Navigating the Purchase of Tenant-Occupied Property in Arequipa: A Comprehensive Guide for Investors

Acquiring real estate in Arequipa presents a myriad of opportunities for foreign investors and expats, from charming historic homes in Yanahuara to modern apartments in Cayma. While many focus on vacant properties, purchasing a property that is already occupied by tenants can offer unique advantages, primarily immediate rental income. However, this path is laden with specific legal and practical complexities that demand rigorous due diligence, particularly within the framework of Peruvian real estate law and local Arequipeñan nuances.

As a licensed Peruvian real estate broker specializing in the Arequipa market, I provide this authoritative guide to help you understand the pros, cons, and essential steps involved in such an investment, ensuring your peace of mind and financial security.

The Pros of Buying Tenant-Occupied Property

Investing in an occupied property isn't just about inheriting a problem; it can be a strategic move if approached correctly.

Immediate Rental Income: This is the most compelling advantage. Unlike vacant properties, an occupied unit provides income from day one of ownership, reducing the period of negative cash flow and potentially offsetting mortgage payments immediately.
Established Market Rent: The existing lease agreement provides clear documentation of the current market rent. This eliminates the guesswork often associated with pricing a vacant property for rent, offering a baseline for future rent adjustments or lease renewals based on market conditions in Arequipa.
Reduced Vacancy Risk: You're not starting from scratch to find a tenant. The property already has an occupant, minimizing the risk and costs associated with marketing, showings, and tenant screening—processes that can be time-consuming in the local market.
Potential for Negotiated Price: Sellers, especially those eager to divest themselves of landlord responsibilities or seeking a quick sale, might be more amenable to a slightly lower sales price for a tenant-occupied property due to the perceived "inconvenience" or complexity for potential buyers.
Pre-Vetted Property Condition (to an Extent): An existing tenant often exposes immediate maintenance issues through their requests for repairs, giving you an insight into the property's ongoing condition and the current owner's responsiveness. However, this is not a substitute for a professional property inspection.

The Cons of Buying Tenant-Occupied Property

Despite the advantages, there are significant challenges and risks that must be carefully evaluated before committing to a tenant-occupied property in Arequipa.

Limited Access for Inspections and Showings: Tenants have rights to privacy (derecho a la intimidad). Gaining comprehensive access for thorough inspections, appraisals, or even subsequent showings if you plan to re-sell, can be difficult and require strict adherence to notice periods and tenant cooperation.
Inheriting Tenant Issues: This is perhaps the biggest risk. You could inherit problematic tenants who are habitually late with rent, damage the property, or are generally disruptive. Their prior relationship with the former owner becomes your problem and responsibility.
Difficulty in Vacating Property: Peruvian eviction laws, while strengthened in recent years, still require proper procedure and can be time-consuming. If your intention is to occupy the property yourself or undertake significant renovations requiring the tenant to leave, the process can be lengthy, costly, and emotionally taxing, even with the "Express Eviction Law" (Ley N° 30933).
Tenant's Right of First Refusal (Rare in Peru, but Check Lease): While not a standard legal right in Peru for residential leases, some specific, complex commercial agreements or unique lease clauses might grant tenants a right of first refusal (derecho de retracto or derecho de preferencia). Always verify the lease agreement meticulously.
Challenges with Occupancy for Personal Use: If your goal is to live in the property, you must understand that you cannot simply terminate a valid lease. You will need to wait until the current lease expires or negotiate an early termination with the tenant, often involving financial compensation (indemnización).
Potential for Higher Transaction Costs: Legal fees for thoroughly reviewing lease agreements, drafting new contracts, or initiating an eviction process (desalojo) can add significantly to your overall investment cost.

Due Diligence: Essential Steps Before You Buy

Rigorous due diligence is paramount when considering a tenant-occupied property in Arequipa. This isn't just a recommendation; it's a non-negotiable requirement to protect your investment.

Step 1: Review the Lease Agreement Thoroughly

This is the cornerstone of your due diligence. Demand a copy of the contrato de arrendamiento (lease agreement) immediately.

Duration and Terms: Understand the start and end dates, rent amount, payment due dates, and any clauses for rent increases or renewals. Is it a fixed-term contract or month-to-month?
Deposit Details: Clarify the security deposit amount, how it's held, and the conditions for its return. Ensure the seller formally transfers this deposit to you upon the sale of the property.
Tenant's and Landlord's Obligations: Detail who is responsible for utilities, minor repairs (mantenimiento ordinario), major structural repairs (mantenimiento extraordinario), and property taxes (impuesto predial).
Termination Clauses: What are the conditions under which either party can terminate the lease? Does it include specific clauses for express eviction under Ley N° 30933?
Notarized vs. Private Contract: In Peru, many residential leases are private agreements (contrato privado). For stronger enforceability, especially regarding express eviction under Ley N° 30933, a lease needs to be notarized (legalizado notarialmente) or, ideally, formalized as a public deed (escritura pública) and registered at S.U.N.A.R.P. A simple private contract, while valid, offers less legal recourse and can significantly delay any eviction process.

Step 2: Verify Tenant Payment History

Do not solely rely on the seller's word. Request documented proof of rent payments for at least the last 12-24 months.

Bank Statements: Ask the seller to provide bank statements showing consistent rent deposits from the tenant.
Receipts: If payments are made in cash, demand copies of official recibos de pago (payment receipts) signed by both the landlord (seller) and the tenant.
Interview the Current Owner: Ask specific questions about the tenant's payment habits, communication, and overall conduct. Cross-reference this information carefully.

Step 3: Understand Tenant Rights under Peruvian Law

Peruvian law, particularly the Civil Code and specific housing legislation (e.g., Ley N° 30933), provides significant protections for tenants.

Arrendamiento (Leasing) Laws: A valid lease contract, even a private one, grants the tenant the right to occupy the property for the agreed-upon term. You, as the new owner, inherit this obligation and cannot unilaterally alter the terms.
Eviction Process (Desalojo): If you need to evict a tenant for non-payment or expiration of the lease, the process, known as desalojo, can be complex. While Ley N° 30933 (the Express Eviction Law) significantly expedites cases of non-payment or expired contracts, it only applies if the lease contract explicitly includes clauses for express eviction and is either notarized or, preferably, registered in S.U.N.A.R.P. Without these specific conditions, the process reverts to a standard, slower judicial path, which can take many months or even years.
No Unilateral Termination: You cannot simply "kick out" a tenant because you bought the property. Any attempt to do so outside legal channels can lead to significant legal repercussions for you, including fines and potential legal action from the tenant.

Step 4: Conduct a Property Inspection (with Tenant Cooperation)

While challenging due to privacy rights, a thorough professional property inspection is critical to assess the asset you are acquiring.

Negotiate Access: Work with the seller to schedule an inspection with sufficient, polite notice to the tenant, respecting their privacy.
Document Condition: A professional inspector will assess the structural integrity, electrical systems, plumbing, and overall condition. Document any existing damages or maintenance issues, ideally with photos and the tenant's acknowledgment if possible. This helps avoid disputes over security deposits later.
Assess Tenant Care: Observe how the tenant maintains the property. While not a definitive judgment of their character, it can offer insights into potential future maintenance needs.

Step 5: Verify Property Registration at S.U.N.A.R.P.

This is a fundamental step for any property purchase in Peru but bears repeating due to its critical importance.

Búsqueda Registral: Obtain a Certificado Registral Inmobiliario (CRI) from S.U.N.A.R.P. (Superintendencia Nacional de los Registros Públicos) to confirm the property's legal status.
Ownership and Encumbrances: Verify that the seller is the registered owner and that there are no liens, mortgages, or other encumbrances (cargas y gravámenes) on the property that would affect your ownership, such as judicial embargoes or registered easements.

Step 6: Confirm Outstanding Utilities and Maintenance Fees

Ensure you won't inherit unpaid bills, which can become your responsibility as the new owner.

Utility Statements: Request copies of recent utility bills (electricity, water, gas, internet) to verify payment up to the date of sale.
Condominium Fees: If applicable, obtain a constancia de no adeudo (certificate of no debt) from the building administration, confirming all common area maintenance fees (cuotas de mantenimiento) are paid up to date.

Step 7: Negotiate Terms for Tenant Transition

Clarify the future of the tenancy before closing the sale. This negotiation should be a formal part of your purchase agreement.

If You Want Them to Stay: Review the existing lease. Will you sign a new lease? Will the rent remain the same or be adjusted to market rates? Ensure a formal transfer of the lease obligations and security deposit from the seller to you.
If You Want Them to Leave: Discuss with the seller how the tenant will be vacated. This might involve the seller issuing a formal notice of non-renewal (if the contract is expiring), or negotiating a "cash for keys" incentive with the tenant for early departure. Factor these costs and timelines into your purchase decision.

Step 8: Engage a Local Real Estate Lawyer (Critical)

This cannot be stressed enough. A local, experienced real estate lawyer specializing in Peruvian property law is your most valuable asset.

Document Review: Your lawyer will meticulously review the lease agreement, property titles, S.U.N.A.R.P. records, municipal documents, and all other pertinent legal documents.
Risk Assessment: They will advise you on the specific risks associated with the existing tenancy under Peruvian law and help you navigate potential pitfalls.
Contract Drafting: Your lawyer will draft the Minuta (private sales agreement) and Escritura Pública (public deed) for the property transfer and, if necessary, new lease agreements or termination agreements for the tenant.
Notary Process: They will guide you through the notary public process (proceso notarial), which is mandatory for property transfers in Peru, ensuring all legal requirements are met.

Local Context/Warning: Peruvian Specifics for Arequipa

Arequipa, with its unique historical and cultural context, adds specific layers to the general Peruvian real estate framework.

S.U.N.A.R.P. Registration of Leases: While not mandatory for a lease to be valid between the parties, registering the lease at S.U.N.A.R.P. significantly strengthens your position as a landlord, particularly for express eviction clauses under Ley N° 30933. Many older or informal leases in Arequipa are not registered, which can complicate and prolong future eviction proceedings. Always push for a notarized, and ideally, registered lease.
Notarized Contracts and Public Deeds: The compra-venta (sale and purchase) of property must be formalized through an Escritura Pública (public deed) executed before a notary public (Notario Público) and subsequently registered at S.U.N.A.R.P. This is the only way you legally become the owner and have your ownership recognized by third parties. Ensure your lawyer oversees this entire process.
Eviction Process (Desalojo): Even with Ley N° 30933, the process can be slow if the original lease contract doesn't explicitly include the express eviction clause and hasn't been notarized or registered. Be prepared for potential delays and legal costs if an eviction becomes necessary. For complex or contested cases, expect a process of several months, not weeks.
Historic Properties in Arequipa: If you're considering a property within Arequipa's UNESCO World Heritage Centro Histórico, be aware that stricter regulations apply to renovations, façade changes, and even demolition. These rules, enforced by local municipal authorities and the Ministry of Culture, can impact your long-term plans for the property, potential for redevelopment, and tenant desirability.
Typical Neighborhoods for Investment: Arequipa offers diverse options for investors. Neighborhoods like Yanahuara, Cayma, and Selva Alegre are generally sought after for rentals due to their amenities, safety, modern infrastructure, and proximity to commercial centers, universities, and good schools. These areas often attract stable, professional tenants. Other areas like José Luis Bustamante y Rivero and parts of Cerro Colorado are also growing in popularity.
Currency and Costs: All significant real estate transactions in Peru will be typically priced and sometimes settled in Peruvian Soles (PEN), though US Dollars are frequently used for listing prices and negotiations. Expect to budget for the Alcabala (property transfer tax), which is 3% of the sales value exceeding 10 Unidades Impositivas Tributarias (UIT). For 2024, 1 UIT is S/5,150. Additionally, factor in notary fees (typically 0.5% - 1% of the property value, depending on the notary and complexity) and legal fees.

Practical Investment Strategies

Having understood the complexities, here are strategic approaches to buying tenant-occupied property in Arequipa:

Strategy 1: Buy and Keep Tenants (Passive Income Focus): This is ideal if your primary goal is steady rental income. Ensure the existing lease terms align with your investment goals (e.g., rent rate, lease duration). Negotiate a smooth transfer of the security deposit and tenant records from the seller, and consider signing a new, updated lease agreement that fully complies with Ley N° 30933.
Strategy 2: Buy, Renovate, and Re-rent: If the property needs significant upgrades, plan for the tenant's departure. This might involve waiting until the lease expires (providing proper notice of non-renewal) or offering a severance package (compensación económica) for early termination. Factor in the renovation timeline and potential vacancy periods into your financial projections. Always ensure you have clear legal grounds or a mutual agreement for the tenant to vacate.
Strategy 3: Buy for Personal Use (Vacate Tenants): This is the most challenging and potentially costly strategy. Be prepared for a potentially lengthy process. Your best approach is to negotiate directly with the tenant for an early departure, offering compensation. Failing that, you must adhere strictly to Peruvian eviction laws, which often means waiting for the lease to expire and providing proper notice, or proving specific grounds for eviction (e.g., non-payment, specific contract breaches), typically through a formal desalojo process.

Purchasing a tenant-occupied property in Arequipa offers a direct path to rental income, but it demands careful attention to detail and a profound understanding of Peruvian real estate and tenancy laws. With the right approach and a robust support team, this can be a highly rewarding investment.

⚠️ Legal Notice: Consult a Local Lawyer. The information provided in this article is for general informational purposes only and does not constitute legal, financial, or real estate advice. Real estate laws and regulations in Peru are complex and subject to change. It is imperative that you consult with a qualified, independent Peruvian real estate lawyer and tax advisor specializing in the Arequipa market before making any investment decisions. ArequipaRealEstate.com cannot be held responsible for any actions taken based on this information.

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