FIRST THING YOU NEED FOR ANY REAL ESTATE TRANSACTION IS COMPETENT LEGAL ADVICE!
About Purchasing Real Estate in Costa Rica
- Do your homework regarding the area where you are interested in making a purchase. Spend some time there and make sure the area has what you need and want e.g. schools, shopping, medical care, transportation access, etc.
- Citizens and non-citizens have the same rights to buy ‘titled’ property. There are two exceptions: Maritime Terrestrial Zone (ZMT) and property donated to a Costa Rican by IDA (Instituto de Desarrollo Agrario) have restrictions. Property within two hundred meters of the ocean is restricted from non-resident foreigners.
- Only properties in Costa Rica that are registered in the National Registry, based in San Jose, with a unique property number (‘Folio Real’) should be considered for purchase. The registry reveals who owns it, the formal boundaries, the zoning regulations and any secured property rights. An experienced Costa Rican attorney should review all the conditions with you including terms, price, payments and due diligence period. He/she will likely recommend your deposit is placed in the attorney’s escrow account.
- Beware of squatters! According to article 277 of the Costa Rica civil code, ownership rights can be lost by a squatter improving or occupying the property for more than a year. This makes well managed gated and private communities much more appealing
- Homeowner associations are governed by the Ley de Condominio, which covers condominium properties officially registered as condominiums with the Costa Rica National Registry. Homeowner associations on properties not registered as condominiums don’t have the same legal standing and could easily lead to complexities.
- Some suggest buying property in a corporation name makes it easier to transfer ‘shares’ later. Be sure you’re purchasing ‘ownership rights’ and not ‘occupation rights’. An attorney can advise you how to buy an existing corporation that holds real estate instead of complicated and costly title transfer. A corporation provides privacy and personal liability protection as well.
- Costa Rica courts recognize a “first in time, first in right” policy, giving legal rights to whoever stakes the first claim. It is essential to register deeds immediately upon transfer of the property.
- Estimated closing costs: a) Registration stamps .8% b) Transfer tax 1.5% c) Legal fees 1.25% d) Escrow services .25%. In most transactions, buyers and sellers split closing cost, but this can also be a topic for negotiation. Property taxes in Costa Rica are .25% of the declared value.
- Costa Rica does not have a national Multiple Listing Service (MLS) like in the U.S. which makes it difficult to determine a fair market price (FMP) based on prior sales and what’s currently on the market. The more the experienced the broker the more accurately they will know what a FMP. Also appraisals by one of the few reputable firms can give you an accurate FMP.
- And remember, a Real Estate purchase can qualify you for a Permanent Residency!
About Selling Real Estate in Costa Rica
- The main concern in selling your property in Costa Rica is of course receiving your money, and not falling victim to a scam involving checks, cash or wire transfers. This is where a duly licensed and insured escrow attorney can remove any concern in this respect. Please click on the above link to learn more.
- Another common concern is that the broker will not bring just anyone into your home, but rather qualified buyers not affiliated with any type of criminal activity. We normally review potential buyers for net worth and a criminal background.
- Estimated closing costs: a) Registration stamps .8% b) Transfer tax 1.5% c) Legal fees 1.25% d) Escrow services .25%. In most transactions, buyers and sellers split closing cost, but this can also be a topic for negotiation.
About Renting Real Estate in Costa Rica
- As a renter or landlord, your rights and obligations are clearly defined in the Law 7527, called “Ley General de Arrendamientos Urbanos y Suburbanos”. This law covers all lease or renting agreements related to houses and other constructions as commercial establishments. Law 7527 does not cover or regulate hotel rooms or bungalows, car parking, or company housing for employees. The Civil Code regulates farms and tourism leases.
- As a renter, document with photos the condition and contents of the rental unit and notify the landlord of any inconsistency regarding condition or contents of the unit in relation to what the rental or lease agreement states. As a landlord, a background check of a potential renter can greatly assist in filtering out undesirable renters, especially in high-value properties.
- Security deposits to cover pending rent payments or any other obligations of the tenant can be freely agreed between the parties with no legal maximum, but in practice, landlords request one month as security deposit. Special circumstances such a s pets or furnished units might justify larger deposits. Advance payments of rentals are in contrast limited to just one month’s rent (an exception applies to social housing).
- The rents can initially be freely negotiated between landlord and tenant. To increase the rent, the parties should agree upon the annual rent increase in the agreement. If there is no agreement a claim can be filled by the landlord to increase the rent on a yearly basis. For housing, the yearly increase cannot be higher than a 15% of the fixed rent. To increase more than a 15%, the country’s inflation must be higher than 15%, and the rent increase must be based on a certification of the inflation issued by the State. If the rent for housing is agreed in US dollars or other foreign currency, no yearly increase is allowed. A rent increase is allowed only in cases of agreements in colones, the Costa Rican currency.
- The minimum term of a lease agreement in Costa Rica is three years. If the tenant wants to terminate the lease before this time expires, he must send the landlord a three month prior notice, unless the parties agree otherwise. The Parties may agree on a penalty for early termination by the tenant. If the term of the agreement expires, it is automatically renewed for three years more, unless the landlord gives the tenant a three month period prior notice, stating he will not renew the agreement. No indefinite term of lease is allowed.
- An eviction process should not take more than one year. In the same process, the collection of unpaid rent can be attempted. In practice, the collection of unpaid rents is normally difficult, since the tenant does not have any assets or money to attach.