There is more than a little confusion on the Internet about how to buy property in Chile as a foreigner. There are many articles dealing with all the great deals in Chile, which often include a few fuzzy details about the legal requirements, but a surprising few that really dig into the detailed legal issues involved. Here we hope to sort out a few of the misconceptions, but certainly not all of them, when it comes to buying property in Chile as a foreigner. In this article we touch on the basics of the procedures, the Cost, the contract requirements, and the difference between a RUT and RUN ID systems that are required to purchase a property in Chile.
Southern Chile Real Estate
Purchase and Sale Contract in the Chilean Legal System The contract for purchase and sale is regulated by the Civil Code articles Art. 1793 through 1896. This contract is usually consensual, (it exist and has legal authority from the moment the buyer and seller agree what to sell and for how much) except in those cases where the law requires certain formalities.
In the case of real estate, article 1801 of the Chilean Civil Code has established that the contract is not perfect or valid until the signing of a formal document called escritura pública. In order to get this document (which contains the contract itself) the text must be written in a certain format, in most cases prepared by an attorney.
The draft prepared by the attorney must be transfered to an archive copy, usually a task for the Notary staff, and that copy is signed by the parties at the Notary's office. This formality does not imply just signing a document at the Notary. It is a special type of document that will become part of an Archive or Public Record at the Notary itself. At this point you just have a title.
In order to be the actual owner of the property you must take a copy of the formalized contract and complete the ownership inscription at the Property Archive of the Registry. (Inscripción de Dominio en el Registro de Propiedad del Conservador de Bienes Raíces). That ownership inscription is the legal obligation to complete the transfer of property to your name. Until completed, you have simply bought the right to register as the legal owner.
After that long description of the legal procedure, confusing as it might be, the real question is: What do you need for a legal transfer of a property in Chile? Well, like most things related to law, the devil is in the details.
What you must have to own a property in Chile:
- The formalized contract. (escritura pública otorgada ante Notario)
- A copy of the formalized contract must be taken to the Registry for ownership inscription. (Inscripción de Dominio en el Registro de Propiedad del Conservador de Bienes Raíces).
- A copy of that contract with a stamp from the Office of the Registry with the Number assigned on the Index Book (Repertorio), year of the Property Archive (Año del Registro de Propiedad), and number of that inscription in the year Archive. At this point you own the property.
Before signing the contract you must have:
- The Title Report for the property (Estudio de Títulos). Make sure you have a good title, there are many problems and pitfalls with inscriptions, legal requirements, and eminent domain laws and regulations. This is specially common in rural areas. For this report we would highly recommend for you to hired your own attorney. Most lawyers are qualified, but better make sure they are experts on the issue. For the most part, real estate brokers have their own legal team, or they work in association with a lawyer. At some point this could be a clear case of conflict of interest. If there is any pitfalls, they may overlook them just to close the deal. A good title report is not an easy task, it takes time and expertise. As far as prices go, you have to have in mind that Chilean Attorneys are not as expensive as Americans. So for a little extra cash, you can double check everything is in order. Now, if you are buying with a loan from a Chilean Bank, they will take care of everything before approving the loan. In that case, you just have to rely on the bank's legal team. They are normally very good. Banks do not want you to have a bad title, on money they loaned you. The land is more theirs, than yours until you pay it.
- If you have a tourist visa, work visa, or you are a foreign investor, and you do not have temporary or permanent residency in Chile, you must apply at the National Tax Office (Servicio de Impuestos Internos SII) for a RUT (Rol Único Tributario). This is just a number issued for tax purposes, required for all foreigners without legal residency in Chile for the purchase of stock, real estate or any acquisition that requires inscription and formalities in any type of public records. If you have residency, you will be issue a RUN or identity card number (Cédula Nacional para Extranjeros) and that same number will be used for tax purposes (to make it clear, in that case your RUN will be used as RUT also).
There has been endless confusion and misunderstandings about what a RUT is, and what is the difference is with it and a RUN (Rol Único Nacional), or the Chilean Identity Card Number for Foreigners (Chileans also have a RUN).
It is very simple. If you apply for residency you will get an identity card with a RUN number. The same number will be your all purpose tax number. If you do not apply for temporary residency, and you are going to receive any kind of payment or purchase, you will need a tax number or RUT. You must declare at the tax office that you will receive some kind of payment, but you are not intending to apply for residency. Later, if you decide to change your status and apply for your residency, you will be issued an identity card with a RUN number. The old temporary RUT will be canceled, and you will receive a RUN number and that will be used for taxes (i.e. as a RUT). So, RUN is the national ID number. RUT is the national tax payer ID number.
All Chileans have an identity card number (RUN) issue when first register as soon as they are born. That same number is used for tax purposes as a RUT. At one time they where different numbers. That number is also used as the Chilean passport number. Additionally you have to make sure the seller has:
The Property Tax Debt Certificate. In order to be allowed to signed that contract at the Notary the seller must have a certificate proving that all property taxes have been paid. (Certificado de Deuda Contribuciones de Bienes Raíces). The Notary will not authorize the signing of the contract without it. They have the legal obligation to report to the Chilean Tax Office (SII) the transfer of the property and that the property is clear of all tax debt.
The expenses
Keep in mind that, traditionally, in Chile buyer and seller share almost all expenses related with the contract and the negotiation of the contract; except for the title report and the inscription at the Registry, which must be paid by the buyer. This also includes the real estate Agent fees and commissions. These prices are a guideline. If the property is very expensive, the cost could be less for attorney fees. If the property if very cheap, the cost will tend to be a higher percentage of the value. For example, a 2% charge on a $1,000,000 peso sale, would not be worth it for many lawyers. Another thing to keep in mind is that a package deal can often be worked out with an attorney for a better price, if they are to do all work related to the sale of a property. So, it is worth shopping around.
You must pay:
- The Title Report. In this case the price is up to the lawyer, generally depends on the price of the property and if it is urban or rural. (100% paid by the buyer)
- The Contract written by an attorney. Usually 2% of the sales price. (1% each party)
- Formalizing the Contract at the Notary (Escritura Pública). Approximately 2% of the sales price. (1% each party)
- The Inscription at the Registry. About 2.5% of the sales price. (100% paid by the buyer)
- The Real State Agent commission. In most cases 2% of the sales price but paid half and half by the parties (ends up at about 1%)
These are all approximate prices.
Formalities of the Contract itself
The real estate purchase contract must have the following:
- Name of the Parties, identity card (passport and RUT in the case), nationality, address, profession, marital status.
- Description of the title and inscription held by the seller.
- Description of the property, which must be the same as the one described on the latest Property Inscription
- Sales price and terms of payment
- Closing date
- Conditions to the closing if applicable
- Land use issues and restrictions (e.g. easement)
- Liability
- Remedies if a party breaches and what court jurisdiction it would be under
- Arbitration rights, if any.
There is no need to mention the background facts as to why the parties are doing the deal (e.g. Good friends, etc).
As far as things like environmental issues, hazardous waste provisions, or insurance, there is little to nothing about those issues at the legal end of the contract signing. You must check that independently. The Buy-Sell agreement (Contrato de Promesa)
The purchase (Buy-sell) agreement whereby a person agrees to sell and another to buy a specified article for an agreed price on a given date or depending on a certain conditions (Contrato de Promesa), is very common as a way to close the deal. Make sure you are committed to buy before signing this contract, because the penalties are very high in case of a breach of the agreament.
The intention of this article was to give you an idea of what is involved, and what the procedures are for buying a property in Chile. Our best advise is to get help with your purchase. With this article, we hope that we have given you and idea of what sort of help you are going to need in going through the process of buying property in Chile.
Written by
Zandra Valenzuela Delgado
Zandra Valenzuela Delgado is a Chilean attorney and Legal editor for www.allsouthernchile.com Real Estate Section