If you dream of owning a place on the beach of the beautiful island of Puerto Rico, with cool breathes, sunny weather, and picturesque waters, this post is for you. Here you will find what you need to know about property laws in Puerto Rico.
You are probably reading this because you heard of all the economic problems the island has been struggling through of late, and you may be thinking that this is a good time to invest in property.
After all, common sense says, that you should buy when things are low. Right? But if you’re interested in purchasing property on the island, you really should learn about the property laws in Puerto Rico because they are VASTLY different from those of the mainland states.
We never owned property on the island, and are actually grateful that we didn’t; especially after learning about the unbelievably complex property laws in Puerto Rico.
Well that, and the fact, that I still strongly feel that purchasing real estate in Puerto Rico right now, just isn’t a good idea. See my post on Puerto Rico Real Estate Is It A Good Time To Buy?
Disclosures: I am not a lawyer nor am I a realtor in Puerto Rico. So, the information here is from what I personally learned on the topic of property law in Puerto Rico through our two-year stay there. If you are serious about purchasing real estate on the island, I strongly advise that you hire a good attorney in Puerto Rico – not in the States.
OK, so, here are some basics about property law on the island that you should know before considering a purchase:
Property Laws In Puerto Rico: Wills and Court Jurisdiction
If you own real property in Puerto Rico, the rules pertaining to that property and its transfer (or succession) are governed by property laws of Puerto Rico. That’s right – NOT the laws of your home state in the USA. This is true even if you do not reside in Puerto Rico. And, the laws are much different than in other US states. The US Foreign Investment Law states that the applicable law for real property falls under the law jurisdiction of where the owner resides. This does not apply to the island.
So, what does this mean?
It means that if your property passes through inheritance, or any other means, your home state’s courts have no jurisdiction. And furthermore, US rulings will not be upheld by the Puerto Rican courts. So, for example, if you have a will in the USA, it doesn’t really hold any power over your property on the island. And it is the probate courts of Puerto Rico that decide what happens to your property.
Why is that bad?
Well, read on and you’ll get an idea; but suffice it to say that you may be in for a nasty surprise. Also, consider that everything is in Spanish and that you will need a Puerto Rican attorney that is familiar with both mainland US and PR property laws. And he/she needs to be honest and can communicate with you effectively.
Can you imagine the cost and the emotional upheaval of having to deal with this during a time of a crisis?
Add to that, that during the economic crisis gripping the island, it is difficult to find good help there as many talented people have left for the mainland… You are probably starting to get the picture.
Property Laws In Puerto Rico: Forced Heirship Law
At one point of our two-year stint in Puerto Rico, we seriously considered investing in property. However, one major thing that changed our minds was the forced inheritance law. This is a law left over from the Spanish rule, sometimes called the Napoleonic Law of Thirds, and it goes something like this:
Family First – The biggest difference between Puerto Rican inheritance law and the inheritance laws of the United States is that the property laws in Puerto Rico benefit the family before they benefit the spouse. In other words, the blood relatives automatically receive the benefits from the estate and not the spouse. The law is designed to keep the property in the “family”.
So, how does this work?
The following relatives have first (and automatic) right to the property in this order:
- Children – children inherit first under property laws in Puerto Rico.
- In the absence of children, then grandchildren.
- In the absence of children, grandchildren or other direct descendants, the parents are considered forced heirs.
Note: Foreigners cannot avoid the rules of “forced heirship” for real property located in Puerto Rico! Again, the inheritance of such property is regulated by the property laws of Puerto Rico.
So, what if you have a Puerto Rican will?
In that case, here is how the distribution works:
- First 1/3 of the property goes to children (see above).
- Second 1/3 of the property goes to other blood-heirs as described in the will.
- Final 1/3 goes to whomever you willed (non-blood heirs), i.e. spouse
This process is extremely complicated. If there are no children than the parents get their share and, in some cases, they get as much as 1/2 of the estate. Needless to say, this can and does take years to distribute, even if there is a will and it is not disputed. This is the main reason you see so many beautiful properties on the beach that have gone to ruin. Years in probate court and the many heirs not willing to upkeep and pay taxes will do that.
Do you, also, see why this would be a problem if your married? The spouse will generally receive some portion of the estate (possibly a 1/3); but the title of the estate is usually passed along to the surviving, blood-related family members of the deed holder.
God forbid if you’re on your second marriage and/or you have a large number of siblings. UGH!
Property Laws In Puerto Rico: Taxes Upon Transfer of Property
They’ll tax you in life as they tax you in death but they’ll tax you more in death… Depending on your circumstance, you can expect to pay anywhere form 18% – 50% in property taxes when the property is transferred by death or by gift. OUCH!
If you are a resident of Puerto Rico, you can expect to pay taxes on all properties you owned. If you just own property in Puerto Rico, like a vacation home, but are not a resident, the tax only applies to that property.
As you may expect, the inheritance tax laws of Puerto Rico are also incredibly complex. They apply differently to “US Persons” vs. “Puerto Rico Persons” and interface with US inheritance tax laws.
I am not even going to attempt to explain them here because of all the different possible scenarios. Suffice it to say: GET A TAX LAWYER
Read my post on income taxes in Puerto Rico.
Property Laws In Puerto Rico: Rental Contracts and Laws
“There is no Landlord and Tenant Law in Puerto Rico. Instead, the basic legal arrangement between the tenant and the landlord is called a contract, and is regulated by the Puerto Rico Civil Code. Contracts or lease as is usually called may be verbal or written and are binding between parties. A lease is simply a set of agreement between landlord and tenant as to their respective duties and responsibilities. Basically, the tenant agrees to pay the rent on time for the use of the property and in return the landlord agrees to maintain the property for the tenant’s use.” Global Property Guide
So, what does this mean? It means that, as I described in my other posts on Puerto Rico rentals (Renting Apartments In Puerto Rico Part 1, Renting Apartments In Puerto Rico Part 2), leasing in Puerto Rico is relatively “flexible”. And by that I mean, that no one really follows any rules.
Seriously, you may or may not get your deposit back and you may or may not get your landlord to help with repairs. It is all up to the honesty and integrity of the individual.
Our own experience was 50/50 – 50% was really good with an excellent landlord and 50% was terrible with one didn’t want to repair anything. So, take that for what it’s worth and be sure to read my other posts on the topic.
By the way, this is also true in reverse. If you’re considering purchasing property in Puerto Rico as an investment, and you plan on renting it while you’re not using it, then you should think about this too. You may be in for a surprise when you try to uphold your lease or evict the tenets. And good luck recouping any money for unpaid utilities or damage to the property…
In summary, I hope this article helps you understand what is involved when you own property in Puerto Rico. I have not even mentioned other issues with property purchases, like the years it takes to register the property (yes, years). But, I think you get the idea.
Sure, most of us don’t think about dying when we buy a beautiful place on the beach. But shit happens. So, you should seriously consider all the above before committing to real estate in Puerto Rico.
PS. Beware of shyster lawyers on the island that will tell you whatever you want to hear. They will paint you a pretty picture, just to get you to buy, so they can make money. The island is in dire needs, after all, so everyone is hungry for business.