IGJ and the Adequacy of Real Estate Associations

In the City of Buenos Aires, on May 20, 2020, Resolution N° 25/2020 of the Public Registry of Commerce (the “IGJ” after its acronym in Spanish) entered into force modified by Resolution No. 27/2020 of the IGJ (the “IGJ Resolutions”). IGJ Resolutions oblige country clubs and any other condominiums or real estate associations organized under the form of corporations or nonprofit private entities, to amend their legal organization under the real right of horizontal property within 360 days as from May 22, 2020.

 

Legal framework of the IGJ Resolutions

A. Real Estate Associations

One of the modifications of the Argentine Civil and Commercial Code (the “CCCN” after its acronym in Spanish), in force since 2015, was the inclusion of the real right of condominium or real estate associations among the closed enumeration of real rights allowed by the law (Section 1887 CCCN). Furthermore, the special feature of the real rights is that their elements, content, acquisition, constitution, modification, transmission, term, and length are only regulated by the law. The creation of a real right not granted by the law, or the modification of its structure, is null (Section 1884 CCCN).

The CCCN establishes as real estate associations the country clubs; condominiums; industrial, commercial or nautical parks; or any other urban endeavor without considering its purpose as permanent or temporary homes, labor, commercial or enterprise, including also those that include mixed uses, in accordance with the local regulations (Section 2073 CCCN).

Its characteristic elements are, enclosure; common and private parts; the perpetual and mandatory impossibility to divide the common places, parts, and goods; regulations establishing operating bodies, limitations and restrictions on private rights and disciplinary regime, obligation to contribute to the common expenses and charges and; an entity with legal status that groups the owners of the private units. The different parts, goods, and common and private sectors, as well as the rights and powers over them, are interdependent and creates a non-divisible whole (Section 2074 CCCN).

Regarding its legal framework, the CCCN established that (i) all real estate complexes must comply with the regulations of the real right of horizontal property, to create a special real right of horizontal property; and (ii) pre-existing real estate complexes that have been established as personal rights or in which real rights and personal rights coexist must be adapted to the regulatory provisions that regulate the right of horizontal property (Sections 2037 and 2072 CCCN). However, the CCCN failed to establish a term for this adaptation or penalties in case of non-compliance with this obligation (Section 2075 CCCN).

B. Real Estate associations existing before CCCN

Before the enactment of the CCCN, real estate associations had adopted legal structures based on (i) already existing real right (such as, among others, a combination between domain and condominium; or the affectation of the whole property to the override Law 13,512, of horizontal property regime); (ii) the provincial regimes that regulate aspects of country clubs and industrial parks; or (iii) a creation by which the homeowners were the owners of their lots and a corporation, organized under the form of association according to the provisions of section 3 of Law 19,550, or a civil association, controls and owns the shared spaces of the urbanization. To take advantage of these common parts, the owners of lots also became shareholders or partners of the entities that own the common spaces. Several of these entities were registered with the Public Registry of the City of Buenos Aires.

 

IGJ Resolutions

The Public Registry, an independent body from the Argentine Ministry of Justice and Human Rights, has the power to oversee stock corporations and civil associations, among others, as well as they have their legal domicile in the City of Buenos Aires.

Within these control functions, among other matters, the IGJ Resolutions state that:

1. The existence of more than forty “country clubs” was detected, organized as limited companies, although they operate under the legal figure of 'associations in the form of a corporation', according to section 3 of Law 19,550.

2. After 5 years from the enforcement of the CCCN, the aforementioned companies and civil associations have not yet proven compliance with the obligation to adjust the real estate associations in which they are part, to a horizontal property regime.

3. Country clubs and any other real estate associations, organized under the form of corporations or nonprofit private entities, have to adapt their legal organization under the real right of horizontal property within 360 days as of May 22, 2020. In this regard, the authorities of such entities must carry out, with no delay, all the legal and/or factual acts necessary to carry out these amendments in accordance with current legislation.

4. Among the procedures to follow to comply with these amendments required, there are mentioned, the liquidation of the corporation or nonprofit private entity, the drafting and approval of the real estate associations’ regulations, and its registration in the corresponding Real Estate Registry.

5. The managers (and/or trustees) in charge of the corporations or nonprofit private entities, must fulfill the obligation of adequacy; If they do not comply with this obligation, could be sanctioned with a fine of up to ARS 100,000 (according to Law 19,550, article 302, subsection 3), and also the possibility of initiating legal actions.

6. The IGJ will not register corporate acts that tend to distort or frustrate its purposes from the corporations or associations to which the IGJ Resolutions are addressed. Therefore, it may be inferred that any intent to change the domicile of the corporations or associations, to jurisdictions that do not have regulations as the one analyzed, will be probably hindered by the IGJ.

 

Observations to the IGJ Resolutions

IGJ Resolutions could be reasonable objected to based on the following issues, among others:

1. The legal request to modify their structure could be found unconstitutional, since it would be affecting previously acquired rights, harming property rights of the holders of interests in the pre-existing corporations or nonprofit private entities.

2. As highlighted by the specialized legal authors on this subject (XXVI NATIONAL CONFERENCE ON CIVIL LAW, City of La Plata, Buenos Aires Province, September 2017; ABREUT DE BEGHER, LILIANA, “Pre-existing real estate associations”, pages. 4 and 5.), from a procedural point of view:

(i) The IGJ Resolutions involve the liquidation of the corporations or nonprofit associations to which these decisions are addressed. Then, the whole property should be affected by the real right of real estate associations to finally adjudicate the different properties that conform the complex to every member of the legal entity (former shareholders or partners). This process will demand the partners to approve these decisions and procedures unanimously (with all the practical difficulties that this means), to be able to move on the liquidation and adjudication in species of the equity.

(ii) Different kinds of professionals, such as accountants, trustees, surveyors, and notaries, should intervene to achieve the structural adequacy, upon payment of fees and tax tariffs, which could be very onerous. Also, public deeds of every unit and of the entire complex must be granted. Finally, the payment of professional fees, stamps, and taxes should also be considered, which, could be expensive.