Real Estate 2021

Last Updated April 13, 2021

Ecuador

Law and Practice

Authors



Robalino Law has a team of more than 80 lawyers and consultants, including a team specialised in real estate matters, made up of more than eight professionals, with extensive experience in the sector and a presence in the largest cities of Ecuador: Quito, Guayaquil and Manta. The real estate area of Robalino provides consulting services to its clients in all legal aspects related to structuring and developing real estate projects and land purchases, including structuring and financing for real estate investments and projects, consulting on undertaking project management (covering all issues regarding the construction, promotion, financing, and investment in residential assets, offices, business parks, distribution warehouses, hotels, tourism complexes, and shopping centres), legal consulting for investors, financiers, private and institutional investment funds, property development companies, and final users, preparing and negotiating commercial contracts and agreements, such as promissory agreements, options, purchase and sale agreements, joint ventures, and leasing agreements (including property trust structures in applicable jurisdictions), among others.

The main sources of real estate law in Ecuador are:

  • the Ecuadorian constitution of 2008 (Constitución del Ecuador), recognises, as a part of the rights of freedom, the right to own property in all its forms (public, private, communal, state-owned, associative, co-operative, and hybrid), with a social and environmental function and responsibility;
  • the Civil Code (Código Civil);
  • the Horizontal Property Regime Act (Ley de Propiedad Horizontal);
  • the Tenancy Law (Ley de Inquilinato);
  • the Organic Code of Territorial Organization, Autonomy and Decentralization – COOTAD (Código Orgánico de Organización Territorial, Autonomía y Descentralización);
  • the Organic Law of Rural Lands and Ancestral Territories (Ley Orgánica de Tierras Rurales y Territorios Ancestrales); and
  • all other special regulations issued by each municipality.

The construction industry has weakened over the past year, mainly due to the pandemic, but also considering the current economic crisis that Ecuador is undergoing, which has reduced liquidity for private and state construction contracts.

Even though the 2019 forecast for 2020 was optimistic, the pandemic had affected the construction industry's development.

Subsequent forecasts also predicted a debilitation due to low oil prices and political uncertainty. The development of the real estate sector will greatly depend on the 2021 general election results.

Some of the most important projects executed during 2020 were private residential buildings. Last year, there were very few public or state projects. The crisis and lack of liquidity of the government reduced any initiatives, which in turn were also reduced, considering that Presidential elections are to be held in 2021. These factors have caused state and private real estate entities to be on standby until more stable moments.

Notwithstanding the foregoing, there have been a couple of aggressive real estate acquisitions by entities that took advantage of crisis prices, mainly in the agricultural and floral sectors.

Real estate investors, developers and lenders have carried out a few actions to adapt to the recent emergency.

However, the pandemic has pushed authorities to digitalise their procedures, a course of action set by the Telecommunications Ministry Ministerial Agreement No 017-2019, which requires that authorities accept digital signatures and provide a roll-out of digital process projects. In that respect, public entities such as the Property Registry have developed an online system for the registration of real estate transactions such as transfers, mortgages and others.

It is not likely that real estate investors, developers and lenders will be making significant innovations on blockchain, decentralised finance (DeFi), proptech or real estate crowd-funding. The current legal framework needs to be developed further in order to allow for such institutions to have legal grounds.

The general guidelines related to real estate are national; however, the regulations for zoning aspects and construction authorisations are in the power of each municipality, within the scope of its competencies.

As previously indicated, in the last year there have been no relevant reforms in real estate matters at a national level. However, there is a reform project regarding land-use planning in Quito being developed. If approved, it would contemplate a greater organisation in the division of industrial and residential zones.

General Civil regulation does not contemplate leasehold or freehold figures such as in Anglo Saxon legislations. The Civil Code categorises its rights into ownership (propiedad), which is the legal title of a property, and the use (tenencia) of the property, where an individual or entity has the right to use the property but not to own it (ie, lease agreements).

In the use of real estate assets there are various categories that span from a simple lease agreement, freehold agreement or commodatum, and the usufruct, which is a legal use of the property and any fruits that the property generates.

The applicable law for transfer of title are the regulations provided in the Civil Code.

Under Ecuadorian law, all transfers or real estate titles are formalised or deemed to have been effected when the transfer title is duly registered with the relevant Land Registry. In order to access the Land Registry, the Civil Code states that all transfer titles must be vested in a public deed granted by a Notary Public.

Any transfer that is intended must be previously approved by the relevant municipality, which is in charge of reviewing whether the asset’s cadastre information is up to date and can require the payment of any transfer taxes (such as capital gains).

However, Ecuadorian legislation does not contain special provisions for the transfer of specific types of real estate (eg, residential, industrial, offices, retail, hotels).

Under Ecuadorian law, all transfers or real estate titles are formalised or deemed to have been effected when the transfer title is duly registered with the relevant Land Registry. In order to access the Land Registry, the Civil Code states that all transfer titles must be vested in a public deed granted by a Notary Public.

Real estate due diligence should include, at least, a review of the documentation previously detailed:

  • public deeds of ownership of the real estate;
  • certificates of the Property Registry of the properties;
  • real estate lease contracts;
  • commercial contracts of all kinds, such as mortgages, pledges, trust business, leasing, factoring;
  • copies of letters or notifications made by creditors modifying the contracts or requesting their termination;
  • municipal tax compliance obligations.

Additionally, it is important to verify the land use permitted on the property, in order to identify the authorised projects that could be developed on the land.

One of the most common mechanisms used for this kind of transaction is the Purchase Agreement, which can also include special conditions as a penalty clause.

Also, the real estate purchase public deed usually contains “evictions” and “latent defects” clauses. Contracting parties can also include special conditions in the contract to protect them in the event of defects in the property. Latent defects include some consequences on the possibility of cancelling a purchase (in the case of redhibitory (or hidden) defects in the applicable circumstances). However, even if the parties have stipulated in the contract that the seller is not liable for hidden defects, the vendor will always be liable for defects that were already known and were not disclosed to the interested parties.

It is noteworthy that, before making the transaction, the parties will have to file a “liens certificate”.

Before purchasing real estate in Ecuador, the investor must be advised about the relevant local regulation of the city where the project is located, since most of the taxes related to the property sector are controlled by the municipalities. Also, procedures related to the registration before the Property Registry can be different depending on the corresponding city.

In some cities like Quito, the division of land use is not always clearly distinguishable from one area to other; consequently, it is possible to find commercial and residential land use in the same area.

Another very important aspect for investors to consider when purchasing real estate in Ecuador is establishing who will pay fees, taxes and other similar expenses. The notarial fees are usually paid by the seller or divided in equal parts between the seller and the buyer.

General liability does not affect the seller for prior negative pollution effects caused because of the immovable property. However, any applicant who wishes to carry out an activity, work or project, according to the Organic Environmental Code, will be jointly responsible with whomever prepares the impact study, environmental management plan, and the environmental audit for the veracity and accuracy of its content.

Under territorial organisation, municipalities assign different categories for land use, according to the Land Use and Occupancy Plan (PUOS) that they are obliged to develop.

Before the acquisition of land, it is suggested that the potential buyer request certification on the permitted economic activities, to confirm that it will be possible for it to be used for the purpose for which it is purchased.

There are no specific regulations governing negotiations with public authorities with regard to entering into specific development agreements with those authorities in order to facilitate a project; however, it is common to work together with local authorities in order to ensure correct planning. 

According to the Constitution of the Republic of Ecuador, authorities are able to declare the expropriation of land based on public interest. In this case, it is necessary to make a prior economic valuation and compensation.

Also, the Civil Code states that if a family property has been expropriated by judicial order, due to necessity and public interest, the full price of expropriation will be deposited in a bank account in order to acquire a new property. Meanwhile, the beneficiaries will receive interest dividends instead of the benefits (fruits) of the asset.

According to Article 58 of the Organic Law on Public Procurement System, when the supreme authority of a given entity decides to acquire an immovable asset, it will make a declaration of public interest.

Additionally, according to the provisions contained in the Organic Law of Rural Lands and Ancestral Territories, there are specific causes for expropriation of rural lands, mainly when there is non-compliance with their social function, when these lands have not been in use for more than two consecutive years, when there is an environmental damage, when land concentrations are identified or when other forms of exploitation considered inadequate under the provisions of this law are identified.

Taxes will depend on the type of the property and whether it is urban or rural; in general, the applicable taxes are:

  • the “alcabalas” tax (Impuesto de alcabalas);
  • capital gains (Plusvalía);.
  • improvement contributions (Contribución especial de mejoras);
  • provincial tax (Impuesto provincial).

The regulations establish that the public utility tax and special contribution for improvements must be paid by the seller, considering that it is the seller who receives an income from the sale.

The Alcabala tax is usually paid by the buyer; the other applicable taxes are paid by both parties equally.

Notwithstanding the foregoing, the parties, by mutual agreement, may decide on a different form of payment.

Foreign persons are prohibited from owning, acquiring, and granting land in the border security zones, as well as in the reserved security areas, except for populated and urban areas located in those zones. Additionally, the transfer of rural land ownership in favour of foreign natural or juridical persons is prohibited in a 20-kilometre belt parallel to the frontier lines. They cannot acquire rural land in the security areas or protected areas under any title, either.

Except for the aforementioned restrictions, the Constitution of Ecuador does not distinguish between national and foreign persons. Article 9 of the Constitution of Ecuador states that “foreigners who are on Ecuadorian territory will have the same rights and duties as Ecuadorians, according to the Constitution”.

Also, the Civil Code provides specific limitations for contracting where foreigners are not involved. 

One of the main sources of financing for real estate is the Ecuador Social Security Bank; however, this kind of financing is focused specifically on housing real estate. Regarding financing for projects, in most cases, funds are given by international banks or private investors.

Also, real estate companies usually create trusts in order to protect themselves from possible losses. Another mechanism for protecting real estate investment is receiving a prepayment of the equivalent of 20% of the immovable property price.

The most typical form of security is the mortgage. Usually, the property buyers acquire the real estate with an advance payment based on the construction plans.

In Ecuador, foreign buyers of housing real estate usually have a mortgage with a bank located abroad – and it is preferable that the international bank also operates in Ecuador.

Generally, there are no restrictions on granting security over real estate to foreign lenders, since private procurement contractors are entitled to agree on any terms as long, as they are not prohibited by law.

For the registration of any type of guarantee, a registration fee must be paid, which will vary according to the Property Registry of the respective city.

There are also notarial costs that must be considered, since any type of guarantee on real estate must be granted by public deed.

Before an entity can provide valid guarantees, it is required to verify that it is authorised to grant them; in the case that the property is owned by a legal entity, it is necessary to have the approval of the partners or shareholders, under the provisions of the Companies Law.

Likewise, it is requested that the certification does not maintain encumbrances, which is verified using a "certificate of encumbrances", which serves as a qualification at the time of registering the granted guarantees.

When a borrower defaults on its payments, the lender can require the execution of the contract entered into, including the charging of fines or penalties if this has been established.

The validity of the guarantees or credit titles granted must be verified, the process to execute these guarantees will follow the rules established by law.

It is not possible for existing secured debt to become subordinated to newly created debt, since there are express legal provisions related to the priority of credits for payment and, as they are public order provisions, it is not possible to subordinate them.

Ecuadorian environmental legislation does not contemplate joint liability applicable to lenders.

The environmental responsibility lies with whoever carried out or allowed the damage; this could include those who carry out audits or environmental management plans, but in no case the lender.

In Ecuador, there are no security interests created by a borrower in favour of a lender that are made void if the borrower becomes insolvent.

The rights of the lenders remain unalterable in the event of possible insolvency of the debtor; in these cases, the lender will have the right to recover its debt, according to the order of preference of the credit, established by law for the preference of credits.

This type of contract generally contemplates an alternative option in the event that it is not possible to apply the London Inter-bank Offered Rate (LIBOR) rate. For contracts that do not contemplate a provision in this respect, it is suggested that negotiations between the parties be initiated, to agree on the applicable mechanism, and if it is not possible to reach an agreement, the decision will be made by the civil judge.

The Organic Code of Territorial Organization (COOTAD), which is the highest standard in the administration and organisation of the different municipalities of the country, confers political and regulatory autonomy to each municipality in terms of the land-use regime. In this way, each municipality generates its own land-use regulations.

In Quito, both the Metropolitan Plan for Development and Territorial Organisation (PMDOT) and the Plan for Land Use and Occupation (PUOS) are the tools that deal with the territorial organisation of the city and thus develop the general classification of land through the segmentation of the permitted uses, characteristics of occupation, use, and division.

For all construction, the Ecuadorian Construction Standard (NEC) must be observed, which contains the general rules and principles for structural safety design, calculation and sizing for the earthquake-resistant design of buildings, while the Organic Law of Territorial Organization determines general compliance guidelines for the municipalities with respect to the development plans and territorial organisation that each one must execute.

In a complementary manner, each municipality must issue its specific ordinances for new constructions, remodelling and the retrofitting of existing buildings.

For all types of construction, the prior approval of permits, authorisations and reports by each municipality will be necessary before the start of construction work.

The Ministry of Urban Development and Housing (MIDUVI) is the government entity in charge of formulating housing and land-use regulations and policies and ensuring compliance with existing Ecuadorian regulations for this purpose. Within the scope of its competence, it has issued the aforementioned Ecuadorian Construction Standard (NEC).

Under the autonomy granted by the Organic Code of Territorial Organization (COOTAD), each municipality, through its Metropolitan Council, will be empowered to issue additional and complementary technical regulations regarding the construction process.

The general process to obtain a construction permit for a new building or for the execution of refurbishments to an existing building may vary according to the ordinances issued by each municipality; however, the general process is summarised as follows:

  • preparation of architectural plans and structural calculation signed by the professional managers for the execution of the project;
  • entry of plans for approval before the corresponding municipality;
  • formulation of observations to the project (if any);
  • approval of the construction project and authorisation to pay the corresponding fees;
  • once the corresponding payment has been made, the municipality delivers the construction permit (new or existing buildings, remodelling, extensions or various works).

The general public, or third parties unrelated to a certain construction project, through the corresponding municipal agencies, could report and request the intervention of the authorities in the case of illegal constructions or when related activities are being carried out (modifications, extensions or reforms) without having the corresponding permission. This means that any construction or constructive work that is carried out could be subject to a routine inspection carried out by the authorities, or also as a result of a complaint filed by third parties, who may file a complaint during the execution of those activities or even once the works have been completed.

In the case that non-compliance with the corresponding regulations is identified, the authorities will determine the applicable sanction.

Where there has been a refusal of a construction permit, according the Organic Administrative Code (COA), an internal administrative claim could be filed within a period of 30 days. Once this period has elapsed, there is the possibility of filing an appeal for reversal, and then a formal appeal procedure or an extraordinary appeal for review.

It is possible to generate agreements with the different municipalities of the country to favour urban projects that bring positive effects to the sustainable development of the cities. For example, in Quito, the Metropolitan Secretariat of Production and Development of the Municipality of Quito works closely with different public and private entities, precisely to give continuity to the existing public and private initiatives on this matter.

Likewise, it must be pointed out that the Public-Private Partnerships Law and its regulations seek to promote private investment for the provision of goods or the achievement of public works or services, especially infrastructure for the Central Government and the Decentralised Autonomous Governments (Municipalities).

The approved public projects will benefit from the incentives proposed in the aforementioned regulations in accordance with the agreements established by the parties, thus being an interesting alternative for local and international private investors.

Each municipality, within the scope of its powers, determines the pertinent sanctions in the case of failure to carry out all types of construction without the necessary prior authorisations. For example, the Municipal Code for the Metropolitan District of Quito sanctions a fine equivalent to USD20,000 for:

  • building without a metropolitan urban planning licence or permission from the competent authority;
  • building without complying with the corresponding regulations;
  • building without complying with the technical specifications provided in the architectural plans, structural and facilities that were previously approved.

In Ecuador, both natural and legal persons can manage real estate in the way they deem appropriate. There are no limitations or restrictions in this regard and it will be necessary to observe the Companies Act when determining the creation of a company.

Notwithstanding this, from a tax point of view, it will be less expensive for a natural person to administer their assets directly, since they should only pay the corresponding property tax, whereas, if they are under an Ecuadorian company, in addition to the property tax, others municipal taxes must be paid, as well as the corporate contribution, which will be equivalent to the amount of the company’s assets.

There are several types of companies that could be established for this purpose. The most attractive choice today are simplified joint-stock companies, since they pose many advantages and there is the option to establish a company with a single shareholder, and its business purpose may be very general, which leaves the option open for incorporating a company that is not strictly for property management.

Once the company is duly incorporated, a key option would be to create a real estate trust. This is a widely used mechanism which may assist in achieving a better and more efficient administration and development for a real estate project through the creation of autonomous patrimony.

Joint-stock companies are required to be incorporated with a minimum capital of USD800, and a limited liability company with USD400, while there is no minimum capital required for simplified joint-stock companies.

For this reason – its flexibility – the most appropriate corporate vehicle will be to incorporate a simplified joint-stock company, because, among other relevant aspects, it can be incorporated with a sole proprietorship.

For the constitution of different types of companies in Ecuador, the existing requirements and procedures in the Companies Law must be observed, which in general are summarised in the preparation of the preliminary documents for their constitution, performance of their operating statutes or bylaws, and their registration.

In the case of companies in which the corporate purpose includes real estate activity in any of its phases, such as the promotion, construction and commercialisation of real estate projects, they must observe the Operating Regulations created for this purpose by the Superintendency of Companies, Securities and Insurance containing general principles for its operation.

Another requirement to follow, regarding the prevention of money laundering, is the Standard for Subjects Obliged to Deliver Information on the Investment, Real Estate Brokerage and Construction sector, as well as the Manual with the content of reports of operations and economic transactions for the industries in this sector, issued by the Financial and Economic Analysis Unit (UAFE) as the governing body responsible for gathering information and executing national policies and strategies for the prevention and eradication of money laundering.

It is not possible to determine a specific value for the maintenance of an Ecuadorian company since it will depend a lot on its assets, number of employees, activities that it executes, and even the accounting movement that it generates. As this information is identified, it will be possible to evaluate the company as a whole and thus establish real values.

Ecuadorian regulations do not allow the use and occupation of a property for a certain time without it being subsequently acquired; however, this may be possible if the owner of the property expressly agrees to leave this matter as a private agreement.

For leases of real estate intended for housing or commercial purposes, it is possible to include a “purchase option” clause, without prejudice to which, for a commercial lease, the Commercial Code determines that the agreed price for the option purchase price will be the residual value provided for in the contract and that it should not be less than 20% of the total income accrued.

According to the Commercial Code, it is only possible to deal with commercial lease contracts of movable and immovable property without determining any other typology. This norm clarifies that the commercial premises lease may not take the form of a commercial permits concession, and thus will be subject to the provisions of the parties and the corresponding regulations.

The parties may freely agree on the rental fee, as well as the duration of the rental contract, considering that, for the latter, the Tenancy Law determines that the rental contracts will have a minimum duration of two years, with some exceptions to this general rule.

Due to the COVID-19 pandemic, in June 2021 the Organic Law of Humanitarian Support was enacted with the objective of implementing support measures for the mitigation of the economic and productive consequences in the country, which include (i) the suspension of the right of real estate owners to evict tenants for any of the causes established in the Tenancy Law (such as non-payment of the rental fee); and (ii) the incentive to determine flexible agreements for the periodicity in the payment of the lease fee and to reduce the value of the lease fee.

These temporary measures were valid up until 13 November 2020.

According to the Commercial Code, the mandatory term in commercial leasing contracts of real estate may not be less than five years, while for the lease of other types of real estate, according to the Tenancy Law, the mandatory term will be at least two years.

Regarding maintenance and repair, the Commercial Code expressly determines that landlords of commercial real estate are under the obligation to deliver them in a good state of maintenance and conservation, at the beginning of the lease relationship, while the tenants are obliged to return those properties in the same condition as they received them (except for normal wear and tear), that the properties are free of damages, the effects or wear that were caused by a fortuitous event or force majeure (eg, an earthquake). These types of conditions are those that are always contemplated in all types of leases for personal and real property.

Likewise, subject to the agreement of the parties, parties may include in their lease contracts a clause that frees the tenant from the payment of the rental fees as provided for in situations of force majeure, such as the COVID-19 pandemic.

The rental fee will be the one agreed to by the parties, with particularities and modifications expressly agreed upon. On many occasions, the parties agree that, after the first year of rental, the monthly rate must be adjusted according to the registered annual inflation rate.

Legally, there is no express provision that obliges the parties to maintain the rental fee during the term of the contract, nor to modify or increase it in a certain way.

In the event that the parties decide to modify the lease fee, they may do so at any time, it being sufficient for the agreement to be contained in the corresponding addendum.

According to the Law of Internal Tax Regime Law (Ley Orgánica de Regimen Tributario Interno- LORTI), the rental of a property for housing does not include VAT.

According to common practice, it is generally agreed in the lease agreement that the lessee pays the lessor a “guarantee” that may be equivalent to two or three months of rent so that this value can be used by the lessor in the event that, at the end of the contract, delays are identified in the payments of basic services, aliquots, or general arrangements that must be made to the property in view of the refusal or non-observance of the landlord to comply with its obligation to return the property in the same condition in which he or she received it at the beginning. In the event that a need to use the “guarantee” has not been seen, the lessor will have the obligation to return it in full or in the corresponding proportion, as applicable.

The right of each owner over the value of the common goods will be proportional to the value of the flat, department or premises of his or her domain, for which, in relation to this, each owner must contribute to the necessary expenses to the administration, conservation and repair of the common goods, as well as the payment of the insurance premium, in proportion to the value of the flat, apartment or premises.

In the lease contract, the parties must agree if the monthly fee includes the value of the aliquot or expenses for the conservation and repair of the common goods or if it will be paid directly by the lessee or by the lessor.

Under the premise that all owners of property that are part of a building or a residential complex must contribute in the proportion that corresponds to the payment of public services that are of common use and access; these items are generally included in the value of the aliquot or monthly expenses.

These issues may be freely agreed to by the parties in the lease contract.

As a general rule in the field of insurance, the person who pays the premium is the person who has the insurable interest, notwithstanding that the parties can mutually agree otherwise. In this respect, it would be possible for the landlord or owner to obtain a lease guarantee that covers the non-payment of the lease fee by the tenant, and depending on the type of property that is leased and the use that is given to it, it could be possible to contract a third-party liability guarantee.

Additionally, it is very common for buildings and residential complexes to contract an all-risk guarantee that covers common property and the structure of the building.

The owner can freely establish limitations to the use of property. Without prejudice to the limitations established by the parties, municipal governments might establish additional regulations related to the permitted use of the land, according to the zone in which it is located.

The law does not specify the tenant’s permission to make modifications or alterations; however, it is customary to include clauses in lease agreements, by means of which the tenant must request prior authorisation from the landlord to make alterations or improvements, except for the modifications necessary for the correct functioning of the property.

In any case, the improvements made to the real estate will remain in favour of the owner, unless consent has been given, in which case the owner is obliged to compensate them.

There are specific regulations for properties rented for housing, which are intended to protect the tenants’ right to stability. During the pandemic, the government of Ecuador declared a state of emergency, during which time evictions for non-payment were suspended, in order to comply with the provisions of the Humanitarian Support Law.

According to the provisions of the Ecuadorian Civil Code, the lease does not necessarily terminate with the insolvency of the tenant.

There is no legal provision in this regard. Landlords usually require a guarantee equal to or higher than the established monthly rent. The purpose of this guarantee, usually, is to cover expenses or damages to the property, and even to cover the unpaid monthly rent.

The tenant may continue occupying the real estate, after the expiry of the term, when there has been no formal notice of termination by the landlord, as it will be considered that an implied renewal has taken place.

The landlord may ensure the fulfilment of the term by giving notice prior to the effective date of termination, at least 90 days in advance of the effective date of termination.

The tenant is not authorised to sublet or assign his or her rights, unless expressly authorised by the landlord. In the event that subleasing is authorised, the sub-lessee shall enjoy the same rights established in the lease for the tenant.

In accordance with the provisions of the Tenancy Law, in addition to what is established by the parties, the lease may be terminated for the following reasons:

  • in the case of non-payment of two or more lease payments;
  • danger of destruction or ruin of the building;
  • disturbances caused by the tenant;
  • using the property for an illegal purpose or for a different purpose from the one agreed upon;
  • sub-lease or transfer of its rights, carried out by the tenant, without having written authorisation to do so;
  • execution of non-authorised works by the landlord;
  • resolution of the landlord to demolish or sell the property.

In accordance with the regulations, it is necessary to register the lease contract by means of notification to an authorised Notary Public. The cost of that registration varies according to the value established in the monthly rental fee.

In the event that the tenant fails to comply with its obligations, the landlord is entitled to request the early termination of the lease by means of an eviction.

The eviction process must be requested with a notice period equal to the time established between each payment (if it is rented on a daily, weekly or monthly basis, the eviction will be for one day, one week or one month respectively).

The request for eviction is made by notarial summons, by means of three notifications; at the end of this period, the tenant must abandon the property, notwithstanding the legal actions for recovery that the landlord may be entitled to.

The contract can only be terminated by the will of the parties and the causes established therein.

Nevertheless, the lease may also be terminated in the event of a declaration of public utility on the property and expropriation by the competent authority.

Commonly, prices are set based on the total cost of the work. Another way of setting the price is to consider the time at which the purchase is made; for example, discounts are established when the purchase is made during the construction process, mainly because this modality helps constructors to raise funds in advance and finance the project.

In the case of purchase of real estate under construction, it is possible to establish price adjustments, due to the cost of construction materials, variations in the market, or other factors.

In accordance with the provisions of the Consumers’ Defence Law, the responsibility lies with the "manufacturer" or "supplier". Under this view, the constructor is responsible for the design, construction, and for the facilities to be performed in the construction. In the case that there are defects related to the services provided by third parties, the constructor may repeat its claim or liability action against them, but will respond directly with the buyers.

Construction is a high-risk business activity, so it is common for constructors to contract several insurance policies; the most common are Personal Accident and Civil Liability, Equipment and Machinery, and All Risks during construction.

These policies, however, do not exempt the contractor from the liability derived from damages caused by its negligence.

The parties can agree on the way in which changes in the delivery schedule will be handled; it is possible to include monetary compensation in favour of the buyer, tolerance clauses for default, and even penalty clauses, in anticipation of potential damages.

It is common to request guarantees from the constructors. Generally, the contracting of insurance policies for the proper use of the advance payment is requested to guarantee the correct development of the project.

Another way to provide a guarantee to the buyers is by means of the constitution of a Flow Management Trust, through which it is intended to guarantee that the responsibility does not lie entirely with the constructor so that the project is carried out to guarantee its success.

Contractors shall have the right to claim any outstanding payment. In the event that they have reserved a property as security, that property may be requested to be foreclosed.

If they have not received a real guarantee, they may initiate judicial recovery actions and even request that the debtor sell assets to cover the debt.

As described in 4.4 Obtaining Entitlements to Develop a New Project, all real estate projects, prior to being habitable, must have previously obtained the required construction permits, which may vary depending on the technical specifications established for each type of establishment.

The sale of real estate is taxed at a zero-VAT rate, so there is no value for this concept, which must be assumed by the parties.

Some of the most commonly used mechanisms to reduce the tax charge for the transfer of real estate are the acquisition of businesses or entities that have real estate among their assets, or the creation of trusts to which real estate is contributed for the development of projects, without prejudice to the fact that the final sale must pay the corresponding transfer of ownership taxes.

There are no taxes for businesses related to the use or occupancy of real estate. Real estate is subject to an annual property tax, which is usually paid by the owner, and on which discounts may be applied based on age, for persons over 65 years or for persons with disabilities.

Tenants must cover the amounts corresponding to the payment of basic services and municipal taxes related to their commercial activity.

Persons not domiciled in Ecuador but who have incomes from Ecuadorian sources are obliged to pay taxes in Ecuador.

The way in which these taxes are cancelled is by means of a withholding at the tax source of between 25% and 35%, depending on their tax domicile, except for the existence of agreements to avoid double taxation, in which case the provisions of the agreement shall apply.

The ownership or rental of real estate, as long as they are related to assets that generate income or are used for the development of a commercial activity, allow the deduction of income tax.

The maximum depreciation deductible percentage is 5% of the total value of the property for each year.

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Law and Practice

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Robalino Law has a team of more than 80 lawyers and consultants, including a team specialised in real estate matters, made up of more than eight professionals, with extensive experience in the sector and a presence in the largest cities of Ecuador: Quito, Guayaquil and Manta. The real estate area of Robalino provides consulting services to its clients in all legal aspects related to structuring and developing real estate projects and land purchases, including structuring and financing for real estate investments and projects, consulting on undertaking project management (covering all issues regarding the construction, promotion, financing, and investment in residential assets, offices, business parks, distribution warehouses, hotels, tourism complexes, and shopping centres), legal consulting for investors, financiers, private and institutional investment funds, property development companies, and final users, preparing and negotiating commercial contracts and agreements, such as promissory agreements, options, purchase and sale agreements, joint ventures, and leasing agreements (including property trust structures in applicable jurisdictions), among others.

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