Real Estate

Adaptation of real estate associations to the horizontal property regime

Through the General Resolution 25/2020 of the Office of Companies of the City of Buenos Aires (“Inspección General de Justicia” or “IGJ”), passed on May 20, 2020 (the “Resolution”), every Country Club and any other real estate association organized as an association under a corporate form (pursuant to section 3 of the General Companies Act) or as a non-profit association are notified to adapt their legal form to the horizontal property regime, pursuant to the provisions set forth in section 2,075, paragraph three of the Argentine Civil and Commercial Code (“CCCN”).

Originally, the term to adapt their structure was of 180 calendar days from the publication of the Resolution in the Official Gazette. However, said period was extended to 360 days by means of General Resolution 27/2020 of the IGJ, published on May 22, 2020. This extension is based on the complex evolution of the national health situation and to avoid the gathering and circulation of the people while the preventive and compulsory social distancing measures due to COVID-19 are in force.

Introduction - Situation of real estate associations

The CCCN defines “real estate associations” (Section 2,073) as “country clubs, private neighborhoods, industrial, business or nautical centers, and any other urban development, regardless of its purpose (permanent or temporary residence, business, profession or trade of any kind), including those which provide for several purposes, in accordance with the provisions of the local administrative regulations”.

Section 2,074 of the CCCN sets forth that “the characteristics of these urban developments are: enclosure, common and private areas, forced and perpetual indivisibility of the different common items, places and goods, regulations establishing operating bodies, limitations and restrictions on private rights and a disciplinary regime, the obligation to contribute to common expenses and charges and a body with legal capacity that brings together the owners of private units. The various common and private areas, items and sectors, and the powers vested in them, are interdependent and form a non-divisible whole”.

Prior to the entry into force of the CCCN (i.e., before August 1, 2015), the vast majority of real estate developments were organized as follows:

  • The homeowners were owners of their lots; and
  • the common spaces of the development were held by an association organized as a corporation (in accordance with Section 3 of the General Companies Act) or a non-profit association, of which the owners of the lots were shareholders or partners, as the case may be.

Section 2,075 CCCN, on which this Resolution is based, provides the following:

“Section 2,075. Legal grounds. Every aspect related to the authorized areas, dimensions, uses, charges and other urban elements of the real estate associations are governed by the administrative rules in force in each local jurisdiction.

All real estate associations shall be subject to the provisions of the horizontal property rules set forth in Title V of this Book, including the modifications stated herein, in order to create a special horizontal property real right.

The preexistent real estate associations that were established as personal rights or where personal and real rights coexist, shall adapt to the provisions that govern this real right.”

This section does not stipulate a term to adequate the real estate associations to the horizontal property regime, and neither establishes sanctions in the event of failure to comply with it. Therefore, today, most of the real estate associations that were created prior to the effective date of the CCCN were not adapted to the horizontal property regime. Due to this situation, the Resolution was enacted.

The Resolution

In the recitals of the Resolution the IGJ states that, although the vast majority of these real estate associations are located in the Province of Buenos Aires, many of the corporations or non-profit associations that own the shared spaces of such real estate developments are registered in the City of Buenos Aires, that is, within the venue in which the IGJ is entitled to control and supervise all the companies and associations, which is why, in the IGJ’s understanding, they would have jurisdiction to rule on this matter.

Section 1, as amended by Resolution 27/2020 of 22 May 2020, grants a period of 360 calendar days as from its publication in the Argentine Official Gazette for Country Clubs and any other real estate associations, organized as an association under a corporate form (in accordance with section 3, Law No. 19,550), or as a non-profit association, to adapt their legal form to the regulatory provisions contained in Book IV of the CCCN as a special horizontal property real right set forth in Title VI and in accordance with the provisions set forth in Title V for the general horizontal property real right.

Section 2 states that, after the real estate associations have been correctly registered in the relevant Real Estate Registry, the company or non-profit association’s registrations must be cancelled.

Section 3 of the Resolution sets forth that failure to provide proof of compliance within 360 days, unless such time limit is exceeded due to the ordinary course of this procedure, will make the administrators and syndics liable for fines of up to ARS 100,000 (as provided for in Section 302, subsection 3 of Law No. 19,550), notwithstanding any other available legal actions.

Finally, the Resolution states that the IGJ will not register corporate actions from the companies that may seek to distort or frustrate the objectives of this Resolution (for example, it will not approve procedures for a change of principal place of business or any other procedure that seeks to bring the companies out of the IGJ’s radar).

Final comments

The implementation of the Resolution and the consequent procedure for adapting the real estate associations will entail significant expenses, e.g., the fees of all the professionals who will have to participate in the process (lawyers, accountants, notaries, surveyors, etc.), the costs of tariffs, stamps and seals required to carry out the registration procedures, without taking into account the possible tax impact (for example, as a result of the transfer of assets or the need to re-issue all land deed titles).

Finally, we highlight some issues that require further analysis, given the implications of the Resolution:

  • Authority of the IGJ to force real estate associations to adapt their organization pursuant to section 2,075 of the CCCN.
  • Enforcement authority to carry out the eventual adaptation. Should it be the IGJ, the Real Estate Registry, or another public entity?
  • Possible infringement of previously acquired rights, the right to use and dispose of private property and its inviolability (sections 15 and 17 of the National Constitution).

This report should not be considered a legal or other type of advice from Allende & Brea.

For further information on this topic please contact Diego Botana, Fernando Martínez Zuviría and Guido Celentano