THIS ARTICLE HAS BEEN PREPARED FOR LATIN LAWYER BY ACZALAW NICARAGUA ATTORNEYS, MINERVA BELLORIN AND ALONSO PORRAS. IT CONTAINS THE ANSWERS TO THE MOST FREQUENTLY ASKED QUESTIONS THAT INVESTORS MAKE REGARDING REAL ESTATE IN NICARAGUA
LATINLAWYER Reference – Real Estate 2017
- Are foreigners and entities controlled by foreigners permitted to own real estate directly, or are there specific license requirements or restrictions in place that must be complied with for a non-citizen to own real estate? Are there restrictions on ownership of beachfront or coastal land, or land near beachfront?
There are no restrictions for foreigners and companies owned by foreigners, duly registered in Nicaragua, they can own real estate. In the case of legal entities, they must be registered in the Commercial Public Registry, have a Tax ID (RUC) and appoint a legal representative domiciled in the country.
There are restrictions and limitations to purchase in coastal areas, river, lake, applicable to all areas in general, domestic and foreign persons or legal entities, set forth in special laws, as set out in the Law No. 690, Law for the Development of Coastal Zones; restrictions on acquiring property rights in areas of indigenous communities over the territory they have traditionally occupied, regulated in articles 3 and 6 of the Community Property Regime Of Indigenous Peoples And Ethnic Communities Law; restrictions on Border Security Zone, which is the inalienable area of the State of Nicaragua, ranging from the conventional border limit and five kilometers (5 km) into the interior of country, as regulated in the Law of Borders.
- Is all real estate capable of being owned as a property right (fee/freehold), or is the land owned by a government or monarch with only the ability to acquire leasehold rights? What other forms of real property ownership exist other than property right or leasehold?
Yes, all real estate is capable of being owned as a property right. Except the ones that are considered as “areas of public domain”, According to our Political Constitution, Art. 44 It is guaranteed the right to private ownership of movable and immovable property. There is also the ownership of indigenous lands and small-scale, the ownership of ejido land. (Law No. 445 Property Regime Law on Community Of Indigenous Peoples and Ethnic Communities, Civil Code)
Other forms of real property ownership:
- Gratuitous bailment (Art. 3416 Civil Code): gratuitous use of the real estate.
- Usufruct (Art. 1473 Civil Code): Use the property and enjoy its benefits, with the obligation to keep and care for them as their own.
- What overriding rights of the public exist that may affect land, such as inalienable rights to access certain natural resources or the use of beaches? Who owns mineral or riparian rights?
The State is the owner of natural resources and may grant concessions for its exploitation that limit the rights of domain titles owners. The state owns a band of 50 meters from the coastal high tide mark and access to the beaches must be open to the public; the state also owns a band of 5 meters from lakes and rivers mark, Law No. 690 Law for the development of coastal areas: Regulations on Power Concessions and Licenses; Mines Law, Law 387; Law No. 620 General Water Law
- Is title insurance available and customary to obtain in connection with a purchase or a loan? If so, is it available?
Does not apply in Nicaragua, according to the legislation, it is not required to obtain an Insurance Title to purchase a property. There are no Title Insurance Companies providing Services in Nicaragua since December 2013.
- Are boundary or others surveys typically completed delineating particular property boundaries, or is reliance placed on registered maps? How are boundary disputes customarily resolved?
Recording of maps of properties at the Office of Cadastre started about 45 years ago so there is no national system that has a complete national registry of existing properties. Each owner must draft its own map and apply for registration to Cadastre, required in case of unregistered areas or subdivision transactions. If there are differences in the area between the provisions of the title of the property and the physical plane, a) if resulting less area than registered area, we start a personal process of rectification of area before Cadastre; b) if resulting more area than registered area, and we have agreement of the neighbors with the limits, it is resolved through an administrative process before the Cadastre Office by lifting an Act of Compliance of boundaries, to rectify and harmonize physical planes with the title, if there is disagreement or conflict of property boundaries with neighbors, it must be resolved and process before the judge in the courts, Law 509 General Law of National Cadastre and Regulations of the Public Registry Law, Decree 13-2013.
- What taxes or other fees are payable in connection with the purchase or sale of real property (e.g, notary fees, recording, alien licensing), and what are the amounts of such taxes and other fees?
- Notary fees: It depends on the amount of the transaction and the status or quality of the notary or law firm to prepare the deeds.
- Drafting of the physical map of the property by a surveyor for registration in cadastre: it depends on the size of the property, the location and distance of the property, from the rugged topography. Reference: 1 hectare in the capital, flat land, costs between US $ 200 – US $ 350.
- Registration of maps and obtaining the cadastral certificate, cost of official fees plus fees of the Agent: US $ 150
- Transfer tax (income tax on capital gains) payable by the seller, it withholds and pays in favor of the Tax Administration, ranging from 1%, 2%, 3% or even 4% of the value of the property valuation made by the Tax Administration Office or the value of the transaction established in the deed, the highest amount. Besides the percentage described in this paragraph, seller must also pay 10% of the 70% of the total amount of capital gains, regulated by the Tax Concertation Law, Law No. 822.
- Municipal Tax payable by the seller, it withholds and pays in favor of the Municipality 1% of the value of the property established I the deed. This Tax does not apply in all Municipalities as each Municipality has its own Municipal Arbitration Plan.
- Official Rates for registration at the Land Registry: 1% of the value of the transaction, without being less than 150 Cordobas (US $ 5.20) or more than 30,000.00 Cordobas (US $ 1,000.00) There is also an expedited fee for registration, ranging from 50%, 40%, 30%, 20% or 10% of the registry fee; higher the registry fee, lower the expedited fee. Art. 3 of the Law No. 920 Lad Registry Official Rates Law.
- Which party customarily pays taxes and fees in connection with a purchase/sale of real property- the purchaser or the seller? What is the allocation of responsibility between a purchaser and seller of all taxes and fees payable to consummate a conveyance of real property?
The seller is responsible for Income Tax for Capital Gains as is set in the Law No. 822 Tax Concertation Law. Nonetheless, in the practice, buyer usually assumes payment of all taxes, as he is interested in completing the registration process in his favor and name.
The buyer must pay the fee for registration in the Land Registry according to the set by the Article 3 of Law Fees Law No. 920 of the Public Records of the National Registration System.
- Can real estate be indirectly acquired by purchasing the shares or ownership interests of a corporation or other entity that owns real estate? What taxes and fees would be payable upon a purchase of shares of a company that owns real estate as compared to a purchase of the real estate directly?
Yes. Real estate can be acquired through the purchase of shares of companies. For the transfer of shares an income tax is paid as capital gain of 10% for non-resident shareholders and 5% for resident shareholders. Company must be duly registered in Nicaragua and have a RUC number, also be solvent in its obligations as a taxpayer.
- What taxes and fees are paid on the conveyance of personal property accompanying a conveyance of real property, and in what amounts? Is it more favourable to allocate purchase price towards personal property or real property for tax purposes?
Apply the same answer to question 6. For tax purposes, no matter the price being assigned to the property. The Tax Administrator performs its own assessment and the tax is rate based on the highest price, the assessment or the agreed price.
- What recurring annual fees or real estate taxes are payable in connection with the ownership of real property?
The real estate tax paid to municipalities is 1% of the 80% on the base or taxable amount.
- Are preliminary agreements, memorandums of understanding or other concession agreements typically negotiated between purchasers/developers of real property and the government? What types of matters are incorporated into such preliminary agreements, memorandums of understanding or concession agreements?
Government intervention in property concessions only applies to coastal zones, lake and islands, or for mining or construction of hydropower o geothermal plants. Based on the Law for the Development of Coastal Zones, Law 609, the coasts are owned by the State of Nicaragua to a distance of 50 meters inland from the highest point of the high tide mark and the administration thereof corresponds to the municipal government. Any person, national or foreign, natural or legal, must negotiate the lease with the Municipality and pay an annual lease fee for those properties within this range. Law respected the rights acquired property before its entry into force, i.e. before June 2009. The concessions contain the delimitation of the concession area, the period of the concession, the price to pay for it and the obligations of the concessionaire. The Mining Law, Law No. 387 and Regulations of Licensing and Electrical Concessions regulate the content of concession contracts for the mining or power generation activity.
- What rights of first refusal or other rights exist by law in favour of third parties or tenants of real property?
Law does not regulate first refusal in favour of third parties or tenants of real property. The first option is established only by agreement between the parties.
- How is real property conveyed- by deed or other instrument of conveyance? What is the procedural process for completing a conveyance? Is there a registration or recording process?
Besides other ways of acquiring established in our Civil Code, the legal instrument to formalize the transfer of Domain Title of a property is effected by signing a public deed before a notary public; in which both parties usually appear in the same act simultaneously, seller and buyer who can do so alone or by POA, In some cases, parties appear individually before the same or different notary public to formalize the transfer of the title, this is called “One-Sided Sales Agreement”. This instrument must be registered in the Public Registry of Real State on the location of the property. The Public Registries are departmental, which process comprises introducing the extended instrument by the notary public and attaching the following documents, which also must be related in the deed of transfer:
- Municipal Solvency issued by the municipality where the property is located.
- Cadastral Certificate and Appraisal, both issued by the Nicaraguan Institute of Territorial Studies (INETER). If the property do not have updated it cadastral map, it must be done before INETER.
- Payment of the Property Transfer Fee before the Tax Office (DGI). The tax rate is from 1% to 4%, depending of the price of the purchase or the price of the cadastral appraisal, the higher. If the seller is a company, it must be also submitted the RUC and the POA of the Legal Representative.
If the information in writing is consistent with its history and is in order in all legal formalities including its registration area with the physical area, writing is accepted and processed your registration whose approximate time frame to be registered is 15 working days.
- When is title actually and officially conveyed to a purchaser- upon execution of a deed or other instrument of conveyance, upon submission of the instrument of conveyance to a recording office or registrar, upon acceptance of such instrument of conveyance for registration or recording, or upon the happening of some other event?
According to our legislation, the title is official upon the execution of the public deed where the property was transferred.
The purchase agreement is a typical contract regulated in our civil code which in accordance with Article 2530 states that a party transfers the ownership to another party for a certain price, so long as they observe and comply with the general requirements of any contract, it is of instantaneous execution is fulfilled once and transmission occurs, although neither the price nor the thing has been delivered, with only sign the deed of purchase and sale. Registration is required for purposes of registrar legal protection against third parties as governed by Article 83 of the General Law of Public Records.
- What types of governmental liens or encumbrances on title could result in a forfeiture of the land? Real estate taxes, governmental owned utilities?
Technically debts for land taxes could result in the loss of it by judicial proceedings in which the State is the plaintiff. This is very unusual in Nicaragua; we do not know anyone who has lost his/her land for this reason. Cases where someone loses their property in state hands are related to the origin of the property, someone who bought a title whose origin was legally weak traced to the time of the Revolution and the State claims this property.
- Upon a sale of real property, would any portion of profits or proceeds be required to be paid to any third party? For example, are employees entitled to a share of profits?
Does not apply in Nicaragua.
- Upon a sale of real property, what taxes must be paid in connection with any gain, and are there withholding taxes? Are taxes different if the seller is an entity?
Yes. If the seller is subject to pay income tax as stated in Article 87 of the Law of Coalition Tax, Law No. 822, it is applicable in cases of transfer of property subject to registry in a public office by applying an Income tax on account of Revenue Capital and Capital Gains and Losses. In this case the buyer retains the seller 1, 2 or 3 or 4% to the total account payable which is 7% as forced. If it is a natural person or a legal entity makes no difference in the tax payment; what makes a difference is whether the seller is registered and the activity of selling real estate is registered under the regime of economic activity in which case, you will pay only the provisions of Article 87 on account of its annual IR.
See answer 13.
- Are there any environmental regulations, and are environmental assessments customarily performed prior to acquiring real property?
There are no regulations requiring an environmental assessment to be carried out, or have to comply with any requirement of an environmental nature as a requirement to effect a transfer of property. It is recommended that the buyer prior to purchase check that existing environmental regulations will allow develop the project for which is buying the property.
- Are there building, land use and zoning codes?
In the major municipalities there are land use regulations which zoned the city and indicate the use corresponding to each zone, the type of economic or residential activity and the type of construction that is allowed to develop in each area.
- Are there laws permitting or contemplating condominiums or otherwise subdividing properties, or creating multiple ownership existing on one plot of land or building?
Yes. Decree No. 1909 Law Regulating the Horizontal Property Regime allows the existence of horizontal property or condominium regime.
- Are there any restrictions on, or specific legislation relating to, subsurface rights and air rights?
Article 102 of the Political Constitution provides that natural resources are the heritage of the state and it corresponds to its operation, this includes air and ground. The state grants concessions for exploitation
- Are there any laws relating to the preservation of views or light?
Yes. In the Civil Code is established a title about Easements on view and light: Articles 1669-1675 of Chapter VIII of Title XXXII Easements.
According to Article 1671, you cannot open windows with straight views, balconies, or balconies or other similar projections on the neighboring estate, if there are not two meters away from the wall to be built and the property.
Furthermore, according to Article 1672 also may have not side or oblique view on the same property, if there is half a meter away.
- Is a lender for a real estate project in your jurisdiction required to register or be licensed in such jurisdiction?
No, it is not required; a developer can obtain a loan from a borrower domiciled abroad. However, in order to execute guarantees (i.e. mortgage of a building) and award the contract in its favor, it is required to be registered, have a registered address in Nicaragua, have a legal representative domiciled in Nicaragua and have RUC.
- What determines the priority of a mortgage, charge or guaranty trust – the date of the loan, the date of execution of the mortgage, charge or guaranty trust, the date such mortgage or charge is actually recorded or registered, or some other factor?
The date such mortgage or charge is actually recorded or registered.
- What taxes or fees are payable by a borrower or by a lender in connection with a loan secured with real estate in your jurisdiction?
The lender must pay income taxes on capital gains, 10% on gross revenues generated interest for residents in Nicaragua and 15% for non-residents. Article 87 of Law No. 822 Tax Concertation Law
- What typical remedies does a lender with a security in real property in your jurisdiction have in the event of a default by its borrower?
It is necessary to interpose a legal process in the courts and the law provides an expedited enforcement proceeding by public auction, regulated in the Civil Procedure Code (art. 3771)
- Is there judicial or non-judicial foreclosure in your jurisdiction, and what is the foreclosure process generally?
Yes. Foreclosure Executory Process is established by the Civil Procedure Code. The mortgaged property is sold at public auction according to this procedure. The non-judicial execution occurs only through collateral trust, regulated by the General Trust Law, Law 741.
- What rights does a tenant have by law that cannot be varied by agreement or a lease?
The Lease Agreement is a consensual and bilateral contract, there is freedom to celebrate and to agree on the terms that both parties deem appropriate by mutual agreement. Therefore, the agreement itself is law between the parties and can only be modified by mutual agreement. The tenant has the right to use and enjoy the property leased under conditions in which it was received and not to be disturbed by the lessors. At the end of the lease, you are entitled to be returned any credit balance after canceling obligations.
- How long can someone own property as leasehold? What statutory or legal rights does a long-term leasehold owner have with respect to its property?
The Article 2820 of the Civil Code, specifically regulates that the legal term of the lease cannot exceed 10 years. The tenant does not have more rights than those who have agreed in the contract itself; the contract is law between the parties, and this will have the rights that have been included in the contract by mutual agreement with the landlord. By law, there are no more rights than those who are not entered in the contract.
- What are the most common reasons for a dispute or a conveyance of real property in your jurisdiction not to be completed?
The existence of double degree on the same property, or unreliable titles as a result of the messy process of agrarian and urban reform that occurred in the Sandinista Revolution. Since a break to the next registry tract between the old owners and the new owners gave in a large percentage, most of them affected by laws and decrees of confiscation and the transitional laws April 1990, Law 85, 86 and 88.
- Does your legal system incorporate or defer to the laws of another country?
There are laws whose principles are similar to those in other countries: public records law, law of land, but there are other laws and regulations related to urban reformed rural property originating from the time of the Sandinista revolution, which are very particular of Nicaragua such as law 278, on the Reformed Urban and Rural and 35-91, 36-91 and 51-92 and Decree Law No. 14, law 85, 86, 88 and 180. All these were applicable laws the urban and agricultural property in various stages since 1980 and during the 90’s.
- Is there a standard schedule of legal fees for real estate transactions? If so, what is it, and is it based on a percentage of the transaction value or some other methodology?
No. There is no an officially standard legal fees for real-estate transaction. It is variable, and at the whim of everyone, at the discretion of each professional who is providing the service. In practice, they can take into account certain factors of the counselor / lawyer, such as: the status; expertise; value of the transaction; complexity of the transaction.
- POLITICAL CONSTITUTION OF NICARAGUA AND ITS REFORMS, published in the Official Gazette No. 32 of 18 February 2014, Article 27: All persons are equal before the law and are entitled to equal protection. There will be no discrimination on grounds of birth, nationality, political beliefs, race, sex, language, religion, opinion, origin, economic status or social status. Foreigners have the same duties and rights as Nicaraguans, with the exception of political rights and established by law; they can not interfere in the political affairs of the country. The State respects and guarantees the rights recognized in this Constitution to all persons within its territory and subject to its jurisdiction.
- CIVIL CODE, in force since 1904
- TAX CONCERTATION LAW, Law No. 822, published in the Gazette number 241 of December 17, 2012 and its amendments.
- DEVELOPMENT OF COASTAL AREAS LAW, Law No. 690, published in the Gazette No. 141 of July 29, 2009, in force from its publication in the Gazette, amended by Law 913 published in the Gazette N° 193 of October 13th 2015; and Executive Decree No. 78-2009 Regulations, published in the Official Gazette No. 180 of 24 September, 2009. Article 29. encroaching the public domain. The usurpation of public property in coastal areas not under any circumstances involve the acquisition of rights of possession and ownership of this area. Which practiced this action shall be liable for any damages that may cause the works or activities in the area of public domain of the state. The quantification of damages will be determined by the respective expertise. Article 30. Prohibition to sell or privatize. Coastal areas in the public domain may not be sold or privatized, except exceptionalities provided for in Article 4 of this Act.
- LEGAL SYSTEM OF BORDERS LAW, Law No. 749, published in the Gazette No. 244 of December 22, 2010 from its publication in the Official Gazette.; and its regulations No. 749 “LAW LEGAL SYSTEM OF BORDERS”. DECREE No. 06-2011, adopted on 16 February 2011, published in the Gazette No. 33 of February 18, 2011.
- COMMUNITY PROPERTY REGIME OF INDIGENOUS PEOPLES AND ETHNIC COMMUNITIES LAW, Law No. 445 published in The Gazette No. 16 of January 23th, 2003.
- PUBLIC REGISTRIES GENERAL LAW, Law No. 698, adopted on 27 August 2009, published in the Gazette No. 239 of December 17, 2009 and its Regulations. Decree No. 13-2013, adopted on February 22, 2013 Published in the Gazette No. 44 of March 7, 2013.
- NATIONAL CADASTRO REGISTRY GENERAL LAW, Law No. 509. Adopted on 11 November 2004, published in the Gazette No. 11 of January 17, 2005.
- MINING LAW, Law 387, published in the gazette No. 172 of 12 September 2012 and the Regulations of Licensing and Electrical Concessions regulate the content of concession contracts for mining or generation Energy.
- HORIZONTAL PROPERTY REGIME LAW, Decree No. 1909, published in the Gazette No. 215 of September 23, 1971.
- REAL ESTATE TAX, Decree N°. 3-95, adopted on 31 January 1995, published in the Gazette No. 21 of January 31, 1995.
- OFFICIAL RATES OF PUBLIC REGISTRIES, Law No. 920, published in the Gazette No. 241 issued on 18 December 2015.
- TRANSMISSION PROPERTY OF HOUSING AND OTHER BUILDINGS BELONGING TO THE STATE AND ITS INSTITUTIONS LAW, Law No. 85 of March 29, 1990, published in in the Gazette No. 64 of March 30, 1990.
- LEGALIZATION AND SPECIAL HOUSING AND LAND LAW, Law No. 86 of 29 March 1990 published in the Gazette No. 66 of April 3, 1990.
- AGRARIAN LAND PROTECTION LAW, Law No. 88 of April 2, 1990, published in the Gazette No. 68 of April 5, 1990.