Analysis of legal problems with Right of Possession

Before I start let’s make this perfectly clear. I am not a lawyer and everything I’m going to say in the following sentences is in no way meant as legal advice and expresses purely my very own personal point of view and opinion based on personal experience. Take it for what it’s worth but if you intent to do a land deal in Panama use your own legal advisor.

I’m writing about our experiences in multiple blog posts so that others can learn from it. This is part one.

Right of Possession in Panama is different from titled land as it only grants you a right to use the land for some purpose. You are not the owner of the land unless you title it which includes buying the land from the government. If you buy land that is under Rights of Possession you are not buying the land - be careful, if you see the wording “buy land under Rights of Possession” - but instead the right to use it. It’s a permission and nothing more.

At least that is what the law - the Codigo Agrario - says. In many rural parts of Panama people unfortunately understand this whole legal construct quite differently. You may think that a few hundred kilometers away from Panama City you are in fact in a different country with different laws.

To some people in these places Right of Possession is simply a different form of land ownership. They don’t take into account that once you title the land you have to pay a second time. First to them to obtain their Right of Possession and then a second time to the government. Let me illustrate that with an example (numbers are just for illustrative purposes). Say someone is offering you his Right of Possession to a 100 hectar farm for $90,000. You think for yourself that this is $900 per hectar which sounds like a very good deal so you agree. But a while later when your titling process culminates and you are offered the land for purchase by the government you are presented a generous offer of $1200 per hectare as this is the value of land in that particular region. That makes it $120,000 to become the legal owner of the actual land plus the $90,000 you paid to the former user. So your perfect and sweet deal of $900 per hectare suddently turned into $2,100 per hectar - $900 above the land value common in the area.

The whole idea of Right of Possession was to allow poor farmers get access to land so they can feed their families. Sometime later everyone owning Right of Possession was allowed to obtain legal title to the land they occupy for $6 per hectare as a natural person.

Unfortunately for everybody who is not Panamanian some people in rural Panama believe that this $6 per hectare is only available to Panamanians. Many of the same people believe also that only Panamanians can hold Right of Possession. To the best of my knowledge the whole Codigo Agrario doesn’t mention Panamanian citizen or foreigner at all. It only mentions natural persons and legal entities (companies). And all I’ve been told by lawyers the whole idea that this whole thing were limited to Panamanians only is complete fiction. But … fiction it may be… You still get told it were a fact and - that’s the saddest part - even by high ranking government officials leading authorities in rural areas.

Unlike higher developed countries in Panama the leader of a government institution is rarely selected by skill but by party membership and who knows whom or who owes whom a favor. It has been common and in many other Latin American countries it is common too that during a change of administration many thousands of officials loose their jobs they held during the last term only to make room for all the members of the winning party. Elsewhere you need a degree in public administration, proven knowledge of the laws and rules plus work experience to lead an institution. Here you need to be a party member and have the right friends who will appoint you to the position. It may then be that the other officials who work under your direction are more experienced than you. But who cares? You are the boss and they have to do what you decide. Keep this little tidbit in mind while you follow along. ;-)

Back in June 2009 we entered into a legal agreement with a gentleman who showed us his farm held in Rights of Possession. We negotiated contractual terms in multiple meetings (as Luis calls it we got addicted to coffee) and finally on June 16 a contract with the promise to buy/sell the farm was signed by the parties. That contract obliged us to deposit a significant downpayment into the seller’s account, to perform a land survey to determine how many hectares the land actually is, and to perform all legal proceedings towards titling. The contract obliged the seller to hand over his Rights of Possession to us so that we can perform all the work to obtain legal title. Finally we promised to pay an agreed price per hectare minus the downpayment once we receive legal title to the land.

Basically with that contract we avoided the risk of buying Right of Possession then have the seller walk away with our money only to face issues during titling and maybe find out that we cannot title the land due to an old dispute or because the land is part of a national park or some other regulated area that would not allow us to use it for farming. If we were to run into a problem, then both parties would have a reason to find a solution.

I can tell today that the whole legal experience has driven us almost crazy and at some point we did contemplate to simply give it up. Many actions seemed totally illogical, there was lack of support or action from the local authorities plus that nagging thought that all this were only happening to us because we are foreigners.

Our issues started shortly after the land survey in September 2009. We had complied with every word in the contract but suddenly the seller started to drag his feet. We set up a meeting several times and he was always unavailable which is strange for that kind of person. Once we finally met and presented him the final buy/sale contract with the final size of the property in question he refused to sign it. We were told that he wants to consult a lawyer friend and think about it. Now … What’s the issue we thought. We had a signed contract with the promise to buy/sell and all that was left for a done deal was to measure the property to have an actual buy/sell contract which cannot have any new clauses. You cannot agree on a per hectare price and then not know how many hectares there are - can you? So that was quite strange and didn’t make any sense.

After several additional meetings and phone calls we finally got invited to a meeting with his lawyer friend. He told us over the phone that now he wants to close the deal and sign the buy/sell contract. We drove to the city and entered the meeting just to find that the lawyer isn’t actually a lawyer but a manager of some company and there was no intent to sign the contract but instead they both tried to coerce us into paying the whole sum in one piece now and here.

Wait a minute… First of all pretending to be a lawyer or practice law without actually being a lawyer is at best dumb and in the worst case a violation of law. Making someone drive 2 hours to a meeting with the promise to sign the outstanding buy/sell contract and then refuse to do it is odd. Not really a smart move after having entered into a legally binding agreement by means of the promise to buy/sell contract. After a lot of back and forth our seller eventually declared he wants to “echarse pa’tras” which means through himself backwards or in plain English not fulfill his promises in the contract.

Now you can almost always walk away from a deal. It may cost something but there are ways to get out at a price. At the very least you can negotiate a contract to nullify an existing contract. Our seller did not make any attempt of doing that. He simply thought he can walk away and leave us with the cost of the land survey, a huge sum in additional expenses and the downpayment will be his to keep as well. He thought he can play it hard with us. Either we pay him the total price $n times the total amount of hectares now or loose everything invested.

Well… It isn’t that easy.

But then this is Panama and not a well developed country with competent judges in a well functioning legal system. Plus it is well known that down here it is common practice to pay off public servants and if you read the newspapers, that includes judges as well. Even without all that lawsuits can take forever. Not that I’ve had to fought a lawsuit in Panama before but it is easy to find reports about that.

Can he actually get away with this?

No. He cannot. At least that’s what we thought. Our seller did sign all the required paperwork at reforma agraria to deliver his Right of Possession to us. He actually did this before signing the promise to buy/sell contract. We are nice guys and there is no intention to screw someone over just because there is an opportunity to do so. Why should one do this? It’s not smart in the long run but then here in Panama they have the juega vivo (play smart) attitude which basically is to take advantage whenever you can with no compassion or regret.

For months we kept to our promises set forth in the contract. We did everything required by us and spent quite a lot of money in doing so. Land surveys and all the supportive actions are not cheap. It can easily run thousands of Dollars. Our land survey took three days and we had 9 people on board for it. Plus we had to buy horses and transport them. It has been a serious undertaking.

Now this guy thinks he can simply walk away and say “screw you” to us? No. That’s not how it goes down.

So we went to the offices of reforma agraria to present the property map from the survey and requested from the authority to proceed with the legal process towards titling the land. We simply attempted to do the next step towards the goal set forth in our contract.

Several officials reviewed the paperwork in the file, determined everything was correct and complete including the important Right of Possession in our name and then they took the file to the director of said institution to sign a form that had been prepared earlier but not signed by the director yet.

After a while the official returned, excused for the delay and started to explain what happened. The director refused to sign the form and refused to accept our property map because the seller had delivered a note to the authority in which he accuses us of breach of contract. According to him our contract were stating that the titling process has to occur in his name and he has to deliver the titled property after having received payment in full. He did not attach any copy of the contract and apparently the director did not ask for it either. But based on this note the director decided to stop all legal proceedings.

Let’s look at this in more detail. Our seller transferred his Right of Possession to us. All the visual inspections on site that are required for this right transfer were done and documented in the file. That transfer makes us the legal owner of the right to possess the land. Our seller from this point on is no longer the owner or user - we are. What protects his interests is the contract and it would be smart to keep the legal process going so that in the end all parties get what is due.

Despite the fact that the right of possession had been transfered to us the director of reforma agraria refused to accept our property map and sign the form. And that based on a note with false accusations that were delivered to him without any proof.

In a lot of countries no government institution would accept such a letter without any evidence attached. You cannot simply state something out of the blue and government officials start to act in your favor. Well… There are countries where this can happen.

I have to admit that it does smell like someone promised to someone a favor but of course I’m not saying that in fact that happened. But then read the papers and there is a lot of articles about that topic. So such a thing crosses one’s mind. Who would not think about that possibility?

We learned about this letter, I took a picture of it and we drove home to think about the next steps. Btw: government offices in Panama don’t have any photocopier. They cannot provide you a copy of any document. It is a great idea and I recommend that to anyone dealing with public offices to use your cellphone camera and take a picture of important documents. That way you are protected and important documents cannot disappear, be filed in the wrong place and declared lost or whatever.

Part 2 following soon …

30 Jan 2010

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