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Domain Reservation Covenant

Covenant of Domain Reservation (Pacto de Reserva de Dominio)


By means of the Covenant of Domain Reservation, the buyer does not acquire the full domain on the property sold until completing payment. Excludes, temporarily, the transfer of the domain of the property, pending compliance by the buyers of his payment duty.

The seller does not transfer to the buyer the domain of the sold property, until the total payment is confirmed; And, even if the possession of the property is handed over, the property is not yet transmitted to him; It is, therefore, another form of guarantee for the payment of the deferred price, whose full payment acts as a condition precedent to the acquisition. Once the full payment of the price has been confirmed, the transfer of the domain takes place.
The pact «reserve domain» cannot be used as an obstacle to delivery to the purchaser possession of the property itself.



1.- Effects of the Covenant of Domain Reservation


The purpose of this agreement is to guarantee the payment of the price and to assure the seller, as it remains its owner, the recovery of the property in case of breach of contract by the buyer.

The delivery of the property to the buyer provides him with his use and enjoyment, but he cannot perform acts of disposition, nor acquire his property by usucapión, and must maintain its integrity.

On the opposite side, therefore, the seller lacks the use of the property, as long as full payment is not fulfilled.

The risks (destruction by fire, for example) of the property correspond to the buyer since the delivery takes place because he is the one who, from that moment, has the obligation to take care of it.

Once the condition is met, i.e., when the buyer pays the entire price, the property is automatically transferred to the buyer.


2.- Registration procedure of the Covenant of Domain Reservation

The Covenant of Domain Reservation must be registered in the Register as a precedent or suspensive condition.
The fulfilment or non-fulfilment of the guaranteed payment condition must be recorded either by means of a marginal note if the acquisition of the right is completed, or by a new registration in favor of the seller, if the resolution or termination occurs.
If the buyer does not pay and therefore breaches the contract, the property is still registered in favor of the transferor, and it is necessary to proceed with the cancellation of the seat in which the pact of reservation of domain.

The cancellation of the entry of the inscription under suspensive condition can occur without having to obtain a final judgment, and without the consent of the interested party, when the registered right is extinguished by virtue of the agreements contained in the title that caused that inscription, which is now cancelled.


3.- Tax Treatment of the Domain Reservation Agreement

For the purposes of payment of the property transfer tax, the transmission is considered to be subject to a resolutory condition of the contract.
In these contracts under a resolutory condition, the property transfer tax must be paid, with the right, if the condition is met, to request a refund, according to the transmission tax regulations.

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