Real Estate Law in El Salvador

In El Salvador, the right to property is established as the "right to exclusively possess a thing and to enjoy and dispose of it, without any limitations other than those established by law or by the will of the owner" according to Article 568 of the Civil Code (CC).

According to the Salvadoran CC there are different ways of acquiring property: occupation, accession, tradition, and acquisitive prescription. Of these, the most relevant for the transfer of ownership of real estate are acquisitive prescription and tradition.

Acquisitive prescription is the legal principle by which ownership of real or movable tangible property is acquired through possession that meets specific legal conditions. Acquisitive prescription can be either ordinary or extraordinary. Ordinary acquisitive prescription is acquired after 10 years for real estate, while extraordinary acquisitive prescription requires 30 years.

Tradition is another way to acquire ownership of things, which consists of the delivery that the owner makes of them to another. This transfer requires both the owner's intent to relinquish ownership and the recipient's intent to acquire it.

For the tradition to be valid, the following requirements are required:

• It must be done voluntarily by the owner of the thing;
• The consent of the purchaser (the one who receives the thing) is required;
• A title transfer of ownership must exist, such as the sale, exchange, donation, etc. that proves the ownership of the thing; and
• The delivery of the thing.

The "structure" in transactions involving the acquisition of real estate refers primarily to the mode and title of acquisition. Tradition and sale are the most common mode and title to acquire ownership of this type of property. Additionally, according to Article 1,605 CC, the sale of real estate will be perfect until it is granted in a public deed.

The purchase and sale are defined in Article 1,597 of the CC as "a contract in which one of the parties is obliged to give something and the other to pay for it in money. The former is said to sell and the latter to buy. The money that the buyer gives for the thing sold is called the price."

The public deed of sale must be executed before a duly authorized notary public. The notary will record the sale in a protocol, constituting the instrument that must be presented to the public registry, so that it has full effect against third parties (Articles 667 and 683 CC).

To carry out the preparation of the deed of sale, which preferably requires the involvement of specialized legal counsel, some of the most relevant documents, in addition to the identification of the parties, are: (i) the extracted certification issued by the National Registry Center of the property to be transferred; (ii) the tax solvency issued by the Ministry of Finance; and (iii) the municipal tax solvency issued by the corresponding mayor's office.

As for exceptions applicable to foreigners, the Constitution of the Republic establishes some related to the ownership of rural real estate. This type of real estate may not be acquired by foreigners in whose countries of origin they do not have equal rights for Salvadorans, however, the above is not applicable in the case of land for industrial establishments. On the other hand, the ownership of this type of real estate may not exceed 245 hectares for the same natural or legal person, whether Salvadoran or foreign. However, this limitation shall not apply to peasant cooperative or communal associations.

The real estate registries in El Salvador are the responsibility of the National Registry Center (CNR in Spanish), whose purpose is to guarantee legal certainty and registry publicity, in addition to ensuring the fidelity of the registry, geographical, cartographic, cadastral information and its periodic updating, as appropriate.

The real estate property registries include a Real Property and Mortgage Registry section, which serves as a centralized registry for all real estate in the country. This register is public and can be consulted by any interested person.

The importance of registering the document that guarantees the tradition of ownership of real estate and its possession in this registry is to complete the formal requirement established by the law to produce effect against third parties. In this sense, for any transfer of ownership of a real estate property to be recognized by third parties in addition to the seller and buyer, it must be duly registered in the Real Estate and Mortgage Registry of the CNR.

The essential obligations of the seller according to Article 1,627 of the CC are:

• The delivery or tradition; and
• Remediation of the thing sold, this includes two objects: to protect the buyer in the domain and peaceful possession of the thing sold, and to answer for the hidden defects of the same, called redhibitory defects. (Article 1,639 of the Civil Code).
  

As for the delivery, it has already been mentioned that the intention to sell a property is not enough, but that the legal formalities established must be complied with to consider the transfer of ownership of the real estate perfect, which constitutes in the case of the sale, the tradition of ownership through a public deed executed before a notary; which in turn must be registered in the corresponding registry.

Regarding the reorganization, the seller is obliged to clean up to the buyer all evictions that have a cause prior to the sale, unless otherwise agreed. This reorganization may include, among other things, the restitution of the price and the legal costs of the sales contract that have been paid by the buyer.

Therefore, the seller is obliged to disclose any defect that the real estate may suffer, under penalty that the buyer can exercise actions for remediation for redhibitory defects, which includes the possibility of requesting that the sale be rescinded or that the price be reduced proportionally for the hidden defects. As general rules in the case of real estate, the action to rescind the sale may be exercised for one year from the actual delivery and the action to request the reduction in price may be exercised for 18 months to be counted from the actual delivery.

The most common method used in El Salvador for the acquisition of real estate is financing through mortgage loans granted by financial institutions, such as banks or other non-bank financial institutions. To guarantee the payment of these credits, the most used figure is the mortgage.

Article 2,157 CC defines a mortgage as a right constituted over real estate in favor of a creditor for the security of their credit, without ceasing to remain in the possession of the debtor.

Some of the characteristics of the mortgage are:

• The mortgage is indivisible. Consequently, each of the things mortgaged to a debt and each part of them are obliged to pay the whole debt and each part of it;
• It must be granted by public deed;
• A mortgage can be constituted only by the person who is capable of selling them, and with the necessary requirements for their sale; and
• It extends to all increases and improvements that the mortgaged thing receives.
  

Likewise, according to Article 736 of the CC, the instruments in which this lien is constituted, transferred, modified, or cancelled must be registered in the Real Estate and Mortgage Registry. The foregoing, to have effects against third parties, and will be effective as of the filing in the registry.

To cancel a mortgage, a cancellation of the lien must be granted in a public deed, which must be registered in the corresponding registry so that the lien of the property is eliminated.

It is worth mentioning that mortgage contracts entered in foreign countries may be valid in El Salvador, as long as the public deed containing them is registered in accordance with the provisions of the CC.

Lease contracts are regulated by Article 1,703 et seq. of the Civil Code and are defined as those in which the two parties are mutually obligated, one to grant the enjoyment of a thing, or to execute a work or provide a service (lessor), and the other to pay a certain price for this enjoyment, work, or service (lessee). In addition, the lease of houses, warehouses, or other buildings is regulated in Articles 1,758 et seq. of the Civil Code.

The obligations of the lessor are:

• To deliver the leased property to the lessee;
• To keep the leased property in a condition to serve the purpose for which it has been leased; and
• To free the lessee from any disturbance or embarrassment in the enjoyment of the leased property.
  

The obligations of the lessee are:

• Use the leased property according to the terms or spirit of the contract; and consequently, may not make it serve other purposes than those agreed (Art. 1,726 CC);
  
• Maintain the leased property;
• Carry out rental repairs, these repairs are understood as those necessary to maintain the property in the state in which it was received; but it is not responsible for deterioration that comes from legitimate time and use, or from force majeure or fortuitous event, or from the poor quality of the building, due to its antiquity, the nature of the soil, or construction defects (Art. 1,758 CC); and
• Payment of the price or rent.
  

Likewise, the lease can terminate:

• For the total destruction of the leased property;
• By the expiration of the time stipulated for the duration of the lease;
• By the extinction of the lessor's right; and
• By sentence of a judge in the cases provided for by law.
  

Formalities and enforceability vis-à-vis third parties

All contracts that exceed US$22.86, or that are of an indeterminate price, must be recorded in writing; as well as those where a periodic price is established that exceeds the same value each period.

Although the law does not establish the obligation to formalize a public deed to record the lease, it is common for the parties to enter a private lease contract and then draw up a record in front of a notary, to convert said contract into an authenticated private document. Likewise, in case the lease is granted in a public deed, it may be registered, which guarantees the tenant respect for his right, in case the property is transferred as property to a third party. If the above does not occur and the owner loses his right and the new owner is not obliged to respect the tenancy, the tenant will only have the possibility of claiming compensation from the original owner.

The possibility of granting a sublease must be expressly granted by the lessor to the lessee, otherwise it may not do so. The sublessee may make use or enjoyment of the property under the same terms as the direct lease.

In case the lessee uses the property for an illicit purpose, or having the power to sublet it sublets it to a person of bad conduct, they will give the lessor the right to expel them.

In the case of renting a furnished property, it is understood that the lease of the furniture is for the same period as that of the property, unless otherwise stipulated.

If you wish to start the construction process of real estate projects, you must have various authorizations from the Vice Ministry of Housing and Urban Development, the Planning Office of the Metropolitan Area of San Salvador, where appropriate, the Ministry of the Environment or the Ministry of Culture (all institutions in charge of the executive body), and the corresponding municipal mayor's office.

As of 2023, the Directorate of Construction Procedures was created, an agency attached to the executive body. This is the competent office, to receive, manage and notify about requests for the presentation and processing of feasibility, authorizations, pronouncements, permits, reception of works and other procedures related to construction, to guarantee the simplification, facilitation, and agility of the administrative procedures, granted by the different institutions of the executive body that have the power to issue construction permits.

The phases that can be carried out before this Directorate are the following:

• Preliminary evaluation phase: This includes, among other procedures, the following: qualification of place; categorization of works or projects; Certificate of Feasibility with and without hydraulic work for the supply of drinking water and/or sanitary sewerage; road review and zoning; all the procedures in cadastral and registry matters that are applicable; and all the procedures in matters of public works that are applicable.
• Permit approval phase: This includes, among other procedures, the following: approval of plans in the event of major works; construction permit; subdivision permit; discharge permit; environmental permit resolution; all applicable cadastral and registry procedures; and all applicable public works procedures.
• Reception phase of works, projects, and other procedures: This includes, among other procedures, the following: the partial and/or final reception of aqueduct and/or sanitary sewerage systems or stages; reception of subdivision and/or construction works and a habitation permit; and an environmental operating permit,
  

As for the permits granted by the Municipal Mayors' Offices, these will depend on the municipality where the property in which the construction will be built is located. The general procedure for obtaining a permit involves several steps. First, a completed application form must be submitted, along with a copy of the property's registered public deed and the owner's identification documents. Next, the corresponding municipal tax must be paid. Following payment, the mayor's office will conduct an inspection of the property. Finally, upon successful completion of these steps, the permit will be issued.

In El Salvador, for the construction of houses and apartments, real estate and construction companies must submit the project for approval by the Ministry of Environment and Natural Resources (MARN), specifically to the Environmental Assessment System (SEA) which aims to assess in advance the possible environmental damage that would be caused by the work, activity or project to be carried out, and to determine the actions that must be taken to minimize such impacts.

Before commencing any construction work or project, it is essential to obtain an environmental permit. The process begins by submitting an Environmental Form, either physically or online, clearly identifying the proposed project type. The system will categorize the activity, work or project automatically to determine whether or not it requires the presentation of an Environmental Impact Study (EIS), taking as a parameter the type of activity, work or project, its magnitude and the nature of the potential impact that it may generate on the environment.

If the Ministry assesses favorably and has no observations, it issues the requirements for the Environmental Compliance Bond and Environmental Compensation Agreement (when applicable). If applicable, the owner of the work or project must submit a Compliance Bond for the amount equivalent to the total costs of the physical works or investments that are required, to comply with the environmental management and adaptation plans that are contained in the EIS. This bond will last until such works or investments have been carried out, in the manner previously established.

Finally, once all the necessary information has been verified, the MARN prepares the following within 10 working days: the Favorable Technical Opinion and the Ministerial Resolution of Environmental Permit for the corresponding stage (location and construction and/or operation); which will be notified to the owner and the interested parties.

In El Salvador there is the Real Estate Transfer Tax Law, which aims to regulate everything related to the tax that is made on the transfer of real estate, by inter vivos transaction.

.The payment of the tax will be made according to the following rate, depending on the value of the property:

• Up to US$28,571.42, it will be exempt from the payment of this tax; and
• From US$28,571.43 onwards, the tax will be 3% of the amount of the excess.

The subjects obliged to pay the tax must submit a written and signed declaration on a form drafted and distributed by the General Directorate of Internal Taxes, within the term of 60 days and with the formalities established by law, accompanied by a testimony of the deed of sale, certification of the auction act or the award order, in their respective cases.

It is worth mentioning that this payment of the fee is a requirement for the registration of the Deed of Transfer of Ownership, since, when the sale is presented for due registration in the Real Estate and Mortgage Registry, the registrar will require the delivery of the duplicate of the receipt where it is shown that the corresponding fee was paid, without which it will not be able to make the requested registration and therefore will not have effects against third parties.

Chapter authors and key jurisdiction contacts: 

Federico Paz | Deloitte Legal | El Salvador, Cosette Fuentes | Deloitte Legal | El Salvador and Rita Vega | Deloitte Legal | El Salvador

Download: Handbook for Real Estate Transactions