Construction and projects in Argentina: overview
A Q&A guide to construction and projects law in Argentina.
The Q&A gives a high level overview of the main trends and significant deals; procurement arrangements; transaction structures and corporate vehicles; financing projects; security and contractual protections that funders require; standard forms of contracts; risk allocation; excluding liability, including caps and force majeure; contractual provisions covering material delays and variations; appointing and paying contractors; subcontractors; licences and consents; projects insurance; labour laws; health and safety; environmental issues; corrupt business practices and bribery; bankruptcy/insolvency; public private partnerships (PPPs); dispute resolution; tax and mitigating tax liability; the main construction organisations; and proposals for reform.
To compare answers across multiple jurisdictions, visit the construction and projects Country Q&A tool.
This Q&A is part of the global guide to construction and projects law. For a full list of jurisdictional Q&As visit www.practicallaw.com/construction-guide.
Overview of the construction and projects sector
The main trends in the real estate market include:
Residential sector. The residential sector, which had boomed in recent years, has suffered from certain foreign exchange currency restrictions in force in Argentina during the last 36 months, as well as from the high inflation currently existing in the country. Inflation in particular is increasingly becoming the main concern for developers facing new real estate projects. As a result of an increase in the price of land and in the cost of construction, investment in the residential sector has considerably decreased over the last months.
Commercial office sector. Interest in the construction of new office buildings has also decreased for the same reasons as in relation to the residential sector. In addition, business activity is currently slow in Argentina, which further weakens the office market because it is directly linked to business activity.
Hotels sector. Tourism has boomed in Argentina in recent years, making Argentina one of the top destinations for tourism in Latin America. For this reason, there is huge interest in the development of hotels, despite the economic problems described above. The largest projects are located in Buenos Aires (one of South America's most visited cities) and in other main tourist destinations. Over the last few years, condo hotels have become one of the most preferred structures for investors.
Rural sector. Traditionally a very active sector in Argentina, as a result of government intervention restricting meat exports and affecting wheat and soya prices, the expansion of real estate in the rural sector has recently declined. In addition, following the enactment of Law No. 26,737 in December 2012, the ownership and possession of rural land by foreign nationals has been restricted, which is negatively affecting foreign real estate investment.
Shopping centres. There are many opportunities for shopping centre developments, especially in medium-sized towns in the provinces.
The most significant recent projects are:
High-rise office space in Catalinas Norte. Catalinas Norte is the key office space area in Buenos Aires. Constantini Group is constructing what is meant to be the tallest building in the city.
Al Río Project in Vicente López. This project will comprise 500,000 square metres of construction of residential buildings, office spaces and a shopping mall.
There are no standard procurement arrangements for real estate projects in Argentina. However, the most common arrangement is for real estate developers to:
Organise the purchase of the land.
Organise the financing.
Organise the retention of the construction company, architects, commercial brokers, and so on.
The documents used will vary from project to project. There is no difference in the procurement arrangements if some or all of the parties are international contractors or consultants.
As mentioned above (see Question 3), projects are generally financed with investors' equity, as unfortunately bank loans are not generally available for construction projects. Projects are further financed through the pre-sale of units (this system is used for residential, office and hotel projects (for example, condo hotels), and lately has even been used for shopping centre projects).
Security and contractual protections
The trust (fideicomiso) is the legal structure most commonly used for projects (see Question 3). The trust is a structure which by its very definition protects the interests of all the parties involved in the project, as it creates a separate "fund" which is independent from all the parties participating in the project, and which cannot be seized by any of the parties' creditors. Mortgages can sometimes also be used for instant guarantees, although it is unlikely that a mortgage would be used to guarantee the development of a construction project.
Contractual provisions which are commonly used worldwide, such as representations and warranties, conditions precedent, conditions for closing, indemnities and financial covenants, among others, are typically used in Argentina.
Standard forms of contracts
There are no standard forms of contracts used in relation to local real estate projects. However, certain specified real estate information can be found on the Real Estate Register of the respective jurisdiction where the real estate is located, and this information includes:
Public deeds creating, transferring, declaring, modifying or terminating interests in real property.
Judicial decisions establishing attachments or other precautionary measures on real property, or restraining orders preventing the owners from disposing of the property.
Preliminary sales agreements of real estate property under the Registration of Condominium Property Act, or of real estate divided into lots under the Division of Land Act.
International projects are structured in the same way as local projects. There are no major differences in the way they are framed.
There has been a 40% annual inflation rate in Argentina in the last three years, and this has been the principal risk which will be allocated to the contractor in a construction agreement, particularly in relation to construction costs.
Under the Argentine Civil Code, certain risks and responsibilities are automatically passed to the contractor, and the contractor cannot delegate or waive these risks and responsibilities.
Under the Argentinean Civil Code the contractor is responsible for any structural damage to the construction before completion, and for ten years after completion.
Contractors cannot exclude liability for the risks and responsibilities imposed on them under the Argentine Civil Code (see Question 7). Liability can be excluded for other risks that are not covered by the Civil Code. However, liability cannot be excluded for any damage that is deliberately caused by the contractor (dolus). As a result, contractors can exclude liability for negligence. Liability for indirect or consequential loss can also be expressly excluded by a contractor (although in practice, the courts rarely grant damages for indirect or consequential loss).
Caps on liability
It is common practice to include contractual provisions relating to delays that are caused by weather conditions, and delays that are caused by labour conditions (for example, a strike).
It is not an uncommon practice in Argentina for the parties to agree to a maximum damages limit for material delays.
Contractual provisions are usually included to minimise the negative effect of the high inflation rates in Argentina. In particular, the impact of inflation on any material delay will usually be expressly provided for in the contract. Other variations in the works can also be provided for in the contract, and it is common practice to include provisions which apply penalties for both lack of compliance and late compliance of the works. The costs of a variation in the works are usually borne by the land owner or the developer, depending on the structure of the project.
Other negotiated provisions
The main contractual provision which is heavily negotiated between the parties is the method of payment, which will usually provide for a down payment and the payment of the remainder in instalments. It is common for payment provisions to also include a mechanism to take into account both the inflation rate and any currency depreciation, and any variations in the costs of materials and labour work.
Architects, engineers and construction professionals
In small projects, professionals are usually selected directly by the land owner or the developer. In medium and large projects, professionals usually have to complete a bidding process in which they must present their credentials and experience.
Following selection, the professionals usually execute agreements with the land owner, developer or the trustee of the trust, depending on how the project is legally structured.
The same procedure is used with foreign national professionals. However, in certain cases foreign national professionals will need to appoint local professionals to perform certain specific activities (for example, architects).
The scope of the services and the method of payment are the provisions most heavily negotiated. The Argentine Civil Code contains the provisions which apply regarding the responsibility of professionals. However, it is common practice to expressly provide for a professional's liabilities in the construction agreement.
Payment for construction work
Methods of payment
Payment usually consists of both a down payment and a series of instalments for the remainder, for both the contractor and consultants. Provisions should be expressly included in the construction agreement to allow for fluctuations in the inflation rate and currency depreciation.
The contractor and the consultants have a right to retain the works until payment is made (as a guarantee).
Construction companies do not require any specific authorisation to work as such, with the exception that their bye laws must expressly foresee that the "purpose of the company" is as a "construction company" (see Question 21).
Professionals (for example, architects, engineers, and so on) must be registered as such in the relevant jurisdiction. These registrations take place at the respective professionals' associations.
The following planning consents are required:
Conditional Use Certificate.
Other authorisations specific to the activity involved.
In addition, real estate developments require an Environmental Aptitude Certificate which:
Determines whether or not to carry out the plan, programme or project.
Sets the conditions to be performed to protect the environment and natural resources (if the plan, programme or project is to be carried out).
There is no general rule regarding who will be responsible for obtaining the planning consents and the Environmental Aptitude Certificate, but the contractor and the land owner are usually responsible for obtaining them.
In relation to initial planning consents, the main authorisation and consultation procedures are overseen by:
General Management of Works Control and Catastre (Dirección General de Fiscalización de Obras y Catastro).
General Management of Authorisations and Permits (Dirección General de Habilitación y Permisos).
For large projects it is likely that during the construction there will be an inspection of the project without prior notice. Inspections are generally related to hygiene, health and labour conditions. The contractor and the land owner are jointly and severally liable for health and hygiene issues.
At completion the land owner is responsible for obtaining the licences for the specific use that the project will be put to.
Local employees must be registered as employees with the authorities if they are employed for an indefinite period of time. Where local employees are employed for a definite period of time, the employment agreement must be executed in writing.
Where a company's activity is the "construction of real estate properties", the company must be registered before a specific Registry (the Statistical Institute of the Construction Industry) (Instituto de Estadística y Registro de la Industria de la Construcción) (IERIC) within 15 days of commencing its activity. At the same time, the company must also register all of its employees.
Foreign workers must obtain a work visa in order to be able to obtain the necessary Unique Key Employment ID (called a Clave Única de Identificación Laboral) (CUIL) and be able to be registered as employees. The construction company must be previously registered as an employer.
Where an employer employs foreign national workers who do not have the corresponding work visa and CUIL, the employer can face a fine of up to 50 times the minimum salary for each worker employed in violation of the immigration rules.
For all employees who are employed under the Personnel for Construction Industry Law No. 22,250, the employer must make the following contributions to the Labour Cease Fund:
During the first year of services, the contribution is equal to 12% of the monthly gross income of employee.
After the first year of employment, the contribution is 8% of the monthly gross income of the employee.
The employee will be able to make a claim to the Labour Cease Fund when the labour relationship has been concluded.
In the case of dismissals without cause of employees who are not included in the Construction Union (Estatuto de la Construcción), and provided that the employee had an indefinite term labour relationship, the company must pay the following amounts:
Severance payment (one monthly salary per year of service, or fraction of a year of service over three months in duration).
Compensation in lieu of advanced notice (one month's salary if seniority is less than five years and two months' salaries if seniority exceeds five years).
Remaining days of the month of dismissal (when the dismissal does not occur on the last day of the month, all days up to the last day of the month must be paid).
Health and safety
The Health and Safety Law No. 19,587 is the applicable law.
Decree No. 911/96 is also specifically applicable to construction activity, and this has been complemented and modified by many rulings of the Superintendence of Labour Risks.
Finally, the health and safety of employees is also governed by Law No. 24,557 and Law No. 26,773.
There are many environmental and health and safety laws which have an impact on construction projects, both at a federal and at a provincial level. As a result of the federal system, the provinces have delegated to the National Congress the power to enact minimum standards legislation on environmental matters. The provinces then supplement the provisions of this minimum standards legislation. As a result, the development of construction projects can be impacted by both federal and provincial legislation. Examples of federal and provincial laws applicable to project development include environmental impact legislation and hazardous waste management legislation.
Many provinces have enacted regulations establishing emission limits to sources of air pollution to regulate air quality. In Buenos Aires, Provincial Law No. 5,965 prohibits the emission of gaseous effluents to the atmosphere when such emissions may have negative effects on the environment, unless the source of the pollution obtains a discharge permit from the Provincial Environment Secretariat.
Water quality matters are regulated at both national and provincial levels, and the main statutes that regulate water pollution in the Province of Buenos Aires are the:
Water Code Law No. 12.257.
Regulatory Decree No. 3,511/07.
Provincial Law No. 5,965.
Regulatory Decree No. 2009/60.
Hazardous waste management practices in Argentina are governed by National Law No. 24,051 and Executive Order No. 831/93. Provinces have also enacted legislation on waste matters (for example, Law No. 11,720 in the province of Buenos Aires regulates special waste management). These laws include a list of wastes which, because of their special characteristics, are classified as "hazardous" or "special". The management of these types of waste must be conducted from "cradle to grave" in accordance with the applicable legislation.
Environmental impact assessments (EIAs)
At a federal level, any activities or projects that could negatively affect the environment and/or human health must first follow a mandatory Environmental Impact Assessment (EIA) procedure before they are developed. Provinces have also enacted their own EIA legislation establishing the EIA procedure requirements for all activities that could have a negative impact on the environment.
There are no specific regulations governing sustainable development in Argentina.
Argentina has ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change with Law No. 24,295 and Law No. 25,438. Further, the National Environmental Secretariat (Secretaría de Ambiente y Desarrollo Sustentable) has proposed a National Strategy on Climate Change, establishing general objectives including:
The promotion of actions regarding climate change.
The implementation of policies and actions that could contribute to limit the emission of greenhouse gases.
Provinces and certain local governments have also enacted legislation setting out voluntary guidelines that promote the efficient use of energy in public buildings.
Prohibiting corrupt practices
There are several laws, regulations and even international treaties (to which Argentina is a party) that prohibit corrupt business practices, bribery, money laundering and the funding of terrorism. The major pieces of legislation regarding these matters are as follows:
United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988.
United Nations Convention Against Transnational Organised Crime 2000.
United Nations Convention Against Corruption 2003.
Argentine Law No. 25.246, Law No. 26.734 and Law No.26.733 (among others).
Argentina has specialised government agencies to investigate any suspicious activities that could constitute corrupt business practices, and both terms of imprisonment and fines can be imposed by those agencies on offending parties.
The penalties are both criminal and civil, and are intended to repair the damage caused. For money laundering, a term of imprisonment from three up to ten years can be imposed, and a fine varying from two to ten times the amount involved in the money laundering can be imposed (Article 303, Argentine Criminal Code). A person can be sentenced to a term of imprisonment ranging from one to six years for bribing a public officer.
The Reorganisation and Bankruptcy Act (Act No. 24,522) (Bankruptcy Act) governs preventive and bankruptcy proceedings (among other things) in relation to both physical persons and companies. Under the Bankruptcy Act, the insolvency rules are mandatory and cannot be modified by agreement between the parties.
The client and funder have the same rights as any other creditor on the contractor's bankruptcy or insolvency.
There is no specific regulation established by law. Therefore, preventive proceedings (that is, proceedings governed by the Bankruptcy Act which aim to avoid the bankruptcy of the debtor) are subject to the general bankruptcy rules. Under these rules, preventive proceedings can continue after the filing of bankruptcy proceedings until the declaration of the contractor's bankruptcy, if the creditor requests this within a certain time. In this case, the contractor will continue performing its obligations under the construction agreement.
PPPs are not as popular in Argentina as in other Latin American countries. Although the Constitution does not restrict the power of the state to enter into public-private contracts, the federal government has yet to pass legislation that specifically addresses PPPs. However, in 2005 the National System of Public-Private Partnerships was established by Executive Decree with the stated goal of attracting private investments to the construction of public services and infrastructure. In addition to setting out the goals of a transparent and collaborative procedure for PPP investments, the Executive Decree describes the specific mechanisms by which such tenders are selected and the qualities that a successful bid will possess. For example, the Executive Decree states that a winning project will be:
Technically and economically feasible.
Adequately financed through private means.
Backed by a favourable investment history.
A public need must be identified and declared before a tender process involving PPPs can begin.
This selection regime is often a win-win situation for both the government and the private entity. The state has a potentially wide range of projects to choose from, while at the same time avoiding the cost and effort involved in designing and analysing projects itself. The private entity, on the other hand, can count on a transparent and competitive bidding process. The federal government is not alone in recognising the benefits of such a framework, and provincial governments have also established private initiative schemes to govern the solicitation and selection of private proposals for public infrastructure projects.
See Question 29.
The bidding process will include the use of standard forms of agreement and related contracts to which the parties will abide (some minor amendments are usually accepted to those forms) (see Question 29).
Typically, the public authority (either national, provincial, or municipal) will make a request for bids by publishing the request in the Official Gazette and in two or three major newspapers. The project will be granted to the bidder that receives the highest score depending on the terms and conditions of each of the proposals. The tender will not always go to the least expensive proposal, given that some variables may be more highly valued (for example, experience).
Formal dispute resolution methods
The standard formal dispute resolution method is to resolve disputes between the parties before the regular commercial courts of the different jurisdictions in Argentina. Typically, the jurisdiction which is most proficient in business matters (including construction and real estate projects) is the City of Buenos Aires, since the great majority of companies (local and foreign) are incorporated in that jurisdiction, and so the commercial courts there are the ones most commonly used.
Courts and arbitration organisations
Locally, the Arbitration Court in the Stock Exchange in the City of Buenos Aires is the most commonly used arbitration court. Internationally, the International Chamber of Commerce (ICC) and the International Centre for Dispute Resolution (ICDR) are widely used.
Most forms of alternative dispute resolution include, as a first step, provisions for a negotiation period between the parties to try to resolve the dispute. If this fails, a mediation process will usually follow for a prescribed period of time. In the event that mediation fails to resolve the dispute, the parties will then usually enter into the arbitration procedure to resolve the dispute.
VAT is generally not payable on the sale of real estate property. However, VAT may be payable on improvements made by construction companies to the owned real estate properties when the property is sold. In these circumstances, the taxable base (that is, the amount that is subject to the tax) is determined by the agreed value of the improvements, as provided for in the purchase agreement (provided the agreed value is not lower than the increase in the fiscal value of the property due to the improvement, or its proportional cost). The general applicable VAT rate is 21%, although improvements for housing purposes are levied at a 10.5% rate.
Stamp tax is payable on any sale or purchase agreement that bears the signature of both parties, at the rate specified by the province. There is a legal mechanism that will allow the parties to be exempt from stamp tax where they structure the purchase by an individual offer (usually executed by the seller) and its corresponding letter of acceptance. These two documents must be separate from each other and only signed by the corresponding party in order to qualify for the exemption.
The taxable base for stamp tax is the total value of the transaction as set out in the purchase agreement. The applicable rate varies (usually about 3% of the purchase price), depending on the province. Local tax authorities can claim the total stamp tax due from either party to the transaction. However, it is customary for each party to simply pay 50% of the stamp tax due.
To pay the applicable tax, a tax return must be filed. The payment term depends on the relevant province, usually ranging from ten to 20 working days. Subject to certain limitations, the purchase agreement for a family's only residence is exempt from stamp tax in some provinces.
Business premises can be subject to several municipal contributions, which vary according to the province in which the business is located. The main contribution levied on business premises is the inspection of security and hygiene contribution. This is usually calculated by applying a fixed rate on the company's gross income. The rate is usually 0.5%.
Business premises may also pay other contributions, depending on their commercial activity and location. These contributions include the:
Contribution for lighting, sweeping and cleaning of streets.
Contribution for publicity and promotion.
The most common methods used to mitigate tax liabilities when acquiring a real estate portfolio are:
Given the case, to fulfil the procedure outlined in Act No. 11,867 on the transfer of going concerns (bulk transfer). This procedure involves a notification to the tax authority.
The creation of an escrow account to cover any potential tax liabilities. The buyer usually requests an indemnity letter from the seller.
For the buyer to request from the seller an indemnity letter against potential tax claims.
Other requirements for international contractors
International contractors must either incorporate a branch or a subsidiary in Argentina in order to be able to do business in a day-to-day manner. Generally, the other requirements applicable to international contractors are the same as for local contractors (although in certain circumstances, higher standards or requisites are required of international contractors than are usually applied to local contractors).
Reform and trends
Main construction organisations
Real estate organisations
Argentine Real Estate Chamber (Cámara Inmobiliaria Argentina)
Main activities. This body was founded in 1980 by a real estate broker to create an entity that would represent the industry. It has a direct link to the government and helps to preserve the common interest of the sector.
Association of Housing Businessmen (Asociación de Empresarios de la Vivienda)
Main activities. This institution offers a web service related to the housing sector.
Argentine Construction Chamber (Cámara Argentina de la Construcción)
Main activities. This institution offers a web service related to the construction sector.
Ministry of Social Development and Environment - Secretariat of Environment and Sustainable Development (Ministerio de Desarrollo Social y Medio Ambiente - Secretaría de Ambiente y Desarrollo Sustentable)
Main activities. This body regulates environmental issues.
Undersecretariat of Urban Development and Housing (Subsecretariade Desarrollo Urbano y Vivienda)
Main activities. This body assists urban construction projects, including supervision and co-ordination. It participates in the development of construction projects and the commitment to develop urban and housing programmes in public, national and provincial areas.
Ministry of Economy and Finance
Description. This is an official website of the Ministry of Economy and Finance where up-to-date original language text of legislation can be obtained.
Estudio Beccar Varela
Professional qualifications. Lawyer, Catholic University, Buenos Aires, Argentina, 1991; LL.M, University of Illinois at Urbana-Champaign, USA, 1994
Areas of practice. Real estate and hospitality; mergers and acquisitions; corporate law.
Languages. Spanish, English, French, Portuguese
- Foreign associate at Hogan & Hartson (currently Hogan Lovells), Washington DC, 1995.
- President for the Alumni Association of the Real Estate Business Centre of the Universidad de San Andrés.
- Chair of the Real Estate Committee of the American Chamber of Commerce in Buenos Aires.
- Member of the Executive Committee at the Housing Entrepreneurs Association (Asociación de Empresarios de la Vivienda).
- Officer of the Real Estate Committee of the International Bar Association.