Rental laws are pro-tenant
May 31, 2006
El Salvador´s rental law and practice are PRO-TENANT.
Rents: Can landlord and tenant freely agree rents in El Salvador?
Landlord and tenant may freely negotiate and determine the rent by mutual consent.
The mechanism for the adjustment or increase of rent can also be agreed between the parties. It is common practice to determine a fixed annual rate of increase, or to stipulate that the rent will be annually increased proportionally to the previous year’s inflation rate, as published by the Central Reserve Bank. It is strongly recommended that this kind of clause should be included in the wording of the agreement.
However if the agreement is silent about rent adjustments, or the parties do not reach an agreement, and if the property is used for housing, or for offices for public institutions or authorized professionals, the law provides that a Rent Court may authorize the increase in the following events:
- Where the landlord executed improvements whose value represents at least 20% of the value of the property, with prior consent of the tenant or authorization of the Court. If authorized, the rent may be increased by up 10% annually in relation to the value of the improvements. Usually, the value of the increase is estimated by an expert as per the judge’s request.
- Where the tenant sublets the whole or a part of the property and there is an evident disproportion between what the tenant pays and the aggregate of what he collects from the sub-tenant (however unless otherwise agreed by the parties, the tenant may not sublet either the whole or a part of the property, without the landlord’s prior written consent).
The above rules are not applicable if the property is leased to a business establishment.
The parties may determine by common consent the amount of the security deposit, and the conditions. The security deposit commonly amounts to a month’s rental installment.
Rental deposits are not customary in housing contracts.
What rights do landlords and tenants have in El Salvador, especially as to duration of contract, and eviction?
If the property is leased for housing, the parties may determine the duration of the lease. However stipulating the duration has no effect, other than compelling the tenant to pay the rent for the whole period unless otherwise agreed by the landlord.
The determination of a term does not entitle the landlord to insist on eviction of the tenant at maturity. The tenant may continue inhabiting the property on the same conditions originally agreed, as long as he pays the rent agreed and no “termination cause” has occurred.
Notwithstanding the law’s provisos above – not applicable to business rentals - it is common practice for the parties to determine the duration of the contract, and to agree that it terminates when maturity is reached. Indeed, civil and mercantile law provide that whenever the term for the accomplishment of an obligation has not been determined, the obliged party may request the judge to establish the term for its completion.
Upon the occurrence of one of the termination causes stated either by law or by the agreement, or if both parties consent, the agreement may be terminated before the end of the contract period. In this event, and if the agreement is terminated by the tenant’s initiative, usually the landlord gets to receive the rent for the rest of the duration.
Also, Salvadoran law allows the establishment of a “Diplomatic Clause”, which entitles tenant to terminate the lease anytime, without any liability.
Depending on the use given to the property, there are two different statutory laws covering landlord and tenant issues:
- If the property is used for housing, or leased to a public entity, or to a professional duly authorized, the lease falls under the scope of the Renting Act (effective March 1st 1958, last amended in 1990). Most of the above restrictions, such as the causes for adjusting the rent, and the duration of the agreement, are covered in this act. In spite of its protectionist provisos, the contents by this act are little known by the average tenant/landlord.
- If the property is used for business purposes, the lease falls under the scope of the applicable provisos of the Civil Code (effective since 1860), which is less protective; the parties’ contractual covenants overcome the Code’s provisions. The rent for this kind of lease incurs 13% VAT; likewise, unless the landlord is a VAT contributor, the tenant should withhold from every month’s rent 10% income tax, if landlord is domiciled in El Salvador; or 20%, if the landlord is not domiciled in El Salvador, as described above.
When leasing for household purposes, the tenant has the obligation to withhold 10% income tax from every month’s rent, if the lessor is domiciled in El Salvador, or 20%, if the lessor is not domiciled in El Salvador. This withheld rent is then delivered to the Treasury on behalf of the landlord. The landlord has the right to a receipt for the tax withheld, which if duly issued, will then be credited to his annual income tax. Also, housing rent is exempted from the 13% VAT.
How effective is the Salvadoran legal system?
El Salvador’s court system is permanently saturated, and getting the Court’s final resolution in first instance may take no less than one year – this, assuming the attorney’s diligence and the absence of extraordinary events, such as the appealing of non-final resolutions.
In principle, a procedure for the collection of outstanding rent would take an aggregate of 20 days approximately. The claim may be filed by the landlord on the eighth day of the tenant’s default, and the tenant has 48 hours to express his objections, then there is a four-day term for producing evidence. Once this term elapses, the judge should rule within the next three days. If eviction is requested for a different cause, then the tenant has three days to express his objection. There are eight days for producing evidence and the judge has five days for declaring the final resolution. Nevertheless these terms are, in practice, interrupted by several delays for servicing the non-final resolutions and various events.
The tenant has from eight to 15 days to surrender the property, if the judge’s final resolution has declared an eviction. Failure to comply with this term allows the landlord to request the judge to order the intervention of the police.
EVICTION FOR NON-PAYMENT OF RENT
|Duration until completion of service of process||45|
|Duration of trial||60|
|Duration of enforcement||45|
|Total Days to Evict Tenant||150|
|Courts: The Lex Mundi Project|
Brief History: Recent changes in Salvadoran landlord and tenant law
Originally renting was regulated by the 1860 Civil Code. During the first half of the 20th century the Renting Transitory Act was enacted and renewed time and again, until the Legislative Assembly enacted the current Renting Act in 1958. In spite of this the Civil Code renting regulations remain effective and applicable for leases outside the Renting Act’s scope.
As of yet, there has been no serious attempt to enact a new law, or to amend the present law.