Irish Property Buyer 05.07

Viva La Republic
Irish Property Buyer
May 2007

Fancy buying a crash pad in the exotic Caribbean country of the Dominican Republic? David O'Donnell, partner in Tom McGrath Solicitors, gives you the legal low-down.

SO you've decided to buy an overseas home. Old Europe's not for you nor the local emerging markets, but you do quite like the sound of the Dominican Republic. Nestled in the heart of the Caribbean, it's only a two-hour flight from Miami and it's popular with American tourists. But what of the legalities involved in the process?Overseas taxation expert David O'Donnell has all the details:

THE PURCHASE PROCESS
Ownership of property in the Dominican Republic is documented by 'Certificates of Title' issued by various Title Registry Offices, which is quite similar to title deeds here in Ireland. The normal steps to convey or transfer ownership of real estate from a vendor to a purchaser are as follows:

• Purchaser and vendor sign a 'contract of sale' before a notary public who will authenticate it. The contract of sale will contain various items of information regarding the property being purchased, such as the legal description of the home, the price and other conditions of sale.
• The authenticated contract of sale is then submitted to the Internal Revenue Office where the appropriate taxes are paid.
• The contract of sale and the certificate of title of the vendor are then filed with the local Title Registry Office where the property is located, and the sale is recorded.
• The Title Registry Office then issues a new certificate of title in the name of the buyer and cancels the old certificate, issued previously to the vendor. The above process can take between a few weeks to a few months, depending on the Title Registry Office where the sale was recorded.

THE ROLE OF THE SOLICITOR
Before purchasing any property, it is always recommended that purchasers retain an independent solicitor to carry out the due diligence of the property. To start this process, the purchasers' solicitors will request the following documents from the vendor:

1. Copy of the certificate of title to the property
2. Copy of the survey
3. Copy of his/her identification card ("Cedula"! or passport
4. Copy of the receipt showing the last property tax payment (IVSS) or a copy of the certificate stating the properly is exempt from property tax

It the property being purchased is a house, the purchaser's solicitor will request:

1. A copy of the approved construction plans
2. The furniture inventory
3. Copies of the utilities contracts and receipts showing that the seller is up to date with his payments

If the property is part of a condominium, the purchasers' solicitor will also request:

• A copy of the condominium declaration
• A copy of the condominium regulations
• A copy of the approved construction plans
• A certificate from the condominium showing the seller has paid all management/condo­minium fees to date

Once all the documentation has been obtained, the purchaser's solicitor will carry out an investi­gation of the property's title, addressing the following:

Title Search
The Title Registry Office is petitioned for the title certificate which will confirm whether the prop­erty is affected by any mortgages, charges or encumbrances.

Survey
An independent surveyor should verify that the property coincides with that shown on the survey presented by the vendor. Cases have occurred in which a purchaser acquires title over a property, which turns out to be some distance away from the one he believes to be buying!

Inspection of Improvements
A qualified builder or architect should examine any improvements to the property to confirm that the plans presented are correct and that the improvements are in good condition and conform to all building and planning regulations.

Permits
There are certain legal restrictions which should be taken into account before purchasing. For example, Dominican legislation establishes a 60-metre "maritime zone" along the entire Dominican coastline; this is measured from the high tide mark inland, which in effect, converts all beaches into public property. No building is allowed within the maritime zone without special permission.

Possession
The purchasers' solicitor should also check that the vendor is in possession of the property. If there are tenants residing on the property, the Purchaser should be aware that Dominican law is protective of a tenant's rights and the eviction process can be a time-consuming and expensive exercise.

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TAXES & EXPENSES

The taxes and expenses on a typical conveyance of property in the Dominican Republic are approximately 5 per cent of the purchase price. This amount includes a property transfer tax (4.48 per cent), document taxes or stamp duty, notary and registration fees and general expenses. Taxes must be paid before registering the purchase at the Title Registry Office. Many purchasers have been known to evade paying part of the transfer tax by lowering the true purchase price in the contract of sale. This practice had become so widespread that the tax authorities had to implement a set of minimum values for properties in most localities. Clients should be firm in demanding that the true purchase price of the property appear in the purchase documents. Not only to abstain from David O'Donnell partner in ' Tom McGrath Solicitors committing tax fraud, but also to avoid a hefti­er capital gains tax liability in the future when they sell the property.

THINGS TO WATCH OUT FOR

Real estate purchases in the Dominican Republic are typically initiated by a verbal agreement which is reached between the purchaser and seller on the price. Subsequently a binding promise of sale or option to purchase is pre­pared by the solicitor or notary, which is signed by both parties. A deposit is normally paid at the signing of the promise of sale.
It is important purchasers ensure that their solicitor reviews the promise of sale in order for them to be aware of their rights and obligations set out. The most common deficiencies in the promise of sale are, for example:

1. Allowing the buyer to pay a large percentage of the purchase price with­out any security or direct interest over the property
2. In addition, sometimes payments are not conditioned on the availabili­ty of clear title or the adequate progress of construction. Thus vendors can demand payment or place the buyer into default, despite the fact that they have not performed their basic obligations as set out in the contract. It should be insisted that stage payments become payable upon the vendor's satisfaction of clearly defined construction phases.

INHERITANCE OF REAL ESTATE BY NON-RESIDENTS

There are no restrictions on foreigners or non-residents inheriting tide to real property in the Dominican Republic. Inheritance taxes range from 17 per cent to 32 per cent of the appraised value of the estate and vary depending on the relationship between the beneficiary and the deceased.

There are a number of inheritance rules which have to be considered. For example, inheritance of real property in the Dominican Republic is governed by law which provides for "forced heirship". This means that, by law, part of the estate must go to certain heirs. For example, a non-resident with a child must leave 50 per cent of the estate to that child, despite the existence of a will or of the law of his country of residence.
We always advise clients that it is much simpler and cheaper to deal with their affairs in the country where the property is located. We advise that pur­chasers make a Dominican Will to deal solely with their property in the Dominican Republic, and to exclude their Dominican property from their Irish will.