As most of the productive sectors in the country, the Dominican Republic's real estate sector has not been able to escape the COVID-19 outbreak's impact. Amidst this new reality, it is indispensable to weigh in how this pandemic as well as the measures taken by the Dominican authorities to respond to it, will affect ongoing real estate transactions, whose normal course has been interrupted by the pandemic. The analysis of these transactions will always depend on the purchasing method and negotiation, and the effects on the negotiation terms that the state of emergency decreed by the Dominican state on March 19th 2020 and subsequent measures could have on them.
Obligations derived from any negotiations made prior to the date of the state of emergency's decree (March 19th 2020), could be influenced by the statement of emergency. However, if the negotiation had been closed after the declaration of the state of emergency, there would be no place to point out this situation as an excuse by either party to comply with their respective contractual obligations, because for a contracting party to benefit from force majeure based on the state of emergency and the measures taken afterwards, these events should have been unpredictable and unavoidable to them. It is evident that any closing, final or preliminary, executed after the beginning of the pandemic in the Dominican Republic or after the measures taken by the Dominican state in its response could never be considered as unpredictable for the purposes of this discussion.
In the following lines we will evaluate some typical real estate transactions that could have been affected by the current status, taking into account that each situation must be analyzed on a case-by-case basis in the event of disagreement between the parties, especially if the contracts contain clauses addressing the suspension or termination due to force majeure or any other external reason which may impact their agreements. Some of the most common cases include:
- Off-Plan purchases: This is the most affected case by the pandemic because, in the Dominican real estate market, developers are engaged not only in selling and marketing their properties, but also in constructing them. The property's construction involves a working timetable whose progress is completely stalled at this moment, due to the measures taken by the Dominican Republic's government, which limit all traffic and movement of people and have shut down operations of private sector companies that do not offer basic services. In tourist areas, most real estate developers classify their projects under the country's Tourism Incentive Tax Law (CONFOTUR) which allows them to access tax and customs exemptions, especially for the import of building materials and initial furnishings. Constructions classified under this law have also been affected by measures taken locally as well as internationally, due to restrictions on international trade and domestic policies issued by the countries of origin of those products. It is quite likely that these constructions will be put on hold for as long as the state of emergency remains effective and until the international trade is reactivated. However, this interruption may not be opposable to buyers if it comes from elements or matters related to the developer or his internal structure, such as labor issues or liquidity or cash– flow problems. In many cases, when buyers accept the construction quality assurance report, they have prior knowledge of the materials' origin, under these conditions, suspension of the purchase agreements due to issues sourcing said materials given worldwide restrictions on trade could be opposable to them. Finally, it is important to take into consideration that the suspension of the execution of the parties obligations under the contract must be reciprocal: the buyer could withhold the payment of any installment of the purchase price that becomes enforceable during the emergency period, especially if the construction is interrupted.
- Real estate's reservations: It is common that at the beginning of a negotiation for purchasing real estate, a reservation agreement is signed to take the property out of the market by means of a payment from the buyer, a deposit that is usually made in the hands of a third-party escrow agent (brokers/lawyers). This type of instruments are known for having relatively short terms (from 30 to 60 days), within which the seller usually undertakes to provide all the documentation required by the buyer's lawyer, including certifications issued by governmental and judicial entities, in order to carry out legal and tax checks prior to the purchase of the property. If the reservation period expires during the emergency period without the seller or the obligated party being able to meet the requirements of the reservation because he or she has been unable to do so as a consequence of the State of Emergency measures taken by the government, it is reasonable to consider that the period should be suspended from the date on which those measures came into force and resumed when the state of emergency is lifted.
- Option-to-purchase agreement: The case of the purchase option is quite similar to the case described above, considering that the binding nature of the purchase generally depends on the exercise of option for an agreed period and subject to the confirmation or delivery of the seller of certain information or documents that are largely issued by governmental or judicial institutions, indispensable for the buyer to decide whether or not to proceed to the acquisition of the property. Perhaps, some of these documents may not be obtained during the emergency period due to the closure of certifying institutions, which must undoubtedly be sufficient cause to extend the term of the option if the buyer does not have enough elements to form his conviction on the purchase. However, if the term expired BEFORE the entry into force of the measures issued by the Government or if, notwithstanding the measures taken, it is possible to obtain the relevant information or documents, there will be no reason to justify the breach of the agreement.
It should be noted that each specific case must be examined individually in order to correctly determine the obligations undertaken, the scenarios which may have been already foreseen by the parties and whether such obligations could be suspended by the current state of emergency.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.