Freedom to contract, limited rent control in Uruguay
June 05, 2006
Uruguay rental market is pro-landlord.
Rents: Can landlord and tenant freely agree rents in Uruguay?
Rents can be freely agreed between the landlord and tenant. The only restrictions concern rent agreements where the permit for the construction of real estate was obtained prior to June 2, 1968. In this case the rent must be paid in local currency (Uruguayan Pesos), under Decree-Law 14.219 (the "DL").
Rent increases fall under two different regimes:
(i) Lease agreements regulated by Decree-Law 14.219 (the "DL"),and
(ii) Lease agreements regulated mainly by the Civil Code rules and by Law 8.153 of December 16, 1927 ("Free Contracting").
Under the free contracting regime rent increases may be freely set by the landlord and tenant by mutual agreement, without restrictions.
For lease agreements regulated by the DL, rent increases are governed by an index set by the Statistics and Census National Division ( "Instituto Nacional de Estadisticas y Censos"), the so-called Readjustable Rent Unit ("Unidad Reajustable de Alquileres") ("RRU"). During the first year of DL contracts, rents cannot be increased. After the first year, the rent is multiplied by the change in the RRU.
Only two kinds of security deposits are permissible, and other securities such as pledges, mortgages, etc, are legally forbidden. The two securities possible (each of which has two variations) are:
- A deposit of a maximum of five months (in the case of residential leases) placed at the Housing Bank of Uruguay ("Banco Hipotecario del Uruguay") (MBU) in Housing Bonds ("Obligaciones Hipotecarias Reajustables") ("HB").
- A person or company may secure the rent payment. In Uruguay, there are public and private companies or institutions which serve as security for lease agreements, and private persons may secure the payment.
What rights do landlords and tenants have in Uruguay, especially as to duration of contract, and eviction?
Lease agreements must specify a legal term, which may not exceed 15 years. Under the free contracting regime the duration of lease agreements may, this specific limitation aside, be freely agreed.
Under the DL regime, residential leases have a two year minimum legal term, plus a one year extension option granted to tenant. DL-covered lease agreements for other (non-residential) purposes have a five year minimum legal term.
Once the lease agreement term and one year extension have expired, the tenant must return the real estate property to landlord. If the tenant fails to do so, the landlord can file legal actions (against tenant) before court and begin eviction proceedings.
Under the free contract regime the eviction term is six months, if the eviction is filed within 30 days after expiry of the term of the agreement. If the eviction is filed later than thirty days, the eviction term is one year. Under the DL regime, the legal eviction term for tenants who have paid their rents on time and fulfilled their obligations is one year.
How effective is the Uruguayan legal system?
The lower courts - so called "Juzgados de Paz" - have jurisdiction over eviction matters. As regards evictions and lease agreements, the court system works adequately.
How long it takes the landlord to collect unpaid rent, depends partly on the security granted:
- Housing Bonds - collection may take approximately three or four months.
- Bank Securities ("aval") - no judicial proceeding is required to collect the unpaid rent, so the collection will occur whenever the landlord requires payment from the bank issuing the bank security.
- Security company-secured rent payments - if tenant does not pay the rent, the company will pay the rent, and will withhold the price from the tenants salary.
- Personal Bonds - the time taken depends on the solvency of the person giving security. The judicial proceeding in this case usually takes approximately 12 to 24 months.
EVICTION FOR NON-PAYMENT OF RENT
|Duration until completion of service of process||120|
|Duration of trial||120|
|Duration of enforcement||90|
|Total Days to Evict Tenant||330|
|Courts: The Lex Mundi Project|
As mentioned above, in Uruguay two different regimes govern lease agreements. There is the regime established by Decree-Law 14.219 ("DL"), which protects tenants. And there is the free contract regime, governed by the Civil Code rules and by Law 8.127. This regime regulates lease agreements for residential purposes as well as for industrial and commercial purposes, where the permit for construction was obtained after June 1, 1968, and also governs lease agreements expressly excluded from the DL regime, such as bank lease agreements, and international organizations´ lease agreements.
Brief History: Recent changes in Uruguayan
landlord and tenant law
Lease agreements were originally regulated by the Civil Code alone, which only touched those aspects of rent agreements not expressly covered by the parties´ mutual agreement.
But mandatory rules to protect tenants and to limit the parties´ free will were established on December 16, 1927, by Law 8.153. The next major legislative step was Decree-Law 14.219 enacted on July 11, 1974. Despite amendments, its main framework is still in effect.
Additional costs, such as municipal taxes and basic services fees,are paid by the tenant.