Relevant aspects of real estate leasing in Panama

I – Introduction

At the end of October of this year 2020, our National Assembly approved in third debate the bill that regulates real estate leasing and then, through the official gazette of Monday, November 16, 2020, Law 179 of November 16, 2020, better known as the Real Estate Leasing Law, was enacted.

With this initiative, the Executive Body expects to reactivate a sector of the economy that is currently in serious problems, since it has been commercially impacted by the effects of the Covid-19 Pandemic and the sanitary restrictions issued by the competent entities. Thus, with the purpose of promoting the reactivation of the construction of housing projects and making available to interested parties a new financing model, Law 179 of November 16, 2020 has been enacted and promulgated.

In line with the foregoing, we are of the opinion that the development of the national economy requires, among other things, a system of financing of goods that promotes investment and is accessible to Panamanian companies and individuals who request it, especially to medium and small companies, and the financial leasing system is an efficient mechanism worldwide to favor the investment of goods in these areas, for which reason it was timely and necessary for Panama to regulate these operations in an appropriate manner, with all of which, Law 179 of November 16, 2020 was born in a totally necessary manner.

II – Definition and relevant aspects

 Law 179 of November 16, 2020, conceives financial leasing as the operation by means of which a financial lessor, as indicated by the financial lessee, enters into a contract under which the latter acquires the right of use and enjoyment of a real estate property through the payment of rents for a defined term, at the end of which the lessee may exercise an option to purchase the leased real estate property and the sums of money paid as lease payments under this figure, at the end will be applied to the purchase price of the property, hence the denomination of “financial”.

This alternative, as mentioned by the Minister of Housing, is aimed mainly at young people who “are not buying houses to put down roots” and constitutes an important option for them to acquire real estate without having to pay the down payment currently required by banks in Panama, which generally ranges between five (5) and ten (10) percent of the total value of the property, which in many cases constitutes an important obstacle for the acquisition of the first home for many Panamanians.

The Real Estate Leasing contract, as conceived in the applicable legal regulations, is a typical, bilateral, onerous, and formal contract, since numeral 1 of Article 7 of Law 179, requires that this type of contract be in writing.

Additionally, we must explain that one of the most relevant characteristics that defines and differentiates the real estate leasing from an ordinary real estate lease and also from the real estate purchase contract with financing and mortgage loan, is that the sum paid as lease payments under this figure will be applied to the purchase price of the real estate.

Article 7, numeral 11 of Law 179 of 2020, stipulates that the term of the lease contract must not be less than five (5) years.

III – Other characteristics

Up to this point we have mentioned some of the most relevant characteristics of the real estate leasing contracts, however, there are other important particularities established by Law 179 of 2020, among which we will mention the following: which are not.

– Subrogation: Unless otherwise agreed, the financial lessee will be subrogated in the rights of the financial lessor against the builder and/or third parties (Art. 9).

– Not Applicable: Law 93 of 1973 (General Leasing Law) and Civil Code (see Art. 15 of Law 179 of 2020).

– Nullity: Financial leasing of real estate previously encumbered or with domain limitations is prohibited, except in the case of express exception in the terms set forth in Article 8 of Law 179 of 2020.

– Restriction on encumbrances: Once the contract has been executed, the financial lessor may not encumber or transfer the leased property without the written consent of the lessee. 

– Executive Merit: The financial leasing contract has executive merit, for which the executive action may be initiated to collect the lease payments according to the provisions of Article 20 of Law 179 of 2020.

– Liability for damages: The Law establishes textually that the liability for damages against third parties during the leasing period is borne by the lessee.

– Governing Entity: The Superintendency of Banks of Panama is the governing entity in matters of financial leasing of real estate.

IV – Persons who may act as Financial Lessors

The legal entities authorized under the Law as financial lessors are the following:

1. Banks.

2. Trust Companies.

3. Financial Companies (Law 7 of 1990 and Law 42 of 2001).

Notwithstanding the foregoing, we must mention that the first two are empowered to act as financial lessors by operation of law and without any type of registration or additional license, but the companies included in numeral 3 may engage in the activity of financial leasing of real estate provided that they obtain the authorization for such activity by complying with the conditions indicated in Law 179 of 2020 and its regulations.

V – Types of Real Estate Leasing

Law 179 of 2020 provides for two types of real estate leasing:

  1. Direct: In this, the financial lessor acts in its own name as owner of the property and authorized person.
  2. Indirect: The ownership of a property is transferred to a third party in a fiduciary capacity who acts under the mandate of an indirect financial lessor (numeral 4 of Article 4 of Law 179 of 2020).

VI – Benefits of Real Estate Leasing in Panama

In addition to the definitions, particularities, and characteristics of this figure, we cannot fail to mention in this Article the prerogatives and/or benefits set forth in the Law to make this figure more attractive and that it fulfills its purpose with respect to the reactivation of a sector of the economy, for which we will explain the following benefits:

  1. The goods subject to a real estate leasing contract may not be seized or embargoed by third parties against the financial lessee (the lifting of the seizure is made viable by means of an incident – Article 23).
  2. Goods and Services Transfer Tax “as per the Spanish acronym” “ITBMS” and deductible expenses: Rents paid under real estate leasing will not be taxed with the Goods and Services Transfer Tax “as per the Spanish acronym” “TBMS”, for a period of 5 years, counted as from the entry into force of Law 179 of 2020. Additionally, expenses are deductible for the lessor (maintenance expenses and premiums; and for the lessee, interest is deductible.
  3. Special Fund for Compensation of Interest as per the Spanish acronym “(FECI)”, which consists of the charge made by a bank or financial entity as a surcharge of 1% per annum on loans over $5,000, which follows the following rules for real estate leasing:

– Totally exempted if the operation is for agricultural purposes, main housing, non-profit entities, and public sector.

– Other purposes: exempted during the first 10 years of operation.

– It is not exempted when the operation is for the construction or development of real estate projects.

  • Real Estate Transfer Tax “as per the Spanish acronym” “(ITBI)”: Exempt when it corresponds to the first sale and, in addition, it will be exempted from this tax, if at the end of the term of the lease contract, the real estate is transferred to the lessee or, to a successor beneficiary (it does not apply when it is transferred to a third party at the end of the real estate leasing operation).

VII – Normative, Informative and Bibliographical References.

  • Law 179 of November 16, 2020.
  • Law 93 of October 4, 1973.
  • Political Constitution of the Republic of Panama.
  • Sole Text of Law 22 of June 27, 2006, ordained by Law 153 of May 8, 2020.
  • Página web –
  • El Contrato de Arrendamiento Financiero en el Derecho Salvadoreño, Author: Miguel Larrosa Amante, web:ÑO_CONTRATOS_MERCANTILES_MODERNOS.