Real estate finance law in Colombia

Yes.

Yes.

In Colombia, a mortgage on land typically includes both the land and any buildings or structures on it, meaning the lender can claim both in case of default. In contrast, a mortgage on buildings secures the loan specifically against the structures, with the lender’s rights limited to those buildings only, unless the mortgage contract explicitly includes rights to the land. This distinction is crucial for understanding the scope of collateral in mortgage agreements.

Yes, mortgage certificates can be issued for a specific value and serve as proof of the mortgage in Colombia. These certificates are registered with the Public Registry, which provides legal certainty regarding the mortgage. The amount can be closed to the specific value, or open to any additional values that develop from a contractual relationship.

The cost of registering a mortgage and obtaining a mortgage certificate varies based on the property’s value and the specific fees set by the Public Registry. It generally includes registration fees and notary fees.

Mortgage certificates are transferable in Colombia. However, any transfer must be properly documented and registered in the Public Registry to ensure it is enforceable against third parties.

Yes, second ranking security can be established in Colombia. This is done by registering the second mortgage in the Public Registry, which creates an encumbrance that is subordinate to the first mortgage.

The second mortgage is registered in the Public Registry, and a priority deed is also registered to establish the order of claims. This ensures clarity regarding the priority of creditors.

Yes, real estate can be transferred to a third party while still subject to a mortgage without the lender’s consent in Colombia. If the borrower transfers the property, the lender may enforce the mortgage and claim the property if the borrower defaults.

Yes, there are preferred creditors other than prior ranking mortgage holders in Colombia. While mortgage holders enjoy rights of pursuit [SL1] and preference, allowing them to reclaim the mortgaged property and receive payment from its sale before other creditors, there are certain privileged credits as defined in Article 2495 of the Civil Code. These include labour creditors, tax obligations and other specific claims that may take precedence over mortgage claims, depending on the circumstances. Thus, while mortgage holders have strong rights, they may still be subordinate to these privileged creditors in certain situations.

Yes, “all monies” mortgages can be taken in Colombia. While they are not very common, it is possible to structure agreements that guarantee multiple obligations under a single mortgage. As long as it complies with relevant regulations and is properly registered in the Public Registry, they can be accepted, even if this format is not typical.

Yes, a landlord’s right to receive rent can be assigned or pledged as a guarantee to a lender in Colombia. This is typically done through a contract in which the landlord explicitly transfers or pledges the right to receive rent as collateral.

Yes, it is common for lenders in Colombia to take security over a borrower’s bank accounts. This is typically established through a pledge agreement. The lender can secure its obligations by taking a lien on the funds held in the borrower’s bank accounts.

Yes, it is usual for lenders to include clauses in their agreements that restrict the borrower’s right to withdraw funds from secured accounts until the scheduled interest and principal repayments are made. This helps ensure that the lender has access to the funds necessary for repayment.

In Colombia, land registration and the perfection of security interests are primarily done through the Public Registry. To register a property, a public deed must be executed before a notary and submitted for registration.

Failure to register a mortgage in Colombia can lead to significant consequences, primarily the lack of enforceability (oponibilidad in Spanish) against third parties. Without registration, the mortgage does not have public notice, meaning that third parties may not be aware of its existence. As a result, the property could be sold or encumbered to another party without the mortgage holder’s knowledge, potentially leading to a loss of priority over subsequently registered claims.

The execution of a mortgage in Colombia involves specific formalities and costs:

• the mortgage must be formalised through a public deed executed before a notary public, which outlines the terms of the mortgage agreement
• the deed must be registered in the Public Registry to perfect the security interest and create a legal encumbrance on the property
• the costs associated with this process include notary fees, which vary based on the property’s value, and registration fees that are calculated similarly
• additionally, borrowers may incur legal fees for drafting the necessary documentation related to the mortgage.

Yes.

If lenders change later, such as in a transfer of rights, new security documentation may need to be executed. Additionally, this new mortgage agreement must be registered in the Public Registry to ensure that the new lender’s rights are properly established and protected against third parties. Without registration, the new lender may face challenges in enforcing their security interest.

Office/industrial lease and Retail Lease

In Colombia, according to Article 523 of the Commercial Code, tenants can sublease up to 50% of their office, industrial or retail lease without needing the landlord’s approval. However, the original tenant remains liable for all lease obligations unless the landlord formally releases them from this responsibility.

In contrast, for residential leases, the tenant must obtain explicit authorisation from the landlord to sublease the property, regardless of the circumstances.

The lender can enforce its mortgage security in Colombia through judicial foreclosure, which involves obtaining a court order to sell the mortgaged property at a public auction to recover the debt. It may also use summary proceedings for quicker enforcement if allowed by the mortgage agreement. Additionally, the lender can seize other borrower assets if there are additional guarantees, or notify tenants to pay rent directly to it if rights to payments are included in the mortgage. All enforcement methods must comply with legal procedures to protect the lender’s rights.

Yes.

It allows for enforcement of local arbitral awards from an arbitrator that is considered as such by Colombian law. Foreign judgements need to go through the execuator procedure before the Supreme Court of Justice to be enforced.

Security can be enforced through judicial or extrajudicial methods, and the assets can be sold to third parties. A secured party has the authority to appoint receivers or liquidators, typically through a court process, to manage and sell the secured assets. In certain cases, security can be enforced directly without recourse to the courts, provided the agreement allows it or if the security is managed through a trust company. Private sales of secured assets are also feasible, although public auctions are commonly used, particularly for real estate. 

Yes, the lender is typically responsible for maintenance and insurance after default until the property is sold.

Yes, foreclosure allows a lender to obtain title, requiring a court order, and is often used if the property doesn’t sell at auction.

For a foreign lender in Colombia, key challenges include understanding the tax structure that may materially impact the cost of specific transactions, dealing with slow judicial enforcement processes, and managing lengthy registration procedures for mortgages in the Public Registry. The main challenge continues to be the inefficiency of local courts in the execution of debts, as this procedure can take several years. This has led to the development of a fiduciary system that functions as a replacement of the court in the execution of the debt. 

• Office/industrial: there is no minimum/maximum length for an occupational lease of commercial property; office leases in the current market would typically be for 3-5 years
• Retail: there is no minimum/maximum length for an occupational lease of commercial property; retail leases in the current market would typically be for 5 -10 years.

No.

Office/Industrial and Retail

According to Article 518 of the Commercial Code, a tenant who has occupied a property for at least 2 consecutive years for the same business has the right to renew the lease upon expiration, unless specific exceptions apply, such as tenant breach, landlord need for the property for personal use or a different business, or necessary repairs requiring vacating the property. To avoid automatic renewal, the landlord must serve proper notice of termination, following any specified notice periods in the lease agreement.

In the case of commercial leases, the law allows the parties to agree on the conditions for early termination, but there is no automatic right for the tenant to terminate the contract without facing consequences, such as a penalty for early termination or compensation for damages caused to the landlord.

Certain statutes provide security of tenure, preventing eviction in specific circumstances. According to Article 518 of the Commercial Code, while tenants have a right to renew their lease after 2 years, this does not prevent landlords from receiving market rents. If the parties do not agree on the new rent during the renewal, it must be determined by external appraisers. Therefore, while there are protections for tenants, landlords can still ensure they receive market rents.

Typically, rental income is receivable monthly in advance. However, it is discretional amongst the parties.

Reviews are usually conducted annually.

For retail and offices, reviews are usually upwards, market-based or indexed to inflation. Typically, these reviews are based on the consumer price index (CPI or IPC for its acronym in Spanish), ensuring that rent adjustments reflect changes in inflation and market conditions.

There is no strict rent control, but certain limits may apply based on lease terms.

For retail and office leases, landlords can charge whatever they agree in the contract. However, upon renewal, the parties must agree on a new rent. If they cannot reach an agreement, the law provides that the new rent will be determined by external appraisers.

For residential leases, the maximum yearly increase of rent is the variation of the CPI.

3. Under lease obligations, who has responsibility for:

The tenant is responsible for internal maintenance and minor repairs, ensuring the property is kept in good condition (Articles 2028 and 2029 of the Commercial Code).

The landlord is generally responsible for external maintenance. However, it will also be responsible if damage is due to force majeure or inherent defects; the landlord may be liable for repairs that would typically fall under the tenant’s responsibilities (Article 1985 of the Commercial Code).

Structural repairs are primarily the landlord’s responsibility, as these are not considered minor repairs.

Insurance is usually the tenant’s responsibility unless specified otherwise in the lease.

The tenant bears the VAT related to lease payments.

Property rates are generally the tenant’s responsibility unless the lease states otherwise.

Other outgoings, including utility costs and maintenance allowance, are typically the tenant’s responsibility, as specified in the lease agreement.

Yes, landlords can recoup outgoings through service charges if clearly stated in the lease agreement, allowing for contractual flexibility (Article 1985 of the Commercial Code).

Yes, lease terms are generally recognised and supported in Colombia which follows a civil law system rather than a case law jurisdiction. While case law does apply, imperative laws take precedence over it, ensuring that lease agreements are enforceable in disputes within the framework of established legal principles.

To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is a RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

In Colombia, for an appraisal to be recognised in court, it generally needs to be conducted by a qualified professional who is registered and recognised by local regulations. While an appraisal report from a RICS-qualified appraiser may be respected, it may not be automatically accepted in legal proceedings unless it meets the specific requirements established by Colombian law.

Yes.

Yes.