Problem: The seller wants to rent back the property after closing. Solution: How to structure a short-term lease agreement to protect yourself as the new owner.

Acquiring a property in the vibrant and often complex real estate market of Cusco or the Sacred Valley is an exciting venture, whether for a dream home or a lucrative AirBnB investment. However, unique challenges can arise, and one increasingly common scenario for expat buyers is the seller requesting to rent back the property for a short period after the sale has closed. While this might seem like a simple courtesy, it introduces significant risks for the new owner if not handled with meticulous legal precision.

At CuscoRealEstate.com, we understand the intricacies of navigating Peruvian property law, especially in areas like Urubamba, Ollantaytambo, and the Cusco historic center. This guide will walk you through how to structure a robust short-term lease agreement, ensuring your investment and peace of mind are fully protected.

Understanding the "Seller Rent-Back" Scenario in Cusco & the Sacred Valley

A seller rent-back, or "leaseback," occurs when the property title officially transfers to you, the buyer, but the seller remains on the premises as a tenant for a pre-agreed, short duration. This situation often arises for several reasons unique to our region:

Transition Period: Sellers, especially those moving to another property within the Sacred Valley or even out of Peru, might need extra time to finalize their next residence or coordinate international shipping.
Logistical Delays: Moving from a traditional Andean home or a rural finca often involves complex logistics, including moving livestock, agricultural equipment, or extensive personal belongings that require careful planning.
Sentimental Reasons: Sometimes, sellers have deep roots in properties, particularly ancestral lands, and require a graceful exit period.
Market Dynamics: In a fast-moving market, sellers might agree to a quicker closing date contingent on a rent-back, making their offer more attractive to eager buyers.

While it can appear convenient or even compassionate, accepting a rent-back without a watertight legal agreement is akin to sailing the Urubamba River during rainy season without a proper balsa – fraught with unseen dangers.

The Risks for the New Owner (Buyer)

The convenience of a rent-back can quickly turn into a protracted nightmare if not managed correctly. Here are the primary risks you, as the new owner, face:

Delayed Possession and Income Loss: The most immediate risk is that the seller might not vacate on time. For investors planning to launch an AirBnB or other rental income stream, every day the property is occupied by the seller is a day of lost revenue.
Property Damage and Neglect: During their tenancy, the seller might not maintain the property to the same standard as an owner. Disputes can arise over damage that occurs during their occupancy.
Non-Payment of Rent or Utilities: If the seller fails to pay the agreed-upon rent or utilities, you, as the new owner, will incur these costs and face the challenge of recovering them.
Refusal to Vacate & "Ocupante Precario": This is the most severe risk. Without a proper legal framework, evicting a tenant in Peru can be a lengthy and costly judicial process, potentially dragging on for months or even years. In the Sacred Valley, where informal agreements are common, a seller who overstays can claim ocupante precario (precarious occupant) status, significantly complicating your legal standing and requiring a full judicial eviction process.
Complications with Property Registration (Saneamiento): While the sale is closed and the Escritura Pública (public deed) is in your name, any lingering occupancy can create ambiguity, particularly if there are future saneamiento (titling/registration clarification) issues that arise, or if local authorities question the true occupancy status. This could delay future transactions or administrative processes.
Impact on Insurance and Financing: An occupied property with an informal agreement might affect your homeowner's insurance validity or even complicate certain mortgage agreements if the lender is unaware or disapproves of the arrangement.

Solution: Structuring a Robust Short-Term Lease Agreement

The key to protecting yourself is a comprehensive, legally sound, and formally executed short-term lease agreement. This is not a casual handshake deal; it is a critical legal document that must stand up to Peruvian law.

Step 1: Define Clear Terms Before Closing

Integrate the rent-back terms into your initial Purchase and Sale Agreement (Contrato de Compraventa). This ensures all parties understand and agree to the arrangement before the property officially changes hands.

Duration: Absolutely non-negotiable. Specify a fixed, short-term period, typically 30, 60, or 90 days. Emphasize it is non-renewable and that time is of the essence.
Rent Amount: Agree on a fair market rate, or even slightly above, to compensate for the inconvenience and risk. This should ideally be paid in advance.
Security Deposit: Crucial for covering potential damages or unpaid utilities. Demand a substantial amount (e.g., 1-2 months' rent).
Utilities: Clearly state who is responsible for all utilities (electricity, water, internet, gas) during the lease term. Ideally, the seller should continue paying these directly or reimburse you monthly based on meter readings. Don't forget arbitrios (municipal taxes/fees) if applicable.
Property Condition: The property should be transferred to you "as-is" at closing, but the lease agreement must stipulate that the seller returns the property in the same or better condition (minus normal wear and tear) at the end of the lease, as per the pre-closing inspection report.

Step 2: Draft a Comprehensive Lease Agreement (Contrato de Arrendamiento)

This standalone document, executed simultaneously with or immediately after the closing, formalizes the seller's temporary tenancy. It must be drafted by an expert in Peruvian real estate law.

Key Clauses to Include:

Parties: Full legal names, passport/DNI numbers, and current addresses of both the new owner(s) (Lessor) and the seller(s) (Lessee).
Property Description: Exact address, cadastral information, and the partida registral (property registration number) as recorded in the Registro de Predios (Public Registry, part of SUNARP).
Term of Lease: Explicit start and end dates. Crucially, state that the lease is for a fixed, non-extendable term and that the seller must vacate by the end date without further notice.
Rent & Payment Schedule: The agreed-upon monthly rent, currency (Peruvian Soles or USD), due date, and payment method. Include specific penalties for late payments.
Security Deposit: Amount, conditions for its return, and a clear list of potential deductions (damages, unpaid utilities, late fees, holdover penalties).
Utilities & Services: Detail which party is responsible for electricity, water, internet, gas, municipal taxes (arbitrios), and any other shared services. It’s best practice to have the seller transfer utilities into their name for the lease period if possible, or reimburse you based on meter readings.
Property Condition & Maintenance: Stipulate that the seller accepts the property in its current condition (as per the pre-closing inspection report). The seller is responsible for minor repairs and general upkeep. Any significant damage beyond normal wear and tear will be deducted from the security deposit.
Insurance: Clarify who is responsible for property insurance (you, the owner) and renter's insurance for the seller's belongings (the seller).
Right of Entry: As the new owner, you must retain the right to enter the property with reasonable notice (e.g., 24-48 hours) for inspections, necessary repairs, or showing the property to prospective long-term tenants/AirBnB guests (if applicable after their departure).
Default & Remedies: Clearly define what constitutes a breach of contract (e.g., non-payment, unauthorized alterations, failure to vacate). Outline the legal steps you can take, including immediate termination of the lease and legal action.
Early Termination: If the seller vacates before the end of the lease, include a clause that they remain responsible for rent until the lease term expires, or until a new tenant is found, whichever comes first. This protects you from premature vacancy costs.
Holdover Clause: This is paramount. Specify extremely steep daily penalties (e.g., 2-3 times the daily pro-rated rent) for each day the seller remains in possession after the lease expires. This acts as a powerful deterrent against overstaying.
Governing Law & Jurisdiction: State that Peruvian law governs the agreement and that any disputes will be heard in the courts of the relevant judicial district (e.g., Urubamba, Cusco).
Express Vacate Clause (Cláusula de Allanamiento Futuro): This is perhaps the most crucial Peruvian legal tool for your protection. This clause, explicitly agreed upon by the seller, states that they irrevocably commit to returning the property upon the lease's expiration or in case of rent non-payment, effectively waiving any potential claim as an "ocupante precario" (precarious occupant). Its inclusion transforms a potentially lengthy and complex eviction into a streamlined judicial process, often allowing for the physical recovery of the property within a matter of weeks (typically 15-30 days), significantly faster than a traditional eviction which can drag on for months or even years. This clause must be included and properly notarized for enforceability.

Step 3: Legal Review and Formalization

The agreement is only as strong as its enforceability.

Engage a Local Lawyer (Abogado): Absolutely non-negotiable. A Peruvian real estate attorney specializing in contracts and property law will ensure the agreement complies with local regulations, includes all necessary clauses, and is legally sound. They will also guide you on the best path for formalization.
Notarization (Legalización de Firmas or Escritura Pública): For a short-term rent-back, having the signatures legalizadas por notario (certified by a public notary) is crucial. This provides undeniable proof of the agreement's authenticity and the parties' consent, making it significantly easier to enforce in court. For maximum protection, especially if the rent-back is longer or involves high value, your lawyer might advise elevating the Contrato de Arrendamiento to an Escritura Pública itself, which then gets registered with the Public Registry (SUNARP) as an instrument, further bolstering its legal weight and public enforceability.

Step 4: Due Diligence Before and After Signing

Pre-Occupancy Inspection: Conduct a thorough walkthrough with the seller before they begin their tenancy. Take extensive photos and videos of the property's condition, especially any pre-existing damages. This documentation is vital for comparison when they vacate.
Utility Meter Readings: Record all utility meter readings (electricity, water) at the start of the lease and again when the seller vacates.
Funds in Escrow: Consider holding a portion of the sale proceeds in escrow (with your lawyer or the notary) until the seller has completely vacated the property and it has been inspected and found in satisfactory condition. This creates a strong financial incentive for the seller to comply with all terms.

Local Context/Warning: Navigating Peruvian Rental & Property Laws

The Sacred Valley and Cusco have their own unique legal and cultural landscape.

Informal Agreements are Dangerous: In rural areas like Ollantaytambo or Urubamba, verbal agreements or simple, un-notarized handwritten notes for rent are common. For an expat buyer, these offer virtually zero legal protection and can quickly lead to an "ocupante precario" scenario, which is a significant legal headache. Always formalize your agreements through a notary.
"Ocupante Precario" (Precarious Occupant): If a seller remains on the property without a proper, notarized, and fixed-term lease, or overstays their lease without an explicit vacate clause, they can legally be considered an "ocupante precario." Evicting such an occupant requires a lengthy and expensive judicial process, even if you are the rightful owner. The Cláusula de Allanamiento Futuro discussed above is your strongest legal defense against this scenario.
Notarization is Key: As highlighted, having your lease agreement legalized by a notary provides crucial legal standing. This allows for a more streamlined legal process if issues arise, differentiating your agreement from informal arrangements.
Utilities & Infrastructure: In the Sacred Valley, utility services can be less consistent than in urban centers. Ensure the lease clearly outlines responsibility for any service interruptions (e.g., cortes de luz or water shortages) and how these might impact rent payments (generally, they should not reduce rent if services are being provided by the municipal or private utility companies). Confirming meter readings is essential to avoid inheriting the seller's outstanding bills.

⚠️ Warning: Zoning and Cultural Heritage Rules.

While this article focuses on the lease agreement, remember that any property acquisition in the Cusco and Sacred Valley region is subject to strict zoning and cultural heritage regulations. Properties in the Cusco historic center, near archaeological sites in Ollantaytambo, or along riverine protection zones in Urubamba, carry specific restrictions on construction, renovations, and even the type of commercial activity permitted. Ensure your due diligence prior to purchase covers these aspects, as they can affect your long-term plans for the property, regardless of a seller rent-back agreement.

Conclusion

A seller's request to rent back their property after closing can be a valuable concession that facilitates a smoother transaction, but it must be approached with caution and thorough legal preparation. By structuring a detailed, legally robust, and formally executed short-term lease agreement with the guidance of a specialized Peruvian real estate lawyer, you can safeguard your investment, ensure timely possession, and avoid potentially costly and time-consuming legal battles. Your peace of mind as the new owner is paramount.

For expert guidance on navigating property acquisition and rental agreements in the Cusco and Sacred Valley region, visit CuscoRealEstate.com.

— Real Estate Guides —

Seller Rent-Backs in Peru: Protecting New Owners with a Short-Term Lease Agreement