Rental system is neutral to pro-landlord

May 31, 2006

Rents: Can landlord and tenant freely agree rents in Colombia?

Lease agreements can be made orally or in writing and rents can be set freely by agreement between landlord and tenant, though the monthly rent cannot exceed 1% of the commercial value of the dwelling or of the part of the dwelling subject to the lease. Such commercial value cannot exceed two times the cadastre value of the dwelling at the time of the contract.

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The rent can be fixed in any currency but, if fixed in a foreign currency, it has to be paid in Colombian pesos at the market exchange rate in force at the time of the contract, unless otherwise agreed by the parties.

There can be increases in the rent every 12 months of execution of the lease agreement. The increase cannot exceed 100% of the Consumer Price Index for the immediately preceding calendar year. In any case, the new rent has to conform to the parameters set forth above as to the limits of the initial rent.

If the tenant believes that the increase made by the landlord exceeds market prices, he has 6 months to request a revision before the Mayor's Office of the city where the dwelling is located.

Deposits

Deposits for lease agreements are prohibited in Colombia. The law also forbids landlords from requesting liens to secure payment of tenant's contractual obligations.

What rights do landlords and tenants have in Colombia, especially as to duration of contract, and eviction?

Landlord and tenant can freely agree on the duration of the lease. If no specific duration is mentioned, the contract is understood to be for one year. Unless a notice of termination is duly sent, the contract will be renewed for successive equal terms if both parties have complied with their contractual obligations and the tenant accepts the increases in the rent authorized by law.

At any time, the parties can mutually agree to terminate the contract.

The landlord can unilaterally terminate the contract:

  • If the tenant is not complying with his obligations, e.g., if he defaults in rent payments or public utilities payments.
  • If the tenant is not in default, the landlord can terminate the contract during the renewal terms (not during the initial term) by sending him written notice of termination to the tenant 3 months prior to the effective date of termination, informing him that the indemnification ordered by law will be paid. Such indemnification, equivalent to 3 months of rent, has to be deposited before the entities authorized by the government, which will then forward it to the tenant.
  • Likewise, the landlord can terminate the contract at the end of the initial term or of any of the renewal terms by sending written notice to the tenant 3 months prior to the date of termination of the contract, if: (i) the landlord will need the dwelling for his own habitation for not less than 1 year; (ii) the dwelling has to be demolished to undertake a new construction; (iii) the dwelling has to be emptied to be repaired; or (iv) the dwelling has been sold and it has to be passed to the buyer (in this case the landlord does not have to indemnify the tenant so long as he complies with the three months notice period).
  • The landlord can also terminate the contract if it has lasted not less than 4 years, by paying an indemnification equivalent to 1.5 months of rent.

Similar provisions apply to termination of the contract by the tenant.

  • The tenant can unilaterally terminate the contract at any time if the landlord breaches his contractual and legal duties, e.g., when he interferes with the quiet enjoyment of the dwelling by the tenant.
  • The tenant can also unilaterally terminate the contract during the initial term or any of the renewal terms by sending written notice of termination to the landlord 3 months prior to the effective date of termination, informing him that the indemnification ordered by law will be paid. Such indemnification, equivalent to 3 months of rent, has to be deposited before the entities authorized by the government, which will then forward it to the landlord.
  • Finally, the tenant can terminate the contract at the end of the initial term or of any of the renewal terms by sending written notice to the tenant 3 months prior to the date of termination of the contract. No indemnification is required in this case.

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It should be noted that the tenant will be deemed to have breached the contract if he sublets or assigns the contract without the landlord's express authorization.

Both landlord and tenant are entitled to a right of retention if the other party is in breach of his duties. Therefore, the tenant can refuse to leave the dwelling if he has not received the indemnification ordered by law. Similarly, the landlord is entitled to keep possession of any goods left by the tenant if and as long as the tenant is in default in paying the rent.

These rules for the renewal and termination of the lease tend to favour landlords in practice.

How effective is the Colombian legal system?

Tenancy law is enforced before the civil courts. Procedures are long and the courts are saturated with a huge backlog of cases. Brigard & Urrutia believes that to complete an eviction of a tenant might take perhaps three years, including 45 days for service, two years for trial duration, and a year for enforcement. But the eviction proceedings, though long, protect landlords because tenants are obliged to pay rent while the proceeding is being heard in court.

The eviction process is regulated by Law 820 of 2003 and procedural rules are found in the Colombian Code of Civil Procedure. The proceeding, called "Proceso de restituciĆ³n de inmueble arrendado" is carried out through a summary procedure with the intervention of the tenant. However, if the complaint is based on failure to pay the rent, the tenant will not be heard unless he deposits the outstanding rents before the court. The tenant is entitled to reimbursement for the improvements and repairs made by him to the dwelling. The landlord can request the practice of precautionary measures, including seizure of tenant's assets, to ensure payment of the rent or of any other economic obligation under the contract. Judgments in eviction proceedings based on failure to pay the rent cannot be appealed.

EVICTION FOR NON-PAYMENT OF RENT

Duration until completion of service of process 139
Duration of trial 279
Duration of enforcement 82
Total Days to Evict Tenant 500
Courts: The Lex Mundi Project

It is not necessary to exhaust a conciliation hearing before initiating an eviction process, which is required for most other civil actions.

Legislation

Leasing of dwellings is regulated by Law 820 of 2003. This law applies to all lease agreements signed after July 10, 2003. Prior leases will be regulated by Law 56 of 1985. Commercial leases and other types of lease agreements are regulated by other laws, and general provisions are contained in articles 1974 and following of the Colombian Civil Code.

Brief history: Recent changes in Colombian landlord and tenant law

Colombian law is guided by the furtherance of two Constitutional principles: (i) the property must comply with a social purpose, and (ii) every person has the right to a proper dwelling.

The law has recently moved in the direction of reaching a balance between the rights of landlords and tenants. Landlords and real estate brokers have an organized lobby force in Congress and have been very successful in recent years in obtaining stronger protection from the law. Congress enacted Law 820 in 2003 to create a uniform normative body to regulate leasing of houses for residence, as opposed to leasing of houses for commercial uses and leasing of other goods. Law 820 was designed to provide flexibility in lease contracts and to the relation between landlords and tenants, considering that, at the time of its enactment, it was estimated that 15 million people lived in rented dwellings and 90% of them were low income population. The law attempts to offer new possibilities for appropriate dwellings for low income families and to promote the construction of buildings for rent.

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