Superintendency of Public Registries (SUNARP). This will make it possible to determine if there is a risk that a third party (whose property is superimposed or whose entry is duplicated) can initiate a process of better property rights.
• The urban analysis of the property in order to evaluate the condition of the property (whether it is urban, rural or rustic), the zoning, the compatible uses and the existence of road damages. In order to determine that the property meets the characteristics of any future construction that the future purchaser is going to carry out on it.
• Verify if the property is subject to any special regime, such as, for example, that it has the status of national cultural heritage, that it is located in protected natural areas or their buffer zones, in beach areas, among others.
• In Peru, since 2021, there is a prior control regime for business concentration operations, created by Law 31112. In this sense, the corresponding analysis will be required to determine if the acquisition operation is subject to such procedure.
• Verify, through field work, that there are no apparent easements in the property subject to evaluation that could affect the use to be granted to the property; and, on the other hand, to verify the non-existence of possessors, the latter inasmuch as at the judicial level it has recently been pointed out that, in order for the buyer of real estate to be considered as a buyer in good faith, it is not enough to review the information registry. It is even necessary to know the title by virtue of which the occupants (if any) are in possession of the property.
• In the case of rural properties, it must be verified that they have access from public roads and, if they cross privately owned properties, that the easements are legally constituted.
• In tax matters, it is evaluated -in some cases- that the seller is in compliance with its formal and material tax obligations, that is, the timely fulfilment of the presentation of determinative and informative affidavits and the correct determination and payment of applicable taxes (mainly IR, IGV and ITAN) to avoid attributing joint and several liability to the purchaser on the seller’s tax debts.
• This evaluation will be necessary in certain acquisitions that involve transfers of production units that have the consequence of generating the impossibility of complying with the seller’s tax obligations.

There are the following legal contingencies that are not normally covered in a legal due diligence process:

• Although in the preceding question 8 it has been indicated that the Cadastral Search Certificate (issued by SUNARP) is required, in order to determine whether or not there are overlaps or duplication of items, we must take into account that the cadastral graphic base of SUNARP is constantly updating, therefore, the conclusions of said Certificate should not be taken as definitive in the sense that there are no effects on third parties. However, said certificate does make it possible to reasonably determine that, on the date of its issuance, such affectation is evident or not.
• The existence of claims in relation to the property. Although it is true that on many occasions the plaintiffs usually request that the demands be recorded preventively in the registry items of the real estate, it is also true that many times this is not the case. Therefore, in a due diligence process it will not be possible to determine the existence of such contingencies if they have not been publicized. However, despite the fact that there are processes related to the property or in which precautionary measures have been issued on the property, the acquirer in good faith and for valuable consideration, will be protected in the event that the acquisition is registered in accordance with article 2014 of the Peruvian Civil Code.
• Likewise, it should be taken into account that there are some transfers of real estate by the State to private third parties whose causes of expiration that result in the reversion of said property in favour of the State are not usually registered in the real estate registry items; however, as they are included in regulations, they enjoy legal publicity. In that sense, although it will be possible to see in which cases these causes of expiration apply, it will not always be possible to determine if the reversion of said property in favour of the State proceeds.
• Finally, usually in a due diligence, environmental and social issues, technical inspections or appraisals are not evaluated; however, depending on the specific case, it may be advisable to include such evaluation.

The usual process for transferring real estate in Peru is as follows:

i. The parties usually enter into an MOU (Memorandum of Understanding) or a preparatory agreement (either an option agreement or a commitment to contract). It is worth mentioning that preparatory agreements generate greater binding between the parties.

In the case of MOUs, these usually reflect what will be the structure under which the real estate will be acquired and a term is usually granted in which certain conditions must be met to carry out the transaction, including the realization of a due diligence.

In the case of preparatory agreements, these usually contain the definitive terms of the contract under which the real estate will be transferred and, on some occasions, the acquirer grants in favour of the transferor, a percentage of the sale value of the property as withdrawal deposit, with which, in case the acquirer withdraws from the transaction, such sum remains in favour of the transferor. If the person who withdraws is the transferor, he must return an amount equal to twice the deposit originally received, although it is usual not to grant the seller the right of withdrawal. It is worth mentioning that, unlike the commitment to contract, the option contract can be registered in the public registry, thus being opposable to third parties and granting the beneficiary of the option preference over any real or personal right that is registered subsequently.

ii. Subsequently, the conclusion of the definitive purchase and sale agreement is carried out by which the transfer of the real estate materializes. There are cases in which the transferor reserves ownership of the property until the purchaser has paid the entire agreed sale price.

Another aspect to take into account is that in order for the transfer to be registered in the public registry, the purchase and sale agreement must be registered as a public deed. Taking this into account, the usual practice is to agree to pay the price in instalments, with the first instalment being paid on the date of signing the definitive agreement and the following instalment on the date of the public deed, after blocking in favour of the acquirer. Regarding the latter case, we must point out that the registry block is a mechanism that protects the future purchaser until the ownership of the property is registered in his favour, since it is valid for sixty (60) business days counted from its registration, period during which no act incompatible with such transfer may be registered.

iii. In some cases, the parties give the notary public instructions under the terms of a mandate to retain part of the price until the registration of ownership of the property is obtained in favour of the acquirer free of charges and encumbrances, as well as compliance with other obligations from the transferor.

If the transfer of the asset is made indirectly, through the sale of shares, such sale will be taxed with Income Tax (IR). The tax base will be the one resulting from the difference between the sale price and the computable cost of such shares. Likewise, the rates will depend on whether the seller is a natural or legal person and whether it is a domiciled or non-domiciled subject. The applicable rates are the following:

• Domiciled Natural person: 5%
• Domiciled Legal person: 29.5%
• Non-domiciled natural or legal person: 30% (except if the shares are listed on the stock Exchange)

On the other hand, if the transfer of the asset is made through the direct sale of the property, such operation will be taxed with (i) Income Tax and (ii) Alcabala Tax. In relation to Income Tax, the rates will depend again on whether the seller is a natural or legal person and whether he is a domiciled or non-domiciled subject. The applicable rates are the following:

• Domiciled or non-domiciled Natural person: 5%
• Domiciled Legal person: 29.5%
• Non-domiciled legal person: 30%

Likewise, it should be noted that, unlike the previous case (indirect sale through shares), certain acquisitions of assets imply the joint and several liability of the acquirer (see the last section of question 9).

On the other hand, the Alcabala Tax will be 3% of the transfer value, and the first 10 UITs are exempt (S/ 46,000 – UIT 2022).

Finally, we must point out that, in both cases (direct transfer of the asset or indirect transfer through shares), if the seller is a non-domiciled subject, he must carry out the procedure to obtain the certificate of capital invested in order to prove the cost of the property or its shares before the Tax Administration and be able to deduct such amount for the purposes of determining the Income Tax.

Yes, if the lease was registered, the new acquirer must respect the lease agreement, being replaced from the moment of the acquisition of the property, in all the rights and obligations of the lessor, by legal mandate.

In unregistered agreements, the new acquirer can terminate the lease, unless he had assumed the obligation to respect the lease in the sale and purchase agreement. In this case, it is also usual for the buyer and the seller together with the lessee to enter into a contractual position assignment agreement, unless it has been agreed in the lease that, in the event of transfer, the new acquirer will take over the contractual position of the previous owner automatically.

In the case of usufructs, it is customary to proceed as indicated in the preceding paragraph, and there is no regulation for such agreement similar to that which exists for registered leases.

The most common are:

1. The right of easement, which gives the owner of the dominant estate the right to practice certain acts of use of the servient estate or to prevent the owner of the latter from exercising any of his rights. The easement can be perpetual if agreed by the parties at the time of its constitution. The most common easements are easements of passage and transit, easements of occupation that allow the installation of equipment and machinery on the affected property, and easements of view.
2. The surface right, which grants the surface owner the right to own a building on someone else’s property, for a maximum period of 99 years.
3. The right of usufruct, which allows the usufructuary to use and enjoy someone else’s property. The usufruct may or may not be onerous and may be mortgaged and transferred in favour of third parties unless otherwise agreed. This right has a maximum term of 30 years.
4. The lease, by virtue of which the owner temporarily assigns the use of the property to a third party for an agreed rent. The maximum lease term is 10 years.
5. The mortgage, that is constituted on the property in order to guarantee the fulfilment of obligations and/or the payment of a debt.
6. The option agreement, in which the owner of the property grants, in favour of a third party, the option to acquire the property, forcing the owner to transfer it once the third party exercises the option.
7. Other rights that can be registered are the domain reservation agreements, the resolution clauses and the charges that the donee must satisfy in case of donations, among others.

In the case of rights granted in favour of third parties, the safest way in which they are protected is by generating opposability against third parties, which is achieved efficiently by registering such rights in the property’s registry entry. On the other hand, in the case of the mortgage, its registration in the Public Registry is a requirement for its validity.

Yes, the trust, which is recognized in Law No. 26702 and which is defined as that legal relationship by which the trustor transfers assets in trust to another person, called the trustee, for the constitution of a trust estate, subject to the fiduciary domain of the latter and subject to the fulfilment of a specific purpose in favour of the trustor or a third party called trustee. It is important to point out that the securitization trust also has a special regulation in the Securities Market Law approved by Supreme Decree No. 093-2002-EF.

As we mentioned before, registration in Public Registries in Peru doesn’t have constitutive effect (except in the case of mortgages). Notwithstanding this, the different provisions established by our civil law mean that, in practice, the registration of any right over a property, including property rights, must be registered. In this sense, in practice, the ownership of real estate is publicized, insofar as anyone can access the information contained in Public Registries.

That said, in the event that a person exercises the property right for the benefit of a third party, something that is not common in Peru, but that could be structured through a mandate, there is no obligation to inform who the beneficiary is.

However, our tax legislation has established that, depending on the amount of their net income, legal entities and other entities (such as trusts, securitization trusts and investment funds, among others), must report their final beneficiaries to the Tax Administration.

The main tax levied on the property is the Property Tax (Impuesto Predial), whose collection, administration and control corresponds to the District Municipality where the property is located. Said tax is levied on the value of the properties based on their self-assessment and is the responsibility of the natural or legal person who, as of January 1 of each year, is the owner of the property.

The taxable base for determining the tax is made up of the total value of the taxpayer’s properties located in each district jurisdiction. In general, to determine the total value of the properties, the tariff values of land and official building unit values in force and depreciation tables by age and state of conservation approved by the Ministry of Housing, Construction and Sanitation through Ministerial Resolution are applied. Property tax is calculated by applying the following cumulative progressive scale to the tax base:

• Up to 15 Tax Units: 0.2%
• More than 15 UIT and up to 60 UIT: 0.6%
• More than 60 Tax Units: 1.0%

The value of the Tax Unit (UIT) in Peru is PEN 4,600, that is, approximately USD 1,180 -considering an exchange rate of PEN 3.9 per USD-. It is important to point out that the tariff values are usually well below the commercial values of the buildings.

In addition to the Property Tax, property owners must pay municipal excise taxes (security, cleaning, parks and gardens, among others) that are determined based on the cost of such services for the Municipality.

In the case of transfer, the main taxes are: (i) the Sale Tax (Impuesto a la Alcabala) (see question 12), (ii) the Income Tax (see question 12).

In Peru, there is no longer a legislation that regulates housing leases as it existed in the past and that protected tenants, nor are there regulatory controls on the terms of leases. As a general rule, in all types of leases, commercial or not, the parties can freely agree on the conditions of the lease, and the only restrictive regulation is that the term of the lease may not exceed 10 years. For this reason, in the event of the silence of the parties, the provisions of the Civil Code will be applied in a supplementary manner.

Having said the above, in leases for commercial purposes, the following terms are usually agreed:

1. The intended use for property, agreeing that any other use, will give the lessor the right to terminate the contract.
2. The monthly rent and the form of payment, which is usually agreed by advance payment.
3. Mechanisms for updating income, with annual increases equivalent to a rate of 3% or according to the Consumer Price Index (CPI) of the previous year, whichever is greater, being agreed upon. In some cases, limits are agreed on the applicable CPI. Since the rent can be freely agreed in dollars, in these cases, the American CPI is applied.
4. The term of the lease, which may not exceed 10 years in accordance with our civil law. They usually include renewal or extension rights or options to enter into new lease agreements once the aforementioned 10-year term has expired.
5. In the case of options to enter into new lease agreements, rent readjustment mechanisms are usually agreed to at market value applicable to the new agreement. These agreements, however, are not usual within the term of a contract, except in the case of long-term contracts.
6. The rules for making improvements or carrying out works on the property, given that our Civil Code establishes that these cannot be made without prior authorization from the lessor.
7. The applicable rules in case the sublease and the assignment of the contractual position to third parties are previously authorized, a right that is usually limited to members of its economic group, since both the sublease and the assignment of the contractual position require the express authorization of the lessor under our Civil Code.
8. The guarantee that can cover any damage that affects the property or non-compliance by the tenant with the obligations agreed in the lease, being the usual that the guarantee is equivalent to two months of rent.
9. The cases in which early termination may proceed and the applicable penalties in such cases.
10. The clause of anticipated consent (allanamiento anticipado), so that the lessor can evict the lessee in case of termination of the contract due to breach of obligations or due to the expiration of the agreed term.
11. The dispute resolution clause that may be arbitral or judicial, as established by the parties.
12. The right of preference in case of sale of the property by the owner and/or the option of purchase in favour of the tenant. It is important to point out that, in the case of usufruct, there is a right of withdrawal in favour of the usufructuary by legal mandate, a right that does not apply to the tenant. Through the withdrawal, the usufructuary assumes the position of the buyer, and the term to exercise it is 30 days from the time he becomes aware of the transfer.
13. In the case of commercial premises that are part of a regime of exclusive property and common property (condominium), it is usual to agree that the lessee must assume and pay the fees for the maintenance of common goods and services, including rules to determine which are the expenses that can be transferred. Additionally, in the case of shopping centres, it is usual for the lessee to assume an amount for the promotion and/or marketing fund.

Article 195 of our Political Constitution establishes that local governments (provincial and district municipalities) have the authority to approve the urban development plan, urban planning and zoning. In this sense, these entities are in charge of issuing those technical-normative instruments (municipal ordinances) that regulate zoning, land use and the exercise of the right of property ownership, establishing, in addition, the activities and uses that can be given to the properties depending on the type of zoning that has been assigned to them. It is worth mentioning that, although the zoning and land use regulations are approved by each provincial municipality, they must comply with the general national regulations contained, mainly, in the National Building Regulations and the DUS Law.

In relation to the competences, the Provincial Municipalities are in charge of approving the urban development plans which contain the zoning and land uses, being that the latter are regulated by municipal ordinances, which have the rank of law in accordance with the provisions of paragraph 4 of article 200 of the Political Constitution of Peru. On the other hand, it is the responsibility of the district municipalities to regulate the construction, remodelling or demolition of buildings in accordance with the framework regulations established by law; in this sense, these entities can approve urban and building parameters applicable in its corresponding district. Finally, it should be mentioned that in Peru the zoning regulations, uses and urban and building parameters vary in each district and in some cases may be contradictory. That is why, in order to carry out a real estate project, it is extremely important to study the urban and zoning regulations.

In Peru, apart from the general rule of liability for damages, where the responsible party is the one who causes the damage, there are sectorial regulations that determine administrative liability in environmental matters, being necessary to evaluate the type of activity to determine the applicable sectorial regulation.

In the case of the real estate sector and construction activity (such as, for example, construction of residential buildings, urban habilitations, construction of shopping centres, among others), the responsibility for environmental contamination falls on the “owner”. In this regard, the Environmental Protection Regulation for projects related to Housing, Urbanism, Construction and Sanitation activities approved by Supreme Decree No. 015-2012-VIVIENDA approved in 2012 specifies that the owner of the investment project is responsible for the proper environmental management of emissions, effluents, noise, vibrations and solid waste generated as a result of the processes and operations in its facilities, as well as for any damage to the environment caused as a result of the development of its activities.

Likewise, it should be noted that in the case of environmental contamination, particularly related to solid waste, there is joint and several liability between the owner of the real estate project and the constructor in accordance with the Regulation for the Management and Handling of Waste from Construction and Demolition Activities approved by Supreme Decree No. 003-2013-VIVIENDA.

No, in Peru buildings are not required to comply with such assessment. However, it is an issue that is being increasingly discussed and some district municipalities have begun to provide certain benefits for projects considered sustainable, including those that adopt and implement energy efficiency measures. These benefits consist of an increase in the amount of built-up area, a reduction in the minimum area per housing unit, and increases in building altitude.

Yes, article 70 of the Political Constitution of Peru allows the expropriation of real estate solely for reasons of national security or public necessity, declared by law, and prior cash payment of fair compensation that includes compensation for eventual damage. Likewise, the expropriation process is specifically regulated in the Legislative Decree No. 1192 that approves the Framework Law for Acquisition and Expropriation of real estate, transfer of state-owned real estate, release of Interferences and dictates other measures for the execution of infrastructure works.

Yes, in Peru the mortgage is regulated in articles 1097 and following of the Peruvian Civil Code. Thus, it is stated that the mortgage affects a real estate property as a guarantee for the fulfilment of any obligation, either its own or of a third party. Since one of the requirements of the mortgage is its registration in the real estate registry, this is the most ideal way to protect it, otherwise it will have no effect and will not be enforceable against third parties.

In this sense, in accordance with our civil law, the mortgage is constituted by public deed and its registration in the registry is one of the requirements for its validity. It must secure determined or determinable obligations, including future or eventual obligations. In addition, the lien must be of a determined or determinable amount, being the usual, in order to avoid problems in case of execution, a determined amount.

The mortgages follow and affect the property in case of transfer, being that the creditor may execute the mortgage against the new acquirer. In Peru there are legal mortgages that are generated in the following cases: (i) that of the property sold without its price having been paid in full or with the money of a third party; (ii) that of the property for whose manufacture or repair work or materials have been provided by the contractor and for the amount that the principal has been obliged to pay him; and, (ii) that of the property acquired in a partition with the obligation to make amortizations in money to other of the co-owners.

On the other hand, in accordance with our civil law, more than one mortgage may be constituted on a property, and these will have preference according to their seniority of registration in the public registry, except when their rank is assigned, which is also permitted.

In Peru, it is prohibited for the beneficiary of the mortgage to acquire the ownership of the property for the value of the mortgage in case of default of the secured obligation, since mortgages only grant the right to the beneficiary to be paid the credit with the amount resulting from the auction.

Our civil legislation establishes in its article 1211 that the assignment of rights includes the transfer to the assignee of the privileges, the real and personal guarantees, as well as the accessories of the transferred right, unless otherwise agreed. Accordingly, in the case of the assignment of rights, where the consent of the debtor is not required, in addition to the credit, the mortgage will also be transferred, being that for the registration of such assignment so that it may be enforceable against third parties, it must also be recorded by public deed.

In relation to the execution of the mortgage, a judicial or arbitration process must be followed for its execution, which usually has the following stages: the filing and admission of the claim, the execution order, the call for auction, the auction of the property and the adjudication and recovery of the credit.

EAs mentioned in the preceding question (23), in Peru, the registration of mortgages is constitutive, so it is a validity requirement that it be registered in the public registry. Although the cost of such registration will be calculated based on the valuation of the act, which would be the amount of the lien, they are subject to a limit of 1 Tax Unit (UIT), so the cost of registration is not significant.

Our legislation allows the constitution of guaranty trusts, where the real estate assets that are part of the trust assets will be destined to the fulfilment of certain obligations guaranteed by the settlor or a third party, for the benefit of one or more beneficiaries (or creditors) and administered by a third party (the trustee). Accordingly, the beneficiaries or their representatives may request the trustee, in the event of noncompliance with the secured obligations, to proceed to the direct foreclosure of the assets, so that, with the amount obtained from such foreclosure, the outstanding debt is paid to the creditor. It is important to point out that, in the case of a guarantee trust, the foreclosure process does not require a judicial proceeding, since it is a private proceeding governed by the rules agreed upon in the trust agreement. It is usual that these procedures allow the direct sale of the property by the trustee to the interested third party at the values agreed in the trust or determined in accordance with its provisions. Private auction or public auction mechanisms may also be included, but they do not imply going through a judicial auction process. In the case of more than one beneficiary, the trust contract will establish the form of distribution of the proceeds of the sale.

Mortgages could also be constituted in favour of a trust in which several creditors participate as beneficiaries, regulating in the trust structure the rules of participation and distribution of the resources produced by the foreclosure of the mortgage in case of auction of the property. However, due to the characteristics of the aforementioned guaranty trust, it is not usual to use this type of structure.

However, when the mortgage is constituted to guarantee more than one creditor, a guarantee agent is usually used to act as beneficiary of the mortgage in favour of the creditors, under the terms of the mandate contract or agency contract, establishing in such contracts the rules for the distribution of the flows obtained in the event of an eventual foreclosure of the mortgage. It is usual that, in these cases, the agent is a company of the local financial system.

In order to mitigate the risk in the event of a possible liquidation of the collateral agent, the agency agreements provide that, in such event, the creditors have the right to replace the agent. In this sense, it is unlikely that the secured asset may be affected in the event of liquidation of the collateral agent, since in such cases it is normal for the agent to be substituted. Notwithstanding the foregoing, the mortgage creditors are protected by virtue of article 1813° of our civil law, which establishes that the creditors of the trustee (being the trustee, in this case, the collateral agent) cannot enforce their rights over the assets acquired by the trustee in execution of the mandate, as long as they are evidenced by a document of a date certain prior to the request made by the creditors.