Understanding the Role of Urban Planning in Colombia for Real Estate Due Diligence

Throughout 20 years of experience in the field of Urban Law, one thing continues to amaze me, and it is how the concept of Due Diligence has evolved into an essential part of any transaction involving real estate assets. 

Once I became a lawyer, one of the first tasks I received, was to perform real estate due diligence. At that moment the instruction I was given was to analyze the chain of title, using the public information at my disposal in the real estate registry- to assess whether the ownership of the property did not have any issues, or if there were any legal contingencies, mortgages, liens or encumbrances that affected the title (mostly to analyze the basics). Once I finished my report, I was really satisfied with the outcome.

Years after, I changed jobs and started working at Pinilla, González & Prieto Abogados – PGP- in the Real Estate, Planning, and Urban Law Department, where I continued performing real estate due diligence on different properties but with an additional catch: the research was not only limited to the chain of title, it required also an analysis of the zoning plans and environmental regulations. That’s how I started to see real estate due diligence in a broad sense, more complex and profound.

One of my first Clients at PGP was an International financial company that aimed to invest in our country, buying all the assets from a local Bank, which included all its real estate properties. At that point, our duty was to carry out a real estate due diligence that, at first, gave us non-contingency results regarding the chain of title of the properties, until we started to see the zoning plans and regulations of the assets which showed us that several of them had restrictions imposed by the land regulation given and were intended for public parks, without the option of developing any other possible uses, which significantly decreased their value. After a thorough and exhausting analysis, in the end, we achieved our goal and handed our client a report involving all the aspects required that let him make a conscious decision regarding the properties assets they were acquiring.

The aforementioned report was a transformative experience, as I understood our responsibility as outside counsel; to deliver a comprehensive analysis of the assets that goes beyond a verification of documents, and seeks a deep understanding of urban planning regulation, enabling stakeholders to identify opportunities for value enhancement and strategic investment.

In the following paragraphs, I will try to explain some points regarding urban law in Colombia and zoning plans regulations, that will allow me to present why this area of expertise is today, more than ever, essential for any Due Diligence:

Colombia's urban planning law is governed by a complex regulatory framework that encompasses several statutes, and national and local decrees. At its core, urban planning law aims to regulate land use, zoning, environmental protection, and community development, to promote sustainable growth and enhance quality of life.

At a National Level, the Colombian Political Constitution of 1991, in article 58, guarantees private property and other rights acquired under civil laws, which cannot be ignored or infringed by subsequent laws, unless there is a public utility or social interest project in which private interest must yield to the public or social good; it also determines that public entities will participate in the capital gains generated by urban planning actions and the different competent entities.

For purposes of developing this principle, Law 388 of 1997 was issued to promote the equitable use of land and the development of territorial planning by municipalities. Under this statute, municipalities are required to formulate Zoning and Land Use Plans (Planes de Ordenamiento Territorial – POT´s), which outline long-term development goals, land use policies, zoning policies, and spatial strategies. Zoning plans in Colombia delineate public areas, and different land use zones, and establish regulations governing permissible activities, building densities, heights, and setbacks.

In addition, Colombian urban zoning plans include environmental regulations that are mandatory for any kind of project, particularly for those with significant environmental impacts or located in environmentally sensitive areas -like those related to oil & gas, mining, construction, etc.

An environmental legal scheme, built over both local and national provisions, makes it difficult for an investor to assess whether to invest in real estate -directly or indirectly- or how to protect their investment; in this sense, we are convinced real estate due diligence:

• Needs to meticulously review zoning plans and regulations to understand zoning classifications looking to ensure proposed developments align with permitted land uses and comply with zoning requirements, minimizing the risk of legal challenges and project delays.
• Identifies and allocates potential legal, regulatory, and environmental risks associated with a property. This includes assessing zoning compliance, land use restrictions, environmental liabilities, and community concerns that may impact the viability of a real estate investment; and,
• Should incorporate stakeholder engagement strategies and participate in these processes.

Although all of this seems adequate from an academic perspective, ¿is it possible to measure the success of the due diligence a law firm has performed? We think that it is possible, and for that, we are going to present some numbers that represent some projects that we, as a Firm, and I as a Counsel, have had the opportunity to participate in:

• We have counseled real estate transactions -buy and sale- for over 1 billion USD;
• We have advised construction companies in residential projects and have helped to create more than 300.000 residential units.
• We have guided international clients to invest in Colombia, in the development of more than 200.000 m2 of commercial areas.

In conclusion, urban planning law in Colombia is a fundamental variable in real estate due diligence. By integrating technical knowledge of zoning plans, land use planning, and environmental regulations, stakeholders can participate in the real estate market in Colombia with confidence and foresight. Proactive engagement with legal experts and urban planners enhances decision-making, looks after sustainable development, and ensures the long-term success of real estate ventures in Colombia's dynamic urban landscape.