Real Estate in Costa Rica

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Real Estate in Costa Rica

Fifty Meter Public Zone

The first 50 meters from high tide at the beach is public property. No permanent structure may be placed on this land, however it can be landscaped and temporary structures can be erected, for example in front of a hotel. There are no private beaches in Costa Rica – the 50-meter area is open for anyone to use and there are no possession rights in this zone.

Municipal lease land – 150-meter zone

In the majority of the country, the next 150 meters from the 50-meter zone is regulated by the municipality, and can only be leased, never owned. For a foreigner to lease this land, a Costa Rican must show as owner of more than 50% of the company doing the leasing. A foreigner cannot lease this land personally. Casa Canada can help to set up a company that will serve the investor’s purpose, and meet the law.

There may be restrictions or zoning on the leased land – this will be published in the Plan Regulador of each municipality. Ensure you have a good lawyer check this before buying the rights to leased land. Leases are usually inexpensive, and the renewal is usually automatic provided the lessor keeps the lease in good standing. Lease rights can be bought and sold. The law of the Maritime-Terrestrial Zone covering the 200 meters above the high tide line was published in 1977.

If the municipal or federal government want this land back, they must pay the lessee the value of the improvements on the land – they do not have to pay anything for the increase in the value of the right to lease. A third-party designated by the court establishes the value of the improvements.

Frontier land

Only Costa Rican citizens can purchase land within two kilometres of the national frontiers.

Title

Most land in Costa Rica is titled. Good lawyers will check to ensure it has good title, or for a minimal fee it can be checked in the Casa Canada office where computers are connected to the National Registry. 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.

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.

The National Registry for land in Costa Rica is computerized and similar to most developed countries. Casa Canada Group has computers connected directly to the Central Registry and can search the title of land quickly. Registry of mortgages and liens are similar to North America. A buyer should insist on an Escritura showing title to the property, complete with registry stamps on it. Unscrupulous lawyers have been known to keep registration fees and not register the changed title, allowing the vendor to sell the land again.

Even if a property checks out well in the National Registry, it is prudent to have a more extensive study done on the title. Far more than the surface area of the country is legally titled in the National Registry due to overlapping plots of land of different sizes originating when the land registry system was originally founded.

Title insurance to guarantee the title of properties is a good idea, and can be arranged through Casa Canada. If there is another claim against the title of the property this one time insurance payment guarantees the purchase price will be refunded to the buyer.

Deposits

When a deposit is given to a lawyer or realtor, the money usually goes into a personal account. Trust accounts as known in North America do not exist. If the completion of the property purchase is to be on an agreed date, an option can be taken which gives the vendor a sum of money for which he guarantees a right to purchase for a designated period of time. These deposits are generally non-refundable.

Options and Contracts

Options to buy and sell properties are legal, but cannot be registered at the Registry of Properties as a real right affecting a property. It is 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. A legal guarantee called a Reserva de Prioridad can be registered against the property giving exclusive rights for a maximum of 30 days.

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 2.5% of the registered value of the property. When a property is purchased, unless specified otherwise, it is assumed 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 the vendor has the right to choose the lawyer. Legal fees and costs will be around 2 to 3% of the selling price for a total transfer cost of approximately 4.5 to 5.5% of the price. Legal fees are on a sliding scale set by the Colegio de Abogados, or Bar Society, but can be negotiated.

Property Tax

The municipality collects municipal government property tax. It is 0.25% of the registered value of the property. Houses with a registered value of less than ¢7,000,000 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. Luxury homes have a higher tax payment. For details on luxury tax see the section in this web site entitled Taxes Other Than Specified.

Leases and Rental of Property

Great care must be taken when leasing to others in Costa Rica, as it may not be legal to increase rents or to remove tenants from the property. A rental agreement can be either verbal or written. The property management division of Casa Canada Group can help you, as tenants have many rights.

Regardless of the term specified in residential or commercial lease agreements, the terms and conditions apply for a minimum of three years provided the tenant keeps to the terms of the agreement. If a rental agreement is for more than three years, the longer term applies. If you wish to legally lease for less than three years, contact Casa Canada management for options that can make this possible.

If rent is in a currency other than colons, it will not be possible to raise rents without the prior agreement of the tenant. No rent increases are permitted over the first three years. If rent is in colons it is possible to contract for an increase of up to 15% per year for residential property only.

Where there is no rental agreement, the landlord cannot evict the tenant from the property for three years and the rent cannot be increased for this period. The tenant is required to give three months notice to terminate the rental. A clause can be included in the contract that the deposit is forfeit if notice is not give. The tenant is obliged to leave the property in the same condition as when it was rented, normal wear and tear excepted.

If the landlord wants the rental property back at the end of the agreement, it is necessary to notify the tenant in writing three months or more before the end of the term, otherwise the term is automatically renewed for another three years, or for the length of the original agreement if longer than three years. This law does not apply where the landlord resides in the same building with up to two rental units. In this case the tenant can be given thirty days notice to leave the premises.

The law allows the tenant to be late up to seven days with rent payments. After that the landlord has the right to apply to the court for an eviction order. If rent payments are continually accepted late, the tenant may have the right to continue to pay late. Once it is decided to seek the eviction of a tenant, rent payments should not be accepted as it could make them current and cancel the right to evict them.

If a tenant does not pay bills that are the tenant’s responsibility it is possible to evict them. If the landlord pays such bills the cost of them can be deducted from a damage deposit at the end of the rental period. The tenant can be sued for any additional amounts outstanding. The tenant is responsible for all public services and utilities except for property taxes, which are the responsibility of the landlord.

Where a property is sold or transferred it does not change the tenant’s rights. The new landlord must respect the existing contract.

Any improvements made to the property by a tenant automatically become the property of the landlord.

A tenant cannot change the original agreement for use of a property, other than to put a small business into a residence. The primary purpose of the property must remain residential. A shop cannot become a bar for example. Tenants cannot sub-rent or lease a property unless the right to do so is specified in the lease.

The landlord has the right to inspect the property once a month.

When negotiating a rental contract, a landlord can request any guarantee deposit felt necessary.

Casa Canada recommends against entering into a purchase to lease back agreement. Casa Canada is involved in a case where a condominium and a farm were purchased to lease back to the owner. Only three payments were made. Although the purchaser has title, the legal eviction process to get possession had been in court for 9 years as of June 2011, with no end in sight. Meanwhile the purchaser pays homeowner fees for the apartment, taxes and insurance to prevent loss of the property, and the person who sold to lease back is collecting rentals and farm income. This income is lost forever to the purchaser, who is not permitted on the property.

Squatters

Squatter (precaristas in Spanish) are people who move onto a piece of property which they do not own, live there for a year or sometimes less and improve the property by working the land and/or constructing a dwelling. They may establish a legal right to live there by “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 squatters to the police before they become settled. An employee hired to guard a property cannot become a squatter, but an employment agreement to that effect is a good idea.

Mortgage Financing

Mortgage financing from banks is slow and bureaucratic. It can take up to a year to get a mortgage approved, although some banks have improved their service. Expect continual delays, requests for additional information over time and high “commissions” or legal fees. Fees and commissions can be as high as 10% of the loan amount, so while lower interest rates may be advertised, be sure to find out what the total package will cost. Private lenders sometimes move more quickly, but the rates are higher. Casa Canada has been lending money on mortgages and trusts since 1992.

Mortgage documents are registered in the Central Registry. Do not expect to receive mortgage funds until the mortgage document is registered. This is to prevent a common fraud where as soon as the cheque is cashed an accomplice quickly registers a new mortgage on the property ahead of the one just granted. Mortgages can specify any term, interest rate, amortization period or payment amount agreed between the parties. There are no usury laws in Costa Rica.

A different form of mortgage used in Costa Rica is the cédula hipotecária. These consist of certificates registered against the property that can be in any denomination desired. A $100,000 mortgage could have 10-$10,000 certificates, 1-$100,000 certificate, 100- $1,000 certificates or any other combination desired. The advantage is that it is not necessary to pay full legal expenses to increase or renew a mortgage – the cédula hipotecária remains in effect. When a mortgage is paid off the certificates are returned to the owner, who can leave them registered against the property until another mortgage loan is required. The number of certificates required for a new loan would then be given to the financial institution as their security. For advice on mortgages contact Casa Canada Group – advice is free.

Another form or property loan is through a trust. The property is put into trust at the time the loan is made, and an agreement drawn up as to the terms of the trust. When the loan is repaid, the property reverts to the original title. This method has become more common trusts do not involve the court, however it is now necessary to pay transfer fees for a trust.

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