Real estate finance law in Peru

Yes, guarantees can be granted to foreign lenders under Peruvian law.

Yes, lenders can take a mortgage on land and buildings on the land. A mortgage is a security interest in immovable property, including the land and buildings on it.

According to Peruvian law, mortgages can be constituted on the ground, subsoil and above ground of a property. Legally, there is no difference between mortgaging land and mortgaging a building, as the regulation applies in a similar manner to all secured assets. It should also be noted that the mortgage extends to all the constituent parts of the mortgaged property, to its accessories and to the amount of insurance and expropriation indemnities, unless otherwise agreed. This being the case, the mortgage constituted on a plot of land will extend to the construction carried out after the registration of said mortgage.

Mortgages are constituted for a determined or determinable amount of encumbrance, which is registered in the Real Estate Register.

Notwithstanding this, Peruvian law allows for the issuance of Negotiable Mortgage Credit Instruments (Títulos de Crédito Hipotecario Negociable or TCHN). TCHNs are issued by the public registries at the request of the owner of the property; the request must be recorded in a public deed. In case the TCHN is issued in favour of a company in the national financial system, the request may be stated in the mortgage contract concluded with such entity.

The TCHN can only be issued for the full value of the property and provided that the property has no prior charges or encumbrances.

TCHNs may be freely transferred in favour of third parties by means of endorsements to be recorded on the same title issued by public registers.

Yes, a second or subsequent mortgage guarantee may be taken on the same property. As with the first mortgage, the second mortgage must be recorded in a public deed executed before a Notary Public and registered with the Real Estate Registry in the Registry Entry of the property that is the subject of the mortgage. This registration is made following the chronological order in which each mortgage is filed, thus determining its relative priority – there is preference by seniority. It is not necessary to register an additional priority deed, as the priority of the mortgages is automatically established by the date of registration in the registry. This methodology ensures clarity and fairness among creditors, allowing each creditor to know its position and the risks associated with its investment.

Notwithstanding the above, our legislation allows the assignment of preferential rank by means of which a creditor with a priority mortgage transfers its position to another creditor. This process is formalised with a public deed executed before a Notary Public and its respective registration in the Real Estate Registry. The assignment is effective against the debtor and third parties only if the debtor accepts it or has been duly notified of it.

Yes, an owner may transfer a mortgaged property to a third party without the lender’s consent, but the property remains subject to the mortgage even after the transfer. The secured creditor can enforce payment against the debtor or against the third party acquirer of the property. However, it is common for loan contracts to require the consent of the lender for such transfers, this will always depend on the agreement of the parties.

Yes, there are creditors preferred to senior mortgage holders, such as labour and tax creditors, who have special privileges.

Yes, mortgages of “all monies” or open mortgages, which secure determinable obligations between the debtor and the creditor, can be created. However, the manner of determining the obligations to be secured by the mortgage must always be identified.

Yes, a landlord’s right to receive rent may be encumbered, assigned or transferred to a lender as security by way of security:

• assignment of receivables: the landlord assigns to the lender the right to receive rents, which requires written notice to the tenant to pay directly to the lender
• security interest: the landlord creates a security interest in the right to the rents in favour of the lender, securing a preferential right to the rents in the event of default. This security must be properly registered
• antichresis: the landlord grants the lender the right to collect rents in exchange for a loan, allowing the lender to exploit the property and apply the rents to repay the loan.

In all these cases, it is crucial that the tenant is duly notified to make payments to the new creditor.

Yes, it is possible for a lender to take a security interest in the borrower’s bank accounts, either by way of a security interest or an assignment of rights.

It is not common for lenders to contractually restrict the rights to withdraw funds from accounts. If a guarantee restricting these rights is required, some form of trust or trust commission should be signed with an entity in the national financial system.

The transfer of land and the creation of guarantees in Peru require formalisation by means of a public deed executed by a Notary Public, which must be registered in the Property Registry administered by the National Superintendency of Public Registries (SUNARP). The testimony of the public deed is submitted to SUNARP to request registration, which is necessary for the guarantee to be constituted and to be enforceable against third parties.

It is a requirement for the validity of the mortgage that it be registered with SUNARP. Otherwise it is as if it does not exist.

The formalities for the creation of guarantees in Peru include:

• the drafting of a public deed before a notary public
• registration with SUNARP
• notification to the debtor is also required in addition in case of assignment of credits.

As for costs, these vary and include:

• notary fees, which depend on the amount of the transaction
• registration fees for registration with SUNARP, which are calculated according to the value of the collateral (approximately 1.5/1,000 of the value of the property for the Land Registry with a minimum of PEN 32, and 1/1,000 for the Movable Registry of Contracts (Registro Mobiliario de Contratos) with a minimum of PEN 13)
• possible specific taxes such as the Financial Transaction Tax (Impuesto a las Transacciones Financieras or ITF)
• other additional expenses such as appraisal, title studies and publications.

Yes, the lender can use a security trust to hold the collateral in trust for the creditors. In this scheme, the owner of the property transfers the fiduciary ownership of the property to the trustee, who holds it in trust as collateral for the loan.

If the lenders change, e.g. in a credit transfer, a new guarantee does not need to be signed. The guarantee trust remains in force and the new creditor is subrogated to the rights of the old one. However, the legal recommendation is to make an addendum to the trust contract stating that the credit has been transferred and that the beneficiary of the trust has changed.

The landlord/borrower has control over tenant changes, but the original tenant remains bound by the lease even if it transfers the lease to a new tenant.

Specifically:

• the landlord must authorise the transfer of the lease to a new tenant, unless such authorisation has been given in advance with the signing of the lease
• the landlord retains the right to enforce obligations against the original tenant, despite the transfer to a new tenant
• the original tenant is jointly and severally liable for the performance of the lease, even after the transfer, unless otherwise agreed in the lease.

With a few exceptions expressly provided for by law, mortgages can only be enforced through the courts. The lender must initiate judicial foreclosure proceedings by filing a complaint with the competent court. To do so, the lender must comply with the requirements set forth in article 720 of the Code of Civil Procedure, such as attaching the document containing the guarantee and the statement of account of the balance owed.

Other collateral (trusts, movable collateral) may be enforced out of court or in court. In extrajudicial enforcement, the trustee or representative appointed by the parties will enforce the collateral in accordance with the rules agreed by the parties in the contract. Public auctions, private auctions or direct adjudication of the assets in favour of a third party or the creditor itself may be agreed.

In any case, the lender must respect the formalities and procedures established by law for the enforcement of the security in order to protect the rights of the debtor and third parties.

In principle, the parties may choose the national or foreign jurisdiction (court or arbitration) that they consider convenient to resolve disputes or controversies with respect to the corresponding contract; as well as the law applicable to the contract, which may also be national or foreign. The choice of foreign jurisdiction may not be recognised if it conflicts with Peruvian public policy rules (if the parties have agreed that the applicable law will be Peruvian law), or if Peru has not signed a treaty of recognition and enforcement of foreign awards or judgements with such jurisdiction. In the case of real estate, the regulation establishes that Peruvian law applies to Peruvian real estate.

Peruvian law permits the enforcement of foreign arbitral awards and judgements, but subject to a process of recognition and enforcement before Peruvian courts, without review of the merits of the case.

As mentioned above, a mortgage can only be judicially enforced before the Peruvian courts. No, it is not possible for a secured party to appoint administrators or liquidators, everything must be done through the judicial foreclosure process. The court proceeds to make a public auction for the sale of the property, following the rules established in Peruvian law.

After default, the obligee does not automatically assume responsibility for the maintenance and insurance of the property. This will depend on the terms of the security agreement.

No, this method of enforcement does not exist. However, the creditor can take the property at the auction by making an appropriate bid. It will have to pay the difference between the auction value and the loan amount, if this is higher.

Nothing additional.

Yes, a share pledge can be granted to a foreign lender. Peruvian law allows the creation of movable collateral, such as a pledge of shares, in favour of foreign creditors.

Yes, it is possible to take a second or subsequent ranking pledge on the same shares. To do so, the security must be registered in the Register of Contracts, respecting the order of priority between the different pledges.

The security interest in shares is perfected by the execution of a security agreement and the delivery of the shares to the creditor or to a designated third party (such as a trustee). In addition, it must be registered in the Movable Registry of Contracts under the supervision of SUNARP and in the registry where the shares are registered (Stock Market Registry or Libro de Matrícula de Acciones). This process formalises the guarantee, making it enforceable against third parties and allowing the creditor to exercise its rights in case of default by the debtor.

If the security is not registered, it has no effect vis-à-vis third parties, i.e. it is not enforceable in the event of a dispute with other creditors or interested parties.

In addition, the lack of registration prevents the creditor from fully exercising its rights to the shares in the event of the debtor’s default, which could limit the creditor’s ability to recover its investment.

The formalities for the creation of guarantees in Peru include the drafting of a public deed before a notary public, registration in the Movable Registry of Contracts to make it effective before third parties, and notification to the debtor in the case of assignment of credits.

As for costs, these vary and include:

• notary fees, which depend on the amount of the transaction
• registration fees, which are calculated according to the value of the guarantee (approximately 1/1,000 for the Movable Registry of Contracts with a minimum of PEN 13)
• possible specific taxes such as the Financial Transaction Tax
• other additional expenses such as publications.

These elements make up the main costs associated with the constitution of guarantees in Peru.

The shares need not be transferred into the name of the lender or its nominee. Collateral may be pledged over the shares in the name of the debtor.

Yes, the lender may sell the security interest in shares to a third party, provided that the following requirements are met:

Sale to a third party

The security interest contract must expressly permit sale to a third party.

Pre-emptive rights and restrictions on transfer, set out in the articles of association of the company issuing the shares, must be respected.

The sale must be made at a reasonable price, in accordance with the valuation carried out by an independent expert.

Appointment of administrators/liquidators

Yes, it is possible for the secured party (the lender) to appoint receivers or liquidators for the enforcement of the security interest in shares.

The administrators or liquidators will have the powers granted to them under the security agreement, such as the power to sell the shares.

These powers must be clearly stated in the contract and notified to the company issuing the shares.

Direct enforcement without recourse to the courts

Yes, extrajudicial enforcement of the security interest in shares is possible without going to court, provided that this possibility is foreseen in the security agreement.

In this case, the lender may proceed with the private sale of the shares, subject to the requirements of notification, appraisal and application of the sale proceeds.

Shareholder loans may be subordinated to other creditors, as agreed. It is common for these loans to be waived or discharged as part of the enforcement of the security interest in shares in the event of the debtor’s default.

This allows the lender to enforce the security interest in the shares more expeditiously, without having to deal with subordinated shareholder loans. The waiver or cancellation of these loans facilitates the sale of the shares to third parties.

The parties can agree on the duration of the lease, which can be determined or determinable. Under Peruvian law, lease contracts may not last longer than 10 years. Currently, the most common practice in Peru is that real estate leases are agreed for periods as follows:

• residential properties – annual
• office properties – between 3-5 years depending on whether the same are previously implemented or if they will be delivered in a pre-fitout condition for implementation by the tenant
• industrial or similar properties – between 5-10 years, always with the possibility of renewing the term of the contract according to the conditions established therein.

In Peru, the maximum duration of a lease contract is 10 years, so any additional term is reduced to the maximum term of 10 years. There is no minimum duration established by law, so leases may have shorter durations if both parties agree.

In Peru, the tenant does not have an automatic right to renew the lease contract, so it must be agreed by the parties in advance. However, once the term of the contract has expired, if the tenant remains in use of the property, there is no renewal but the lease continues under the same terms of the initial contract until the landlord requests its return, which can be at any time.

In general, under Peruvian law, contracts may be terminated by:

• expiration of the term – no formality or notice to the tenant is required for termination of the contract
• early termination by either party before the agreed expiration date ­– the landlord must give the tenant the minimum notice agreed in the lease
• termination due to breach by either party ­– any of the following scenarios may be adopted:
  • automatic termination, in which case the notice of termination is sufficient for the contract to be deemed terminated
  • termination with a cure period, in which case it is necessary to send the notarial notice of termination granting a period of 15 days for the defaulting party to remedy its breach and, if it fails to do so, the contract will be deemed terminated
• termination by mutual agreement – this is without prejudice to other more specific grounds for termination of contracts set out for each type of contract.

If the tenant does not return the property at the end of the contract, the landlord may initiate judicial or extrajudicial eviction proceedings, as agreed in the contract, to recover possession of the property.

The tenant can always terminate the lease early, irrespective of whether the lease has been agreed for a compulsory or voluntary term. However, if the term is a compulsory term (fixed term for which the tenant is “obliged” to lease the property), in the event of early termination the tenant shall pay the landlord, by way of loss of profit, all the rents that would have been due until the end of the compulsory term.

In Peru, leasing legislation includes provisions that protect the tenant’s security of tenure and may influence the landlord’s management:

• protection against eviction: the tenant is protected against eviction as long as it complies with its contractual obligations, and any eviction must be handled judicially by proving specific legal grounds. In case the tenant is in default, the landlord may activate the notarial or judicial eviction procedure, as agreed in the contract
• temporary stay of eviction: the tenant can request a stay of eviction for up to 6 months if it can prove that the eviction would cause disproportionate harm
• right of retention: the tenant may retain the property until it is reimbursed for the necessary improvements made, which may delay the landlord’s recovery of possession.

Our legal regulations do not foresee the form of payment of leases, leaving it to the discretion of the parties. It is usual in the market for rents to be monthly and in advance; however, there could always be different agreements for each particular case.

Our legal regulations do not provide for mandatory rent reviews or rent increases. However, it is usual for the parties to agree on annual increases, either through adjustments in accordance with the Consumer Price Index (CPI) or in accordance with percentages agreed by the parties

The rent review may be based on any of the following scenarios, as agreed by the parties in the relevant contract:

• fixed or pre-agreed percentage increase
• indexation to a price index or inflation
• market rent, according to rental values of similar properties.

No.

The tenant is responsible for repairs to the property and for the maintenance of the property, except for necessary repairs, which are at the expense of the landlord, unless otherwise agreed. These repairs to be carried out by the tenant are usually minor repairs. In addition, the tenant is obliged to take care of the daily maintenance of the property.

The landlord is responsible for the maintenance and repair of the external structures of the property, as well as for external elements that affect the safety and habitability of the property.

Structural repairs are the responsibility of the landlord in all cases.

There is no express obligation in Peruvian law to have insurance; however, this can be freely agreed by the parties.

The following taxes are applicable:

• income tax: the landlord must pay income tax on the income it receives from the rent, as established in Article 28 of the Income Tax Law
• property tax: also payable by the landlord, corresponding to the municipal tax for being the owner of the property
• VAT: not applicable unless the tenant is a legal entity, in which case the tenant is liable for payment.

In addition, there is the obligation to pay municipal taxes. Although they are the responsibility of the landlord, it can transfer the obligation to pay them to the tenant, as agreed in the contract.

There are additional expenses such as:

• ordinary or extraordinary maintenance of common areas paid to the administration of the building where the property is located
• security, cleaning and other shared services in case of buildings or condominiums, which may or may not be included in the maintenance, depending on each case
• public services such as electricity, water, internet, etc. These costs may be shared between the landlord and the tenant according to the contract.

The landlord may recover certain operating or maintenance expenses of the property through service charges, provided this is agreed in the lease. These may include administrative costs, common area maintenance expenses and other services which are apportioned between the tenants according to the agreement.

Yes.

For an appraisal to be recognised in Peruvian courts, the appraiser must be registered with the registry of appraisers of the Superintendency of Banking, Insurance and Pension Fund Administrators (Superintendencia de Banca, Seguros y AFPs). Appraisals by foreign appraisers are not recognised.

Yes, it is possible and common to obtain environmental reports from local government agencies or from qualified and insured environmental professionals. These reports are often required for real estate transactions, permitting, risk assessment, etc. The availability and requirements of these reports will vary by jurisdiction.

Yes, it is possible that a lender may have liability for past or present breaches of environmental laws relating to a property which it owns or on which it has foreclosed. This will depend on the applicable environmental law and the extent of the lender’s involvement or knowledge of the environmental status of the property. In some cases, lenders may be required to assume environmental liabilities as a condition of foreclosure.