Are Verbal Agreements Binding in Peruvian Real Estate Transactions? An Expansive Guide to Due Diligence

As a licensed Peruvian real estate broker with years of experience navigating the complexities of property transactions in Arequipa, I often encounter foreign investors and expats who are accustomed to different legal frameworks. One of the most common misconceptions revolves around the enforceability of verbal agreements. Let me be unequivocally clear: In Peru, particularly for real estate, verbal agreements are generally NOT legally binding or enforceable in the way most international buyers expect. Relying on them is an extremely high-risk strategy that could lead to significant financial loss and legal distress.

This article will delve into why formality is paramount in Peruvian real estate law, the severe risks associated with informal agreements, and the step-by-step process you must follow to ensure your investment in Arequipa is legally secure.

The Peruvian Legal Framework: Why Formality Matters

Peruvian Civil Law, specifically concerning real estate, is built on principles of formality and public registration. Unlike some common law systems where a verbal contract can, under certain circumstances, be deemed valid, Peru requires specific forms and procedures for the legal transfer of property ownership and its recognition by the state and third parties.

The foundational principle here is found in Article 140 of the Peruvian Civil Code, which outlines the essential elements for a valid contract: (1) capacity of the parties, (2) object that is physically and legally possible, (3) a lawful purpose, and crucially for real estate, (4) observance of the prescribed form, if applicable. For the transfer of ownership of immovable property, the prescribed form is absolute for public registration and protection against third parties.

Specifically, while a contract of sale (Article 1529) can, in theory, be consensual between parties, the actual transfer of ownership of real property and its enforceability against third parties fundamentally necessitate a formal process. Article 949 of the Civil Code stipulates that the mere obligation to transfer ownership makes the creditor the owner, unless a legal provision states otherwise. For immovable property, the "otherwise" is the requirement for public registration. Without this, your "agreement" is largely worthless in court and, more critically, grants you no ownership rights that can be asserted against third parties.

The Key Takeaway: For real estate ownership to be legally recognized, protected, and opposable against third parties in Peru, it must be formally executed through a Public Deed (Escritura Pública) signed before a Notary Public and subsequently registered with the National Superintendency of Public Registries (S.U.N.A.R.P.). Anything less leaves you vulnerable.

The Illusion of a "Deal": Risks of Verbal Agreements in Peru

Engaging in a verbal real estate agreement in Peru is akin to building a house on sand. The risks are profound and multifaceted:

Lack of Enforceability: Without written documentation, proving the terms of an agreement in a Peruvian court is incredibly difficult, often impossible. You would need compelling, independent evidence, which is rarely available for purely verbal deals.
Fraud and Misrepresentation: Verbal agreements provide an easy avenue for unscrupulous sellers to deceive buyers. A seller could promise one thing verbally and later deny it, or even sell the property to multiple buyers if no formal public record exists.
Disputes Over Terms: What was the exact price agreed upon? What were the payment terms? Were there specific conditions for the sale (e.g., repairs, possession date)? Memories fade, intentions shift, and without a written record, disputes over these critical details are inevitable and often unresolvable.
No Public Record, No Ownership Protection: This is the most critical risk. A verbal agreement does not allow for registration with S.U.N.A.R.P. Without S.U.N.A.R.P. registration, you are not the legal owner in the eyes of the state or third parties. The previous owner can legally mortgage the property, sell it to someone else (who registers it first – a practice known as doble venta), or face creditors who could seize the property – all while you mistakenly believe you own it.
Hidden Liens and Encumbrances: A verbal agreement bypasses the essential due diligence process. Without a formal process involving a lawyer and notary, you will not perform a proper title search at S.U.N.A.R.P. This means you could "buy" a property with existing mortgages, judicial liens, or other encumbrances that would become your problem.
Tax Evasion Risks (for the seller): Sometimes sellers propose verbal or under-the-table agreements to avoid capital gains tax or other fiscal obligations. Engaging in such a transaction, even if unknowingly, can expose you to legal scrutiny.

Local Context/Warning: Arequipa's Legal Landscape and Your Investment

Arequipa, with its stunning colonial architecture and vibrant culture, is a fantastic place to invest. However, its unique characteristics demand an even greater emphasis on formal legal processes:

S.U.N.A.R.P. in Arequipa: The Arequipa regional office of S.U.N.A.R.P. (located, for example, on Calle La Merced in the historic center) is where all property titles for the region are registered. This is your definitive source for verifying ownership, checking for liens, and formally recording your acquisition. Skipping this step is akin to buying a car without registering it in your name – you don't truly own it.
Historic Properties in the Centro Histórico: If you're considering a property within Arequipa's UNESCO World Heritage Centro Histórico, the rules extend beyond simple ownership. Any modifications, renovations, or even certain maintenance tasks require special permits from the Ministerio de Cultura and the Municipalidad Provincial de Arequipa. These regulations are complex and strict, aimed at preserving the city's architectural heritage. A verbal agreement would completely fail to account for them, potentially leaving you with a property you cannot legally modify or develop as intended. For example, a charming but dilapidated casona (large traditional house) in the city center might seem like a good verbal deal, but the cost and legal hurdles for renovation can be astronomical if not properly assessed by experts in heritage preservation.
Informal Land Ownership and "Invasions": Outside the well-established urban zones like Yanahuara, Cayma, and Selva Alegre, particularly in the peripheral areas or new developments, informal land occupation and "invasions" (land squatting) are a real issue. A verbal agreement for such a property would be disastrous, as the "seller" likely doesn't hold clear, registered title, and you would inherit immense legal battles. Always verify S.U.N.A.R.P. registration for the specific plot number. Many properties outside the consolidated urban grid may still be awaiting formal saneamiento físico-legal (physical and legal regularization).
The Critical Role of Local Notaries: Arequipan Notaries Public are not just witnesses; they are public officials vested with the authority to authenticate documents, verify identities, and ensure the legality of transactions according to Peruvian law. They are an indispensable part of formalizing any real estate deal.

The Correct Path: Step-by-Step Formalization of Real Estate Transactions in Peru

As your broker, my primary advice is always to engage qualified legal counsel and follow a meticulous, documented process. Here’s the typical and legally sound procedure:

1. Offer and Initial Negotiation (Ideally Written)

While initial offers often begin verbally, always follow up with a written "Offer to Purchase" (Propuesta de Compra). This document, though often non-binding itself, sets out the basic terms (price, property description, proposed closing date) and demonstrates serious intent. It's a foundational step towards a more formal agreement.

2. Preliminary Agreement (Contrato de Arras / Contrato de Promesa de Venta)

This is the first legally significant written agreement. It is CRUCIAL to have this document drafted by a Peruvian lawyer and, for enhanced legal certainty and enforceability, ideally signed before a Notary Public (e.g., through an Acta de Legalización de Firmas or incorporated into an Escritura Pública for annotation at S.U.N.A.R.P. in the case of a Promesa de Venta).

Contrato de Arras (Earnest Money Deposit Agreement): This involves the buyer making a deposit (arras) to the seller.
- Arras Confirmatorias (Confirmatory Earnest Money): If the sale proceeds, the deposit is part of the purchase price. If either party backs out without cause, they are usually liable for specific performance or damages.
- Arras Penales (Penalty Earnest Money): If the buyer backs out, they lose the deposit. If the seller backs out, they must return double the deposit. This is a common mechanism to secure the transaction while due diligence is performed.
Contrato de Promesa de Venta (Promise to Sell Agreement): This is a more comprehensive preliminary agreement, obligating both parties to execute the final sale deed by a certain date, provided all conditions are met (e.g., successful due diligence). For real estate, having this document as an Escritura Pública and annotated in S.U.N.A.R.P. provides greater protection against third parties.

This preliminary agreement will clearly state the price (e.g., S/ 850,000 for a 200m² home in Cayma, or USD 230,000 at an exchange rate of S/3.70/USD), payment schedule, conditions precedent (e.g., clear title), and the period for due diligence.

3. Due Diligence – The Non-Negotiable Safety Check

This critical phase, usually managed by your lawyer, involves a thorough investigation of the property and seller. This is where you uncover any red flags that a verbal agreement would completely miss.

Title Search (Estudio de Títulos): Your lawyer will obtain an official report from S.U.N.A.R.P. (e.g., a Copia Literal de Partida Electrónica) to confirm the seller's undisputed ownership, identify any existing mortgages, liens, judicial annotations, easements, or other encumbrances. This is paramount.
Zoning & Permitting: Verify with the Municipalidad Provincial de Arequipa that the property's zoning allows for your intended use (e.g., residential, commercial, mixed-use) and that all existing constructions have proper municipal permits and declarations.
Property Taxes (Autovalúo): Confirm that all past property taxes (Impuesto Predial) and municipal fees (Arbitrios Municipales) are paid up. This is checked with the Servicio de Administración Tributaria (SAT) de Arequipa.
Utilities: Ensure there are no outstanding debts for electricity (Seal), water (Sedapar), or gas.
Physical Inspection: Conduct a professional inspection to assess the property's structural integrity and condition.
Power of Attorney (if applicable): If the seller is acting through a representative, verify the validity, scope, and proper registration of the Poder (Power of Attorney) at S.U.N.A.R.P.

4. The Minuta (Draft Public Deed)

Once due diligence is complete and satisfactory, your lawyer will draft the Minuta de Compraventa (Draft Public Deed of Sale). This document contains all the final terms of the sale, including full identification of buyer and seller, precise property description (as per S.U.N.A.R.P.), agreed price, and payment terms. Both buyer and seller sign this minuta, which is then initialed by the Notary Public, signifying its readiness to be elevated to a public instrument.

5. The Escritura Pública (Public Deed)

The minuta is then elevated to an Escritura Pública (Public Deed) by the Notary Public. This is the official, formal document. The buyer and seller (or their legal representatives) must appear before the Notary Public, who verifies their identities, reads the deed, and ensures both parties understand and agree to its terms. This is the moment when funds typically transfer and possession might be granted. The Notary also calculates and ensures payment of the Alcabala (transfer tax) before submitting the deed for registration.

Alcabala: This is a property transfer tax, currently 3% of the sales value, but with an exemption for the first 10 Tax Units (UIT - Unidad Impositiva Tributaria). As of 2024, 1 UIT is S/ 5,150. So, if the property's value exceeds S/ 51,500, the 3% applies to the excess amount.
Capital Gains Tax: The seller may be subject to a 5% capital gains tax on the profit from the sale, depending on when the property was acquired and if it was their primary residence.

6. Registration with S.U.N.A.R.P.

This is the final, and perhaps most crucial, step for protecting your ownership. The Notary Public is responsible for electronically submitting the Escritura Pública to S.U.N.A.R.P. for registration in the Property Registry. Once registered, your ownership is officially recorded and becomes opposable against any third party. This process usually takes a few days to a few weeks, depending on S.U.N.A.R.P.'s workload.

Conclusion

The allure of a quick, informal deal can be tempting, but in Peruvian real estate, it is a perilous path. Verbal agreements lack the legal enforceability and public record necessary to protect your significant investment. To truly secure your property in Arequipa, you must adhere strictly to the formal, documented process involving a qualified Peruvian lawyer and a Notary Public, culminating in registration with S.U.N.A.R.P. This diligent approach is not just a suggestion; it is the fundamental pillar of secure property ownership in Peru.

⚠️ Legal Notice: Consult a Local Lawyer. The information provided in this article is for general informational purposes only and does not constitute legal advice. Real estate laws and regulations in Peru can be complex and are subject to change. It is imperative that you consult with a qualified Peruvian real estate lawyer and a licensed real estate broker to obtain advice specific to your situation before making any investment decisions.

Ready to invest in Arequipa with confidence? Contact us today to begin your secure property journey. ArequipaRealEstate.com – Your trusted partner for seamless, legally sound real estate investments in the White City.