Buying with a Friend in Cusco & The Sacred Valley: Co-ownership (Copropiedad) vs. Forming a Company (SAC)

The allure of the Cusco and Sacred Valley region – from the vibrant cultural pulse of Cusco's historic center to the serene landscapes of Urubamba and Ollantaytambo – often inspires expats to embark on property ventures. Whether you're dreaming of a boutique AirBnB, a tranquil retreat, or a commercial development, pooling resources with a friend can seem like an ideal pathway. However, the legal framework for joint ownership in Peru presents distinct choices, each with significant implications: direct co-ownership (copropiedad) or establishing a Peruvian company (Sociedad Anónima Cerrada - SAC).

Making the right choice upfront is critical for safeguarding your investment, managing relationships, and ensuring a smooth operational future. This guide will help you understand the nuances of each option in the Peruvian context, especially tailored for the unique challenges and opportunities of the Cusco and Sacred Valley real estate market.

Option 1: Direct Co-ownership (Copropiedad)

Copropiedad is the simplest form of joint ownership in Peru, where multiple individuals hold title to a single property. Each owner possesses an undivided share, meaning they own a percentage of the entire property rather than a specific physical portion.

Understanding Copropiedad in Peru

Under Peruvian Civil Code, co-ownership implies that all co-owners have equal rights to use and enjoy the property, proportional to their share. Key decisions regarding the property typically require the unanimous consent of all co-owners, which can be a significant point of contention if not managed carefully.

Pros of Copropiedad:

1. Simplicity & Lower Initial Cost: Setting up copropiedad is generally less complex and involves fewer initial legal and administrative fees compared to forming a company. The property title is simply registered in the names of all co-owners at the National Superintendency of Public Registries (SUNARP).
2. Direct Personal Control: Each co-owner has direct personal control and a direct legal relationship with the property.
3. Flexibility for Small Ventures: For smaller, less complex joint investments, or purely residential uses where trust between partners is paramount, it can be a straightforward solution.

Cons of Copropiedad:

1. Joint and Several Liability: All co-owners are jointly and severally liable for property debts, taxes, and any legal issues. This means if one partner defaults on their obligations, the others may be held responsible for the entire burden.
2. Unanimous Consent for Major Decisions: Selling the property, mortgaging it, or making significant alterations generally requires the unanimous consent of all co-owners. This can lead to stalemates and disputes if partners do not agree.
3. Division Challenges: If one co-owner wishes to sell their share, they must first offer it to the other co-owners (known as the right of first refusal or derecho de retracto). If no agreement is reached, forcing a sale of the entire property can be a lengthy and costly legal process (acción de partición).
4. Succession Complications: Upon the death of a co-owner, their share passes directly to their legal heirs, potentially introducing new co-owners who may not share the original vision or relationship with the remaining partners.
5. Less Formal for Businesses: While possible, operating an AirBnB or other rental business directly under copropiedad might present challenges in terms of unified management, clarity of liability, and potentially less optimized tax structures compared to a corporate entity.

Step-by-Step for Acquiring Property under Copropiedad:

1. Thorough Due Diligence:
   • Property Title Search: Crucial in the Sacred Valley. Verify the property's registration at SUNARP (Superintendencia Nacional de los Registros Públicos) for encumbrances, liens, conflicting claims, or informal possession issues.
   • Co-owner Agreement: Draft a clear private agreement (often called a "Pacto de Indivisión" or "Convenio de Copropietarios") outlining:
     • Each partner's ownership percentage and capital contribution.
     • Responsibilities for costs (property taxes, maintenance, utilities).
     • Decision-making processes (e.g., majority vote for minor decisions, unanimous for major investments or sales).
     • Clear dispute resolution mechanisms.
     • Comprehensive exit strategies for each partner (e.g., buy-out clauses, right of first refusal for shares, conditions for forced sale). This is paramount for friends buying together.
     • Management of rental income and expenses (if applicable).
2. Drafting the Sale Agreement (Minuta de Compraventa): A Peruvian lawyer prepares this document, outlining the terms of the sale, buyer/seller details, precise property description, and price. All co-owners are listed as purchasers with their respective shares.
3. Notarization (Escritura Pública): The Minuta is elevated to a public deed (Escritura Pública) before a Peruvian Notary Public. This is a mandatory step for all real estate transactions in Peru.
4. Registration at SUNARP: The Notary submits the Escritura Pública to SUNARP for registration. This officially records the transfer of ownership to all co-owners, making their ownership public and legally enforceable.
5. Formalizing the Co-ownership Agreement: While initially a private agreement, it is highly advisable to have the Pacto de Indivisión notarized and even registered at SUNARP as an "Acto de Indivisión" to give it public faith and make its terms enforceable against third parties and future co-owners.

Option 2: Forming a Company (Sociedad Anónima Cerrada - SAC)

A Sociedad Anónima Cerrada (SAC) is a type of corporation commonly used in Peru for small to medium-sized businesses, including real estate investments. It's characterized by having 2 to 20 shareholders, and its shares are not publicly traded. The company, as a separate legal entity, owns the property, and the friends become shareholders of the company.

Understanding the SAC in Peru

The SAC operates under its own legal identity, separate from its shareholders. This means the company enters into contracts, incurs debts, and holds assets (like your property). Shareholders' liability is generally limited to their capital contribution (the value of their shares).

Pros of Forming a SAC:

1. Limited Liability: This is arguably the biggest advantage. Shareholders' personal assets are protected from the company's debts and liabilities. For example, if your AirBnB guest sues the company, your personal assets (outside your company shares) are typically shielded.
2. Easier Transfer of Ownership: Selling shares in a SAC is generally simpler and more straightforward than dividing or selling a percentage of a co-owned property. This facilitates easier exit strategies for partners.
3. Clear Governance Structure: The SAC has an established legal framework for decision-making (e.g., a General Shareholder Meeting, and potentially a Board of Directors), which can be more efficient and structured than copropiedad, especially for larger investments or when partners' relationships are primarily business-focused.
4. Potential Tax Advantages: Depending on the nature of your investment (e.g., rental income, future resale), a SAC might offer more favorable tax treatment, structured deductions, or opportunities for reinvestment compared to individual ownership. Always consult a Peruvian tax accountant for specific advice.
5. Streamlined Succession Planning: Shares can be passed down to heirs without directly impacting the property's title or introducing new co-owners into the property's management structure. Heirs inherit shares, not direct ownership of the physical asset.
6. Professional Image & Business Operations: A company structure often lends more credibility for formal business operations like AirBnB rentals, obtaining business licenses, or securing financing from Peruvian banks.
7. Foreign Ownership Solution (Contextual): While Cusco and the Sacred Valley generally do not fall under strict "border zone" restrictions, a Peruvian company can simplify certain aspects of foreign ownership for larger or more complex ventures, especially if there's a majority Peruvian stake, though direct foreign ownership of property is generally permitted for non-border areas.

Cons of Forming a SAC:

1. Higher Setup & Maintenance Costs: Establishing a SAC involves higher initial legal fees for incorporation, registration fees, and ongoing administrative costs (e.g., mandatory accounting services, legal compliance, annual filings).
2. Increased Administrative Complexity: A SAC requires formal accounting, regular tax declarations (monthly and annually) with SUNAT (Superintendencia Nacional de Aduanas y de Administración Tributaria), annual shareholder meetings, and strict compliance with Peruvian corporate and tax laws.
3. Less Direct Control: The property is legally owned by the company, not personally by the individual shareholders. Decisions are made through the company's established legal structure and bylaws.
4. Time-Consuming Setup: The process of incorporating a company and obtaining all necessary registrations takes longer than simply registering a co-ownership.

Step-by-Step for Acquiring Property via a SAC:

1. Business Plan & Shareholder Agreement: Before incorporating, draft a comprehensive Shareholder Agreement (Pacto de Socios/Accionistas). This is even more critical than for copropiedad and should cover:
   • Capital contributions and share distribution.
   • Roles and responsibilities of each shareholder (e.g., who manages the AirBnB operations).
   • Decision-making protocols (quorum, voting rights, veto rights for major issues).
   • Profit distribution policies.
   • Clear exit clauses (buy-sell agreements, right of first refusal for shares, conditions for dissolution).
   • Dispute resolution mechanisms.
2. Drafting the Company Deed (Minuta de Constitución): A Peruvian lawyer drafts the company's articles of incorporation, specifying the company name, corporate purpose, initial capital, shareholders, potential directors, and bylaws.
3. Notarization (Escritura Pública de Constitución): The Minuta is notarized before a Peruvian Notary Public, becoming the Escritura Pública de Constitución.
4. Registration with SUNARP: The Notary submits the Escritura Pública de Constitución to the Public Registries (SUNARP), which grants the company its legal existence and corporate registration.
5. RUC Registration (SUNAT): The newly formed company must register for a Taxpayer Identification Number (RUC) with SUNAT (Superintendencia Nacional de Aduanas y de Administración Tributaria). This is essential for all commercial and financial operations.
6. Property Transfer to SAC: Once the SAC is legally constituted and has its RUC, the property can be acquired. This involves either the company purchasing the property directly from the seller, or if the property was initially bought personally, it can be transferred to the company as part of a capital contribution or a separate sale. This will require its own Minuta and Escritura Pública for the property transfer, registered at SUNARP under the company's name.
7. Operational Agreements: Formalize any necessary employment contracts, management agreements, and operational protocols in accordance with the SAC's bylaws and Peruvian labor law.

Direct Comparison: Copropiedad vs. SAC

Feature	Copropiedad (Co-ownership)	SAC (Sociedad Anónima Cerrada)
Legal Entity	Individuals hold title directly	The company is a separate legal entity holding title
Liability	Joint and several for all co-owners	Limited to capital contribution for shareholders
Setup Cost	Lower initial fees (notary, registration)	Higher (incorporation, legal fees, notary, capital contribution)
Ongoing Costs	Lower (basic property taxes, maintenance)	Higher (accounting, legal compliance, annual fees, corporate taxes)
Complexity	Simpler to establish, but relationship management crucial	More complex legally and administratively, requiring formal compliance
Decision Making	Often requires unanimous consent (unless specific agreement)	Structured via bylaws, shareholder meetings, and potentially a board
Ownership Transfer	Selling a share requires first offer to co-owners, legally complex for property portion	Selling company shares is generally simpler and faster
Succession	Heirs become new co-owners of the physical property	Heirs inherit shares in the company, not direct property ownership
Perceived Credibility	Informal for business operations	Formal, professional for business/investment activities and financing
Tax Implications	Individual income tax on rental income	Corporate income tax (IGV, Income Tax), potential deductions; consult a Peruvian tax expert

🌎 Local Context & Specific Warnings for Cusco & The Sacred Valley

Beyond the general legal frameworks, investing in the Cusco and Sacred Valley region brings specific local challenges that necessitate extra vigilance:

• Land Registration Challenges (Sacred Valley): Especially in rural areas around Urubamba, Ollantaytambo, Pisaq, and other smaller communities, property titles can be complex. You might encounter terrenos de posesión (lands held by long-term possession, but without full, clear title registered at SUNARP), informal subdivisions, or properties with unclear boundaries due to historical agrarian reforms. A thorough estudio de títulos (title study) by a local, experienced real estate lawyer is paramount to ensure the property is fully registered at SUNARP, free of encumbrances, and has a clear chain of ownership. Never assume clear title.
• Archaeological Sensitivity: The entire region, particularly areas bordering Machu Picchu or near significant Inca sites, is highly sensitive to archaeological remains. Even in less obvious locations, construction permits often require a Certificado de Inexistencia de Restos Arqueológicos (CIRA) from the Ministry of Culture, which can be a lengthy and unpredictable process. Unearthing artifacts during construction can halt your project indefinitely, incurring significant delays and costs.
• Construction & Permit Issues: Obtaining building permits (Licencia de Edificación) from local municipalities (e.g., Urubamba, Ollantaytambo, Cusco) can be slow and bureaucratic. Rules vary significantly by district and often include specific requirements for materials, height restrictions, and aesthetic guidelines to maintain the region's cultural heritage. Expect delays and budget for professional architects and expediters (often called gestores) who are intimately familiar with local regulations and municipal processes.
• Communal Lands & Agrarian Reform Titles: Some properties, especially larger rural plots, may have originated from communal lands (tierras comunales) or processes stemming from Peru's agrarian reform. These can complicate title clarity and transfer. Ensure any property you consider has been fully privatized and registered unequivocally in the public registries (SUNARP) to avoid future disputes with local communities or previous owners.

⚠️ Warning: Zoning and Cultural Heritage Rules.

The Cusco and Sacred Valley region is globally significant for its cultural and natural heritage. Consequently, stringent zoning and cultural heritage rules are in place, particularly in the Historic Center of Cusco and areas surrounding archaeological parks.

• Cusco Historic Center: Strict regulations govern building height, façade colors, materials, and internal modifications. Any renovation or construction requires dual approval from the Ministry of Culture (Dirección Desconcentrada de Cultura de Cusco) and the Provincial Municipality of Cusco. Non-compliance can lead to hefty fines, forced demolition, or even criminal charges for damaging cultural heritage.
• Sacred Valley: Many areas are designated as cultural landscapes, ecological protection zones, or agricultural land. This can severely affect land use, construction density, and the types of businesses permitted. For AirBnB or tourism-related investments, you must ensure the property's zoning allows for commercial operation. Always verify the Certificado de Parámetros Urbanísticos y Edificatorios (Certificate of Urban and Building Parameters) for any specific plot from the local municipality.
• Water Rights: In rural areas, reliable water access is critical, especially for agriculture or larger residential projects. Verify water rights (derecho de uso de agua) as part of your due diligence, as these can be separate from land title and are crucial for the long-term viability of your property. Consult with the National Water Authority (ANA) if water sources are a key concern.

Conclusion

Both copropiedad and forming a SAC offer viable paths for expats looking to invest in Cusco and the Sacred Valley with a friend. Your choice should be carefully considered based on:

• The scale and nature of your investment: A small, shared personal retreat might favor copropiedad, while a dedicated AirBnB business or larger development is usually better suited for a SAC due to its formal structure and limited liability.
• Your risk tolerance: A SAC provides limited liability, protecting personal assets, which is a significant advantage, especially for commercial ventures.
• Your long-term goals and exit strategy: Consider how easy you want it to be to sell your share or dissolve the partnership in the future.
• The level of trust and clarity with your partner: While a SAC provides a more robust legal framework for governance, a detailed co-ownership agreement is absolutely essential for copropiedad to prevent future disputes.

The most crucial step, regardless of your chosen path, is to engage experienced local Peruvian legal and tax professionals from the outset. Their expertise will navigate the complexities of Peruvian law, property registration in the Sacred Valley, and ensure your investment is secure, compliant, and optimized for your specific objectives.

Visit CuscoRealEstate.com for personalized consultations and to connect with our network of legal and real estate specialists in the region.