[BUYING AND SELLING REAL ESTATE IN ECUADOR]
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KEY FACTS OF REAL ESTATE ACQUISITIONS UNDER ECUADOREAN LAW
instrument known as a Promise of Sale and Purchase Agreement (PSPA) is typically used. Under this agreement, one party (the promissory seller) agrees to sell the property, and the other party (the promissory buyer) agrees to purchase it. The PSPA sets the sale price and establishes either a timeframe or a condition within which the SPA must be executed. Unlike an SPA, the PSPA does not transfer ownership of the property but binds both parties to complete the transaction under the agreed terms. It is also common practice to include a penalty clause in the PSPA, applicable in the event of a breach of the principal obligation or a delay in its execution. Conditions: For the PSPA to be valid, the following conditions must be met: i) It must be executed before a Notary Public in the form of a public deed; ii) It must adhere to the same formalities required for an SPA under the Ecuadorian Civil Code or other applicable laws; iii) It must specify a period or condition that determines when the SPA will be executed; and, iv) It must contain all the provisions typical of a sales contract, leaving only the formal execution of the deed and its registration with the Property Registry Office of the relevant jurisdiction. 3. Sales and Purchase Agreement (SPA): Under Ecuadorian law, an SPA is defined as an agreement in which one party agrees to transfer ownership of a property, while the other party commits to paying for it in money and/or in kind. a) Notes on Real Estate Sales and Purchase in Ecuador: To ensure legality and transparency in real estate transactions, the following considerations must be observed: i) a sale contract between spouses, or between
Real Estate acquisitions typically involve several key stages, ultimately leading to the transfer of ownership. The most common phases include: 1) Initial Payment or Reservation Deposit; 2) Promise of Sale and Purchase Agreement (PSPA); and 3) Sale and Purchase Agreement (SPA). These legal instruments are designed to facilitate the execution of the sale contract and to ensure the property is not subject to negotiations with third parties. 1. Initial Payment or Reservation Deposit: This is neither a legal mechanism nor a mandatory requirement under Ecuadorian law. However, it is a customary practice by which the buyer expresses their interest in purchasing the property through the payment of a discretionary amount mutually agreed upon by the parties. It represents a private agreement in which both the buyer and seller commit to entering into formal negotiations, with the seller agreeing not to offer the property to third parties for a determined period of time. Unlike the Promise of Sale and Purchase, if either party withdraws from the negotiation, the seller must return the deposit without any penalty. It is generally not advisable to proceed with this type of payment without a formal contract, though it is a common practice to do so with only a non-binding receipt as the sole "guarantee." 2. Promise of Sale Agreement: In real estate transactions, the immediate execution of a Sale and Purchase Agreement (SPA) is often delayed by legal impediments such as existing encumbrances, incomplete property construction, or the need for the buyer to secure financing. To ensure the completion of the transaction, a legal
ILN Real Estate Group – Buying and Selling Real Estate Series
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