“Rent before you buy.”
We hear this advice a lot from people exploring Panama real estate. And generally speaking, we tend to agree.
Panama offers a wide range of real estate opportunities, and most people benefit from spending some time here before committing capital to a property purchase. Renting for a while allows you to learn where you want to live, how much space you really need, and what a square meter actually costs in different parts of the city.
But renting in Panama comes with its own learning curve. And there are a few things we want our clients to think about before they sign their first residential lease.
One of the most important questions is about early lease termination: What happens if the tenant or landlord wants out of the contract?
Tenant’s Early Lease Termination Rights
Panama’s landlord-tenant law actually addresses this issue quite directly.
Specifically, Article 10 of Law Decree 93 of 1973 provides:
“The term of duration and renewal of a lease agreement for residential property shall be binding on the lessor and waivable by the lessee at any time, with no other obligation than to provide the lessor with written notice at least thirty (30) calendar days prior to vacating the leased premises.”
So, what does this mean in plain language?
It means that a tenant in a residential lease in Panama may terminate the contract at any time with a written 30-day notice to the landlord.
But if the tenant fails to provide the full notice period, then the landlord may retain a portion of the security deposit.
So, for example, if the tenant only give a 15-day notice, then the landlord could retain half of the security deposit.
This structure attempts to balance the interests of both parties. The 30-day notice period gives the landlord some time to find a replacement tenant, while also allowing tenants some flexibility if their circumstances change.
When Lease Contracts Try to Go Beyond the Law
Despite the clarity of the law, it is very common for landlords to push to modify these rules in the lease contract.
We commonly see two variations:
Longer Notice Requirements
Landlords often include language in the contract requiring tenants to give 60-day or even 90-day notice before terminating the lease.
This is somewhat understandable if you put yourself in the landlord’s shoes for a moment. The 30 days prescribed by law is not a very much time to market the property, negotiate a new lease, and prepare the apartment or home for a new tenant.
But even if you ultimately decide to agree to a longer notice period, tenants should understand that the law itself only requires 30 days notice.
Automatic Forfeiture of the Security Deposit
Another provision we frequently see is language stating that the landlord may retain the tenant’s security deposit in the event of early termination — even when the tenant provides advance notice.
This one drives us a little bit crazy, because it doesn’t really make sense in terms of balancing incentives. If the landlord is going to keep the deposit regardless of notice, then what incentive does the tenant have to comply with the 30-day notice period?
More importantly, this type of provision runs directly contrary to the structure of Panama’s landlord-tenant law, which specifically ties the deposit retention to the amount of notice given.
Can the Landlord Terminate the Lease Early?
Interestingly, Panama’s landlord-tenant law treats landlords differently than tenants.
The same Article 10 provides that:
“The term and any renewal period of a lease agreement for residential real property shall be binding on the lessor.”
In other words, the contract term is obligatory for the landlord. While the tenant may terminate the lease with notice, the landlord generally cannot terminate the lease early — unless the tenant breaches the contract.
Occasionally, we see landlords try to negotiate around this. Usually, they will try to make the early termination rights more symmetrical — allowing both parties to terminate with some established notice period.
But this is not typical in Panama residential leases, and it should raise some concerns. If your future landlord insists on providing for a right to terminate the contract early without cause, then it may indicate that the landlord is already contemplating plans that do not include you as the tenant.
Why does the Law Create this Asymmetry?
At first glance, this asymmetry may seem unfair. Landlords certainly may see it this way.
Why should the tenant have an option of just cancelling the contract with a 30-day notice, while the contract term is obligatory for the landlord?
Well, the asymmetry may, in part, be rooted in a perceived power imbalance between property owners and property renters. Historically, housing laws often favored tenants in order to protect them from sudden displacement.
Another reason for the asymmetry may be an assumption about the reasons someone may want to terminate a residential lease agreement. And I want to emphasize that I am not talking about termination “with cause”, which is to say that someone has done something to breach the agreement. I am talking about termination “without cause”.
If the landlord wants to terminate “without cause”, then it’s probably because the landlord’s plans have changed. Maybe the landlord’s family wants to use the apartment or the home. Or maybe the landlord sees an opportunity to get a higher monthly rent. Or maybe the landlord wants to put the unit on AirBNB for the high season.
On one hand, we can imagine a scenario in which the tenant may want to terminate a lease based on purely commercial motivations as well. Perhaps there is a better deal down the road.
But, on the other hand, we can also think of plenty of other legitimate reasons that a tenant might need to terminate a residential lease.
For example:
- a sudden loss of income
- a medical emergency
- an immediate relocation outside Panama
And here’s another scenario — we can imagine a situation in which a tenant may discover certain problems only after moving in.
Maybe there is constant traffic noise at night. Or a school band practicing drums every morning before sunrise. Or a nearby street that floods frequently, making it impossible for the tenant to get to work.
These are problems that are probably not easily solved. And they may not constitute a breach of the lease contract. But they may make living in the property difficult or practically impossible.
By the way, the tenant probably didn’t know about these things when the lease agreement was signed. The landlord probably did know about them. But that goes back to the power imbalance that is inherent in these types of transactions.
Providing tenants with the option to exit the contract gives them a safety valve when circumstances change or problems arise.
What Should You Do as a Tenant?
Generally, the landlord prepares the first draft of a lease agreement. So, the landlord usually gets to set the stage for any negotiation.
And, actually, more than half of the rental contracts we review arrive to us as non-editable PDF documents, which is not exactly an invitation to collaborate on revisions.
This leaves tenants with a choice: accept the contract as presented, or insist on discussing proposed modifications to the contract.
For someone renting in Panama for the first time, this can feel uncomfortable. The landlord may tell you that despite what Panama’s landlord-tenant law says, the modified provisions around early termination are standard practice in Panama.
“Why are you being difficult? “
“Why won’t you just sign the contract!?!”
Of course, you don’t want to be difficult. You certainly don’t want to appear combative or entitled here in your new country.
You’ve found an apartment or home that you like. The price seems reasonable, and you don’t want the opportunity to slip away.
Meanwhile the broker may be saying things like this:
“This property is not going to be available for very long”
“I have shown this apartment 3 times this week, and one family is very interested.
But before fully caving in on important issues like termination rights, it is worth remembering that the rental market in Panama City generally offers plenty of options. If one apartment slips away, there are usually others that will meet your needs just as well.
Bottom Line?
Panama’s landlord-tenant law gives residential tenants more flexibility than many people realize.
Under Article 10 of Law Decree 93 of 1973, tenants may terminate a residential lease at any time by providing 30 days written notice to the landlord. If the full notice period is not given, the landlord may retain a portion of the security deposit corresponding to the missing days of notice.
At the same time, the law generally makes the lease term binding on the landlord, meaning the landlord cannot terminate the contract early unless the tenant breaches the agreement.
Despite this legal framework, a lot of people end up conceding on the tenant’s rights to terminate. This could mean that you agree to give more than 30 days notice. Or it could mean that you agree to forfeit your deposit in the event of early termination without cause. If you have a good feeling about the rental unit and the landlord, then you may be willing to risk a single month’s rent value in case things don’t work out.
But we hate to see a tenant agree to allow the landlord the same option of early termination without cause. Even if the landlord agrees to a small penalty, it creates a commercial decision for the landlord. It actually invites the landlord to continue looking for a better deal immediately after signing your contract.
And if you aren’t able to get comfortable with the terms of a lease agreement, remember that there is a lot of rental inventory in Panama. Actually, one of the best ways to find the perfect rental apartment is to go ahead and sign a contract for an almost perfect rental apartment. So, don’t allow emotion or excitement or discomfort pushing back on contract language completely direct your decision making.
A clear understanding of Panama’s landlord-tenant law can help you avoid unnecessary concessions and ensure that the lease agreement properly reflects your rights as a tenant.
I hope you found this article interesting and helpful. If you have questions or would like to discuss your own residency and relocation plans, then drop us a quick email to introduce yourself: info@theindependentlawyer.com.
