PRIVATE CONTRACTS
By definition, a private contract is the one held by individual entities and as provided by law, it is effective only and exclusively among those holding these, that is, it has no effect in regard to third parties. For a contract to have effect before third parties it has to be registered with the Public Registry for Property, but for a document to be able to be registered with the said government office, it must comply with the provisions of the Civil laws.
The law differentiates between public and private instruments, based not only on those holding these but also before those these are fulfilled.
In regard to real estate transactions, the Civil Code in effect in the State of Quintana Roo provides that all real estate transactions with a value over 500 times the minimum salary in effect in this zone, it is mandatory these shall be carried out by means of a Public Instrument, that is before a Notary Public. So due to the current capital gain in properties, all the real estate transactions in Quintana Roo shall be performed before a Notary Public and only the transfer of dominion transactions made before a Notary Public may be registered with the Public Registry for Property.
Nevertheless, just as I have commented in previous articles, sometimes, whether it is due to the legal status on the land tenure or due to some pending compliance of some conditions by the parties or in regard to the land, signing of the said public instrument for transfer of dominion may not be immediately possible. It is then when it is necessary to proceed with a private contract in order to legalize the real estate transaction, whether it is a Promise of Purchase Agreement, Incorporation of a Trust or an Assignment of Rights and in these cases, it is of extreme importance the existence of the corresponding private agreement in order to avoid risks or vices that in the long run may result in a law suit or losses for the interested parties.
A promise of purchase agreement, as the name indicates, is a preliminary contract, and as such, it only foresees the future transaction, in this case, the assignment of property. The promise represents liabilities to fulfill and provide, consisting in the granting of a public instrument from the seller (fulfilling liability) and the payment of the price agreed by the purchasing party (providing liability).
The assignment of rights agreement is normally used for the assignment of irregular land, id. est., land without a title, public instrument or any valid document whereby property is acknowledged. By means of this kind of agreement, the holder of rights, grants and assigns to the assignee, which in real estate transactions, it is the right to legal possession.
In the practice, endless contracts are signed for promise of purchase or assignment of rights and a first payment is made at the execution of the said contracts taken as an advance payment, something that is quite reasonable for many reasons, nevertheless, according to the law, when a payment is made, even if it is a partial payment, and even if the private agreement expressly states the said amount is received as a deposit or first payment, the purchase is made from that very moment and it is converted into a purchase in installments.
Another fact that is very important in private agreements is that in order to be valid; these must be ratified (signed) before two witnesses or by the Notary Public. The criterion is still the same, the amount to be paid for the property, purpose of the real estate transaction, so in principle, all real estate transactions should legalized before a Notary Public. In case of promise of purchase agreements, and assignment of rights, where a partial payment is made, Notaries according to their power and faculties to withhold taxes, are responsible for calculating taxes derived from the real estate transaction and withhold the corresponding percentage based on the price of the said transaction. That is why nowadays Notaries are not ratifying private contracts for promises or assignments due to the above criterion.
Another important aspect in the private agreements is the penalty imposed in case of failure to comply (in promises of purchase agreements), a penalty that must be the same for both parties. This is generally not applicable in assignment of rights where normally the price is covered totally at the execution of the documents.
It is important to remember that none of these agreements assigns property to the acquiring party and this shall only take place at the time the public instrument is granted and registered with the Public Registry for Property.
In any case, it is recommended to execute an Installments Private Purchase Agreement according to the civil laws in effect in the State and/or of course reduce the waiting times in order to sign the Public Instrument whereby Transfer of Dominion is granted.
