PUERTO RICO Law and Practice Contributed by: Antonio Santos, Donald Hull and Paola Canino, Pietrantoni Mendez & Alvarez LLC
6. Commercial Leases 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time The most common arrangement that Puerto Rican law provides for the temporary occupancy and use of commercial real estate is the lease. Other arrange - ments are the surface right and the usufruct, but these are rarely utilised. 6.2 Types of Commercial Leases There is only one type of commercial lease commonly in use in Puerto Rico, although the terms of each lease vary according to the agreement of the parties. 6.3 Regulation of Rents or Lease Terms Rents and lease terms on commercial leases are freely negotiable by landlord and tenant in Puerto Rico. Of course, no contractual arrangements in Puerto Rico, including leases, may violate the general prohibition against agreements that are contrary to the laws, mor - als or public order. 6.4 Typical Terms of a Lease The length of the lease term under a commercial lease in Puerto Rico can vary according to the needs and desires of the parties. However, agreements that pro - vide for unusually long lease terms (eg, 99 years) may be scrutinised as disguised sales. Maintenance and repair obligations under commercial leases in Puerto Rico are typically allocated between landlord and tenant, depending on the type of repair in question. By way of example, structural repairs are generally the responsibility of the landlord, whereas most non-structural repairs must be undertaken by the tenant. Rent payments under commercial leases are generally payable on a monthly basis. 6.5 Rent Variation The amount of rent payable under a lease of commer - cial property in Puerto Rico is usually increased over the term of the lease, particularly in the case of leases covering a term of more than two to three years.
the particular business activities in which such entities will engage. 5.3 REITs Puerto Rico does have legislation that allows for the establishment of REITs, which provide important tax benefits; however, owing to restrictive income and ownership tests, this vehicle has not been widely used in Puerto Rico. A REIT may take the form of a corporation, limited liability company, partnership or trust, and is an entity that owns and operates income- producing, commercial real estate and is owned by 50 or more investors. 5.4 Minimum Capital Requirement There is no statutory minimum amount of capital required in order to establish any of the entities used to invest in real estate in Puerto Rico. 5.5 Applicable Governance Requirements Corporations are governed by the provisions of their by-laws and articles of incorporation. The decision- making authority over the governance of a corporation is vested in its board of directors and, under certain circumstances, the stockholders. Puerto Rico law does not establish a required structure for the gov - ernance of limited liability companies. A limited liability company is governed in accordance with the provi - sions of the operating agreement entered into by its members. 5.6 Annual Entity Maintenance and Accounting Compliance Corporations and limited liability companies are required to pay an annual fee of USD150 in order to be in good standing and maintain their status as registered entities authorised to conduct business in Puerto Rico. Corporations are also required to file an annual report with the Department of State, which must include the financial statements of the corpora - tion for the corresponding year. The financial state - ments filed with the annual report must be audited by an independent certified public accountant in Puerto Rico if the annual gross revenues of the corporation exceed USD3 million.
516 CHAMBERS.COM
Powered by FlippingBook