Avoiding pitfalls when purchasing a Pre-Construction Condominium

Avoiding pitfalls when purchasing a Pre-Construction Condominium

This post is also available in: Spanish

By: Staff at Panama Offshore Legal Services
E-Mail: info@pos-inc.com.pa || Phone: (507) 227 – 6645

When David and Julie from Australia looked at apartments already built in Panama, they could see what they were buying. However, unfinished pre-construction condominium buildings require different things to watch out for before purchasing a unit.

Developers have a “Pre-Construction Contract” ready to fill by their sales staff. Many include clauses restricting purchaser’s rights to resell the condo unit before is complete, construction without the developer’s consent. These clauses prevent the original buyer from selling a unit for less than what the developer is trying to sell the other units.

Avoiding pitfalls when purchasing  a Pre-Construction Condominium

Developers also include “subjective” clauses like “possibility of a sales price increase up to 5% due to rising construction costs or materials”. Expect this clause to be enforced every time.

Developer’s contracts often limit their liability for construction damages to one year from the occupation permit issuance. Purchasers should be aware that Panama’s Civil Code Article 1343 holds construction companies liable for “structural” damages for the first 10 years. Thus, the one-year limit can only apply to “non-structural” damages.

Panama courts have held some pre-construction contracts null and void for violating Panama’s Consumer Protection law by having “abusive” clauses, which restrict buyer’s consumer rights.

Another problematic clause is the requirement of having to pay the balance in full, when the fire department issues the occupation permit, which may occur when the foreign buyer is out of the country. To prevent such poor timing the buyer can acquire a bank’s “Promise to Pay” letter guaranteeing payment.

If the buyer wants the penthouse, the pre-construction contract should specifically state the “top floor” instead of naming the 20th floor because the developer may add more floors leaving the 20th floor below the penthouse.

Another clause which a competent real estate lawyer should include in any pre-construction contract is a “purchaser’s protection clause”, in case the mortgage application is not approved by the bank. Without this clause, the buyer will lose the 30% down payment.

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