PUERTO RICO Law and Practice Contributed by: Antonio J Santos and Donald E Hull, Pietrantoni Mendez & Alvarez LLC
7.3 Management of Construction Risk Construction risk in Puerto Rico is typically man - aged contractually in the project agreements by means of warranties, indemnification provisions and limitations of liability. Of course, the effec - tiveness of these devices is dependent on the solvency of the obligated parties. To the extent possible, when the solvency and experience of one of the parties is in question, the counterparty will seek to obtain guarantees from sureties or third-party guarantors. As a general rule, these devices are fully enforceable to the extent not found to be contrary to public policy. 7.4 Management of Schedule-Related Risk The most common method that owners of con - struction projects in Puerto Rico utilise in order to manage schedule-related risk is the establish - ment of milestone dates for the different phas - es of a project. Project contracts will typically include monetary penalties for failure to comply with the milestones in a timely manner, as well as monetary rewards for early completion. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance It is customary in Puerto Rico, particularly in the case of large projects, for owners (and their lenders) to require project contractors to pro - vide payment and performance bonds. Although less common, letters of credit and completion guaranties from affiliates and/or principals may also be required in order to cover the risk of a contractor’s failure to perform under its project contract. 7.6 Liens or Encumbrances in the Event of Non-payment Puerto Rican law does not provide project con - tractors with so-called mechanic’s or material - men’s liens if a project contractor is not paid
the amount due. A contractor who is not paid must bring an action in court in order to recov - er amounts owed. However, the Puerto Rican Civil Code does give labourers and materialmen (including, for example, sub-contractors) who have not been paid by the project contractor a direct cause of action against the owner of the project to the extent of any amounts owed by the owner to the project contractor. Such right does In Puerto Rico, once a project is completed, the project inspector (who must be a licensed archi - tect or engineer) must certify to the permitting agency that the construction has been undertak - en in accordance with the government-approved plans and specifications for the project. The completed project must also be inspected and approved by the Puerto Rico Health and Fire Departments for compliance with the applicable fire and health codes. Once all required inspec - tions, approvals and certifications have been submitted to the permitting agency, a final use permit is issued allowing for the occupancy and use of the completed project. not constitute a lien on any property. 7.7 Requirements Before Use or Inhabitation There is no VAT (or equivalent) applicable to the sale or purchase of real estate in Puerto Rico. 8.2 Mitigation of Tax Liability The conveyance of real estate in Puerto Rico is recorded in the Registry of Property, which results in the payment of recordation fees and stamp taxes. Transactions involving the pur - chase of the shares or other ownership inter - ests in an entity (rather than the purchase of the 8. Tax 8.1 VAT and Sales Tax
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