Real Estate Tips
If you are considering a real estate investment in Costa Rica, the
following information will help you understand the real estate buying
process.
The information is divided into three main sections:
I. Property types in Costa Rica
II. Basic steps to purchase property in Costa Rica
a. Legal vocabulary
b. Step-by-step buying process
III. Ensure a real estate transaction is legally executed in Costa Rica
Property types in Costa Rica
Just like in the US, Canada, and Europe, there are different types of
properties available to buyers. Understanding the various types of properties
is crucial in the evaluation process. This section highlights the property
types that can be purchased in Costa Rica.
A. Fee Simple:
i. The most comprehensive form of property ownership in Costa Rica is
fee simple. The conditions for this type of ownership are the
same for foreigners as for Costa Rica citizens. The concept of fee simple
ownership in Costa Rica is the same as in the US. Basically, fee
simple ownership gives the owner of the property the absolute right
to physically own the property, use it, enjoy it (i.e. usufruct), sell
it, lease it, improve it, etc., subject only to conditions outlined
in the Costa Rica Laws.
B. Concessions in the Maritime Zone:
Concession property is more commonly known as beachfront property. In
Costa Rica, 95% of beachfront property is considered concession property
and is governed by the Maritime Zone Law and other specific regulations
including but not limited to special dispositions stated by municipalities
and the ICT (Costa Rica Institute of Tourism). These legal dispositions
set forth the conditions under which foreigners and local residents
can own concession property. A concession in Costa Rica is defined
as the right to use and enjoy a specific property located on the maritime
zone for a pre-determined period of time. The government through the
respective municipality grants this right. The first 200 meters
measured horizontally from the high tide line defines the boundary of
the maritime zone. This zone also includes islands, pinnacles
of rock, mangroves, estuaries, small islands and any small natural formation
that overcome the level of the ocean. This 200 meter zone is divided
into two areas:
1. Public Area: The first 50 meters measured horizontally from the high
tide line. This zone is not available for ownership of any kind. No
kind of development is allowed except for constructions approved by
government entities.
2. Restricted/Concession Area: The area comprised of the following
150 meters is available for concessions to be granted. A
concession is in essence a "lease" on the property granted to the lessee
for a specific period of time. Normally the concession period is granted
for 20 years. An owner of a concession may build on that concession,
subdivide the concession and make other changes to the property with
the appropriate permits from the local municipality.
There are some limitations regarding properties located within the maritime
zone. The law establishes that foreigners cannot be concessionaires
except through a partnership with a Costa Rican or foreigners residing
in Costa Rica for at lease five years.
C. Properties in Condominium:
When US citizens think of condominiums, they normally think of large
apartments or townhouses. In Costa Rica, there is a specific law
that in combination with other legal dispositions regulates all conditions
required in order to set up a condominium. Each condominium development
has its own bylaw containing all the restrictions, limitations and privileges
that can be enjoyed by the owners.
Ownership of property "in condominium" is fee simple ownership. It is
important to obtain a copy of the bylaws to check the architectural
guidelines, land usage restrictions, and others. Developers commonly
use the condominium laws to build private roads and to set architectural
guidelines to prevent abuse. For the most part, condominium laws in
Costa Rica are designed to protect the integrity of a development.
D. Time Share:
The right to use a property during certain weeks of the year. In most
cases the time-share ownership grants similar rights as implied in the
condominium regulation except that in the time-share it is limited to
certain weeks during the year. Consequently, one single unit is subdivided
into parts and sold individually.
Basic steps to purchase property in Costa Rica
Once a buyer has seen a property of interest, the next step is to understand
the process for acquiring the property. The following are basic
steps that a purchaser follows when buying a property in Costa Rica:
1 - Sign a purchase/sale contract with the seller
2 - Deposit funds in an escrow
3 - Title research is performed
4 - Closing – Execution of Transfer Deed, Endorsement of Shares and/or
Mortgage Deed and disburse funds
5 - Register new owner with the Public Registry
6 - Receive official Title Guaranty
1. Basic Terminology – While the purchase process may seem simple, there
are some key legal terms a buyer should know. The following is common
vocabulary used in real estate transactions in Costa Rica.
a) Folio Real: This is the "social security" number of properties. It
is a unique number assigned to each property to identify it and distinguish
it from others. This number is comprised of three parts where the first
number indicates the province, the second group of numbers is the number
of the property itself and the last group indicates how many owners
the property has or has had. The property that you are buying MUST have
this number in order for you to obtain clear title.
b) Transfer Deed (escritura de traspaso): This is the document that
contains all of the stipulations regarding the transfer of real estate.
This document must be prepared by an attorney who must also be a Public
Notary and the deed must be recorded in his/her notary book as well
as at the Public Registry of Properties in San Jose. Stewart Title Costa
Rica provides this service. Further, Stewart Title guarantees that the
deed will be registered the same day or next day after the close to
insure the government recognizes your purchase immediately and no other
party can claim it before you.
c) Power of Attorney (Poder): This document authorizes a person to act
on behalf of another to perform specific actions such as the purchase
of a property. This is especially useful for clients that wish to close
on their property without returning to Costa Rica.
d) Survey Plan (Cadastral Plan): In order to transfer or acquire a property
a survey must be recorded at the Public Registry with the municipality
authorization. The official drawing of the property is validated through
an approval process at the Public Registry of Properties as well as
at the municipality in which the property is located.
e) Public Notary: Attorney licensed by law. A public notary is necessary
in order to purchase a property. He/she will be in charge of drafting
the appropriate transfer deed.
f) Representatives: If the buyer or seller will not attend the closing,
an individual with power of attorney to represent either or both parties
will be required on the day of closing. If the buyer, seller or both
are corporations, a legal representative should be present to
sign the deed and he/she should have a legal document to justify his
presence. This document is granted by a Public Notary.
g) Record of the transfer deed: Upon the signature of the transfer deed,
the Public Notary takes the deed to the Public Registry. The record
process is made of two phases. On phase one, the notary turns the deed
to the Public Registry for the appropriate annotation. The registry
verifies the deed is correct and on phase two the property is recorded
in the name of the new owner.
Purchasing Methodologies
1. Acquiring real estate in Costa Rica through a direct transfer: This
is the typical purchase process in which one or more physical individuals
acquire a property in their personal name.
2. Acquiring real estate in Costa Rica through corporations: One of
the must common practices in Costa Rica is to acquire properties through
a new corporation or through an existing corporation that owns the property.
The advantage of this method is that the buyer can protect his or her
asset anonymously. Further, if a purchaser acquires a property through
an existing corporation that already owns the property, there are no
transfer taxes and other stamps to be paid. This is due to the
fact that transfer taxes and stamps must be paid anytime there is a
change in the ownership of the property. When acquiring the shares of
an existing corporation, technically there is no change in the recorded
owner of the property. If a property is acquired through a new corporation,
the transfer taxes and stamps must be paid because the name of the property
owner changes.
Fee Structure
A. Transfer taxes, stamps and other costs: In order to record the transfer
of a property, a 1.5% should be paid for transfer taxes and an additional
1% for stamps at the Public Registry.
B. Notary Fees: Notaries are required by law to charge 1.25% for legal
fees.
C. Survey fees: When a new survey for the property is required.
D. Mortgage registration fees: The government charges .6% of the mortgage
value to register the mortgage deed for the property.
Ensure a real estate transaction is legally executed in Costa Rica
One of the greatest concerns among foreigners purchasing real estate
in a foreign country is to ensure a transaction is executed legally
and if the legal system will insure a lifetime of enjoyment of the property.
The Costa Rica legal system, if followed correctly, does give ample
protection to investors. However, if a transaction is not executed correctly,
loss can occur.
To guarantee real estate investments in Costa Rica, there are three
tools that should be present in a transaction.
a. Adequate legal representation and an experienced notary.
A notary is an impartial individual in the closing but his/her job as
the legal representative of the parties should provide the buyer on
the seller with legal advise as to the complete process.
b. Title Guaranty in Costa Rica
A contract by which a third party (Guaranty Company) commits to indemnify
losses due to legal situations that could affect the property and that
are not excepted or excluded from the respective coverage. It’s a legal
document that grants the buyer the security and peace of mind that the
buyer has clear title to their investment is protected in the event
of defect. The process of issuing a Title Guaranty includes the issuance
of a Title Commitment that allows the buyer to examine the legal status
of the property and provide them with a tool to evaluate if the property
is in proper condition for purchase. The final title guaranty is issued
after the close and is based on the title commitment. Title Guaranty
is a new concept in Costa Rica, but it has already proven to add value
to initial real estate purchases, re-sales and has encouraged transparency
and increased liquidity in the real estate process.
c. Escrow in Costa Rica
Most buyers from the US understand Escrow service to include not only
the managing of funds for a property purchase, but all of the administrative
work required to execute a close. In fact, in states where an
attorney is not required for a real estate purchase, the escrow agent
becomes the central party responsible for ensuring that all of the documentation
is in order before the close. In Costa Rica, escrow is more narrowly
defined as a financial service that prevents the manipulation or mishandling
of funds prior to closing. The escrow agent is a neutral third
party with responsibility for issuing checks and executing payments.
This system gives confidence to all interested parties (e.g. attorneys,
brokers, seller) that they will receive funds at the closing.
Conclusion
The real estate buying process in Costa Rica need not be intimidating
or confusing. By understanding the steps in the process and pitfalls
to avoid, a buyer can confidently invest in and enjoy a property.
The above information is in part courtesy of Stewart Title Latin America