Ownership rights, Costa Rica

It is very imoportant when considering a real estate aquisition in another country to be familiar with the laws of the country, and Costa Rica is no exception. Although Costa Rica allows foreign ownership, they do have some other very unique property laws that are country specific. The following lists and describes some of the most important and special laws:

1.   Fifty-Meter Zone

The first 50 meters from the high tide line inward at the beach is ALWAYS public property.  No permanent structure may be placed on this land. Therefore, temporary strutures are permitted. However, it can be landscaped and temporary structures can be erected, for example in front of a hotel.

2. Titled ocean front property to the 50 meter line.

In 1976, all owners of ocean front land where asked to register the land with the local and national public registry offices and attained full title for the land to the 50 meter line.  This is prime ocean front property and only represents about 15% of the total coast line of Costa Rica.  Being aware of what the legal conditions of ocean front property are is crucial to not having unexpected suprises. Some people do hold this title.

3.   Municipal lease land - 150-meter zone

In the majority of the country, the next 150 meters land inward from the 50-meter coastal zone is owned by the municipality, and can only be leased in the form of a concession.  For a foreigner to lease this land, a Costa Rican must own more than 50% of the company doing the leasing.  A foreigner cannot lease this land personally.  A good lawyer can set up a company that will serve the investor's purpose, in order to meet the special requirements of the law.  In most cases, there will be restrictions or zoning on the leased land.  Ensure that a lawyer check this before buying the rights to leased land.  Leases are usually fairly inexpensive and the renewal fairly automatic provided the lessor keeps the lease in good standing. Make sure prior owners were in good standing with their concession before purchasing so  that it can be renewed.

4.   Frontiers

Frontiers are one of the only restricted zones for foreign ownership and ownership in general. In this case, only Costa Rican citizens can purchase land within two kilometres of the national frontiers or borders.

5.   Titled Lands

Most land in Costa Rica is titled. Almost 90%. Lawyers can  quickly check to ensure it has good title. Individuals can also check this by revising the finca number on the National Public Registry website.  Land that has not changed hands for many years may not be titled.  If the title to the property is not registered, registration is difficult, complicated and expensive.  The buyer may spend years in the court system sorting out other claims to the land. It is not ever a good idea to purchase land that is not titled because it could be a part of a real estate scam which one should avoid.

If a piece of land is titled and registered for the first time (this includes a previous undivided interest registered as a separate parcel for the first time) claims may be made against the title for ten years.  It is therefore dangerous to purchase or to accept as security land that has been registered for less than ten years. Sometimes family members and other interested parties can come out of the wood works to come after a property they feel is theirs.

The Central Registry for land in Costa Rica is computerized and similar to most places in North America.   Registry of mortgages and liens are much the same as in North America.

Title insurance to guarantee the title of properties can be aquired through a variety of different title companies in Costa Rica including Stewart Title or Latin American Title a division of Chicago Title.

Thanks to Propertyshelf, the Official Multiple Listing Service of Costa Rica's Real Estate Chamber, whose title verification department verifies all properties with the National Registry via its Folio Real/Matricula number to ensure marketable title and ensure that the information provided by CCCBR Realtor Agents is correct before publishing on the MLS for public view http://mls-cr.com.  This is the only system in Central America who truly verifies properties.  Many claim they verify properties but do not truly do a thorough job doing so.

5.   Deposits

Deposits are common in Costa Rica, and can be made into several different third party trust accounts. Stewart and Latin American Title can offer these services for a small fee. In many small real estate transactions of under $100,000 a deposit is usually directly given to a lawyer or realtor, the money usually goes into his or her personal account. If the completion of the property purchase is to be on an agreed date in the future, an option can be taken which gives the vendor a sum of money for which he guarantees a right to purchase for a certain period of time. In most cases deposits are between 5% and 10% of the property's sale price and the deposit time can go from 30 days to around 90 days depending on negotiations. In most cases, the deposit will be lost to the buyer if there is no purchase after the period of time has lapsed.

6.   Options and contracts

Option and contracts to sell properties are legal, but cannot be registered at the Registry of Properties as a real right affecting a property.  It is, therefore, possible that even if you have an option, a disreputable person could sell the land to someone else, leaving only the courts as recourse to recover the deposit. Never put a deposit no matter how small on a property without doing proper due diligence beforehand. If there is a problem with the property the buyer does not want to feel obligated to purchase or lose their deposit.

7. Property transfer

There is a tax of 1.5% of registered value for the transfer of property.  Total government tax, registration and stamp fees will run about 3.5% of the registered value of the property.  When a property is purchased,  it is assumed the buyer will cover all purchase costs. In many cases, it can be negotiated so that the buyer and seller will split the cost of legal and transfer fees.  If the purchase is cash, the purchaser has the right to choose the lawyer. If the vendor holds a mortgage on the property he has the right to choose the lawyer. This too can be negotiated. Legal fees and costs will be around 2% of the property-selling price bringing the total transfer cost to approximately 5.5% of the price. However, in many cases nowadays, properties are held in corporations so there will not be a 3.5% transfer tax. Most major developments have the properties this way which can save new buyers a bundle.

8.    Property tax

The municipality collects municipal government property tax.  It is 0.25% of the registered value of the property. The registered value with the government in many cases does not reflect the actual value. Values reported to the government are usualy kept as low as possible so that property taxes stay as low as possible.   Houses with a registered value of less than ¢6,147,000 are exempt.  There is also a local community government charge.  This is based on the frontage of the property and varies in each area, but is not to be over $10 per month per residence. There is also a new property tax for luxury homes, which is any property registered above $190,000.00. When buying check what the registered value of the property is to have an idea of what will be needed to be paid each year to the municipality.

9.    Leases and Rental of Property

Great care must be taken when entering into a lease agreement in Costa Rica. Improperly drafted agreements may make it difficult or impossible to increase rents, and it can be very difficult to remove tenants from a property. Regardless of the term specified on a rental or lease agreement, the terms and conditions will apply for a minimum of three years.  If rental increases are not specified in the agreement it will not be possible to raise rents without the agreement of the tenant.Rental increases may be included in a lease agreement, and may take place every six months.  Rental increases of more than 10% in U.S. dollars each 6-month period may not hold up in court as legal. Renters have insane amounts of rights in Costa Rica. Never rent to anyone who does not hold some type of property in their name or one will have no legal recourse against them. If a tenant begins to miss payments do not change the locks or cut off utilities because one could end up in a losing battle in court by doing so.

10.   Squatters

Squatters are people who move onto a piece of property which they do not own, live there for at least a year and who improve the property by working the land and/or constructing a dwelling. Squatters then may have a legal right to live there since they may have acquired a “right of possession”.  Once acquired, this right of possession can be sold to others. If a large piece of property is purchased it is essential that a watchman be hired to report any squatters to the police before they become settled.  An employee hired to guard a property cannot become a squatter, but an employment agreement with the watchman is a good idea. Also, if anyone will be taking care of the property make sure to create a professional services contract with them and collect receipts that they have been paid by the true owner to take care of the property not that they have done it on their own.