REAL ESTATE GUIDE

A Guide to Real Estate

Investments in Costa Rica

Costa Rica is a beautiful and peaceful place where you can enjoy a great vacation at the beach or at the mountains; let yourself go with extraordinary views, sunsets and beaches of with sand, as well as a great weather.

If you have the opportunity to come and see what this small paradise can offer you, then you will probably want to further think about investing in a place of your own; a little piece of heaven where you can feel at home.

If that is the case, then is guide will certainly be of benefit to you. It will help you understand a little better what it takes to invest in property in Costa Rica, and will provide you with a guide to the steps you will need to follow in order o find the place that fits your needs and expectations.

01- Can a foreigner own property in Costa Rica?
02- What Kind of property is out there?
03- Time to make some decisions
04- Finding the place dreamed of
05- Legal Advice: don't leave it to chance
06- Making sure your land won't away
07- Becoming a real estate owner
08- Myths and realities about squatters
09- Protecting your property
10- The closing
11- The closing costs
12- Additional observations related to the Closing
13- The power of attorney

Can a foreigner own property in Costa Rica?

Unlike other countries, Costa Rican law makes no substantial differences between its citizens and foreigners with regards to rights of ownership of any kind. This means that it doesn't matter where you come from. If you have a valid passport with you, you can purchase a car, a boat or apiece of land just like any “Tico ”.

However, according to the law, there are a number of different designations / types of property for which some restrictions may apply and therefore, should be carefully considered.

What Kind of property is out there?

Registered property

In Costa Rica, all properties that have an owner, according to law, must be registered in the public institution in charge of all related matters (i.e. owners of land, cars, boats, intellectual property, corporations, powers of attorney and more ). This institution provides public access to these registries which helps to make real state and business in general more secure. It is called the National Registry (Registro Nacional) and there you can find all the information you need to know about any property you are interested in, such as: who is the current owner, the survey plan, the size and boundaries of the land, if there's a mortgage on the property, land segregations, etcetera.

Within the registered properties, there is a special classification

-Property in Condominium. This kind of property is subject to some different regulations that come with certain advantages, tennis courts or gardens depending on the Condo. There are also some restrictions set by law and others set by the Condominium's specific Internal Rules and regulations governing security, moral code, and a common maintenance items. These added amenities typically add cost to the initial purchase price of such properties.

Maritime Terrestrial Zone (Zona Marítimo Terrestre or ZMT)

The Maritime Terrestrial Zone encompasses a coastal area of 200 meters (646 feet) from the mean high the mean high tide line and has special laws governing its use. This area is divided in two:

-The Public Area, which extends from the mean high tide line up to 50 meters (164 ft) inland. This area is public and there is no possibility of ownership of any kind, neither for Costa Rica nor foreigners, and only approved marinas and ports can be built there.

That's why in Costa Rica there are no private beaches and if you are no private beaches
and if you are looking for a beachfront property you should be extra careful in your search, always seeking competent legal advice before committing to a purchase.

-The Restricted Area, extending from the end of the public area inland an extra 150 meters (492 ft). This is also known as the concession area. This area cannot be owned either, but the Government can allow you to build on this land for use and enjoyment for a specific term. This term, in most cases, can be renewed for equal periods (normally 20 years). If the “concession” is not renewed, the land and everything built on it reverts back the government.

In order to obtain a concession, an application must be presented to the local government. This process usually takes time and you must consider this in your plans. Maritime Zone properties are one of those that come with limitations for foreigner investors. By law, the concession cannot be granted to a foreigner alone; the concessionaire must be a Costa Rican or Costa Rican company that is controlled by Costa Ricans (at least 51%of the company's shares). The exception to this rule is that foreigner who has maintained permanent legal resident status for at least 5 years may also be granted a concession without the need for any Costa Rican participation.

Non-registered property

Almost all the land in Costa Rica is registered in the public Registry. There are however, properties that have not yet been registered or are in the process of registration. These are typically found in rural areas. It is not wise to purchase unregistered properties as the rights of possession could be contested. In these matters it is also wise to seek competent legal advice.

Public Property

There are some parcels of land that belong to State institutions, Municipalities (local government), National Parks and reserves. These are public under different special regulations. These public properties will remain public.

Time to make some decisions

The first thing you need to do if you want to invest in Costa Rican Real Estate is to decide what kind of property you want. It might be a place near the beach, the mountains or the city. Once you have figured that out, you will need to think about the type of climate you prefer: the Central and South Pacific is considered to be hotter than other parts of the country; if you like hot and dry weather you will probably prefer to be in Guanacaste and some areas of the Pacific; for cooler climes you would most likely seek refuge in the Central Valley.

Once you have decided where to invest you must decide what to invest in. If you want to find a plot of land on which to build your dream home, be ready to be patient; it can take some time between the design phase, permitting and construction process. There are many things you will need to consider, such as, but not limited to, finding a good architect or civil engineer who helps you not only with the construction plans but also with the permits. In order to start a construction in Costa Rica be advised that you will need permits from several institutions and it always requires time and paperwork. This need not be too unpleasant when you have the proper assistance of a professional who can guide you and provide his/her expertise in helping you get the job done in the shortest time possible and complying with what you want.

In some areas, there are additional requirements established by Environmental regulations. If you are considering investing in rural areas with the intention of building, an Environmental feasibility Study is highly recommended and/or required.

If you decide to buy a house or a condo already built, it will alleviate the worry of dealing with anything that has to do with permits, construction contracts and time issues. Nevertheless, you need to be aware that avoiding these little inconveniences will cost you some extra money.

Finding the place dreamed of

Once you have decided either way, and you have chosen the area in Costa Rica where you would like to invest, you will need to narrow down your preferences to a specific kind of property or properties. For this you can go two opposite ways: the first one is taking a ride around, basically window-shopping by yourself, answering ads in the paper or taking a car to see whatever you might. This will end up being a very time-consuming and exhausting experience and it will be very ineffective, since you probably won't find the exact investment you are looking for. If you get extremely lucky you might find something that interest you, but since you may not have perfect place could be waiting somewhere else without you even Knowing about it!

The other way to go, which is highly recommended, is finding a competent Real Estate Broker. By enlisting the help of a specialist who knows the market, has all the information, the listings and the necessary experience to guide you through the process of finding the perfect investment in a smooth and efficient manner, you will spend less time searching and more time enjoying the benefits if that search. Equally as important, you will have been exposed to the widest selection of properties available, which will hopefully result in locating exactly what you are looking for.

Legal Advice: don't leave it to chance

Once you have pinpointed a property, it's time to get legal advice for your investment to be a success. The only way to avoid unpleasant and/or costly situations with regards to a property purchase is through proper and through DUE DILLIGENCE. Between your broker and your attorney this process should uncover any/all issues with a property. Ideally, it will be completely free and clear of any liens, encumbrances, or annotations and all taxes should be paid up to date. It is also advisable to review the survey and property boundaries.

Finding the right legal counsel is as important as choosing the land you want to invest in. You will want to be certain that your legal professional will look after you best interest. It is best to seek the services of an expert team of real estate lawyers; a Firm with the name and the right people ready to provide you the legal advice you require for your investment to be a complete success.

Your Real Estate Lawyer will conduct a Due Diligence of the property you are interested in. This usually includes:

- A complete study of the land based on the National Registry information.

- A verification of the due title o f the Seller to sell,

- Determination of any limitations with regards to the intended end of use for the property. These may be environmental or other.

- Restrictions on the property such as public road restrictions, water easements, utilities restrictions, among others.

- Information about mortgages, liens and encumbrances.

- All types of annotations the property may have, advising you about its importance or potential for future repercussions.

- Property taxes due to date, such as municipal taxes.

- Check if the survey plan refers to the exact property you intend to acquire.

Making sure your land won't away

Costa Rica is a place to be right now, and you are not on the only person looking for a piece of paradise here. It is very important that once you have seen the place you want to invest in, and your lawyer has given you a green light to go for it, you sign a contract by which the Seller will hold the property for you exclusively and will agree not to commit it to any person for as long as the contract determines.

Usually this contract has a thirty-day term, but can be more or less depending on how complex the transaction is and what you and the seller agree to. Most of the time, you are expected to give a “down payment” or “earnest money deposit” as a consideration for the agreement which is normally held until completion of the purchase. This can be refundable or not, depending on the terms of the agreement. The deposit amount varies but is customarily in the order of 10% of the purchase price.

Usually, this deposit goes directly into the Seller's pocket where he will “hold it” until the term of the contract and eventual closing of the deal. However, new regulations of the Costa Rican Government have stated that, depending on the type of negotiation held and the nature of the parties (e.g. if the Seller is a Construction Company), all warranties, good faith deposits and earnest money should be deposited in a third party escrow account. This is an independent account where both parties, you and the Seller, will give specific indications tot his third party (the Escrow), regarding the way these funds will be disbursed , when and to whom this warranty will be give and under what conditions.

Using an Escrow removes any potential for misunderstandings or mistrust. Both parties can proceed with confidence knowing that the funds are protected during the real estate negotiation and that at the end of it, they will be distributed according to the exact conditions previously established between parties.

Becoming a real estate owner

Things are going forward in the process of investing in Costa Rica, and only a few steps are left before you can start enjoying the Costa Rican lifestyle in a place of your own. However, each of the following steps is as the ones you have already taken.

At this point you are about to close the deal and you need to decide under whose name you will register the property you are acquiring. You can decide to register the property under your name or under the name of a Costa Rican company (ask your attorney about the types of companies and which is the best choice for you).

In general terms, both ways are pretty much alike; each is completely legal, the property is yours and you have the legal ownership of the land with all rights and obligations. They also have their differences. With the use of a Costa Rican Company, your name doesn't appear in the registry of the property, only that of the company. Additionally, in the future if you decide to sell the property, you need not transfer the title to the land, you can simply sell the company with all of its registered assets, i.e. the land. This will avoid transference taxes.

Myths and realities about squatters

Costa Rican law recognizes rights of possession with regards to land. If a person has established themselves on a particular piece of land for a specific period of time, even if this land isn't registered under his/her name, he/she could claim possession of that land and apply for legal ownership. The process does take some time and if challenged, does not guarantee the “possessor” will become the legal owner.

It should be noted that this process is subject to very strict an limited regulation, and several conditions must exist fro a person to claim any rights to land that has not been acquired through legal transfer. The general conditions are (1) the “good faith” of the person claiming possession and (2) this person has to be acting before others as if he/she were the legal owner of the property. In productive land (e.g. a plantation or a small conditions, this person must have worked the land and made it productive for a long as he/she has been living on it.

Additionally, for a person to claim possession, he/she must have been living on the land with all the conditions met, for at least one year on productive land, or for at least three years on any other type of land.

According to those conditions, it is very unlikely that a person can claim “good faith” and “acts of ownership” on any land acquired legally by the purchase procedure explained in this guide. Even less probable is that these conditions could be met for three years without your knowledge.

The easiest way to prevent potential squatter issues is by living on the property you are acquiring. If you are going to be traveling back and forth from your homeland, we recommend that you have someone you trust keep an eye on the property in your absence.

If squatters appear on your property, the law gives you the right to evict them provided that you initiate the eviction within three months of the appearance of the squatters. If this process is not initiated in time, there are other legal procedures that will help you maintain your right of ownership of your land.

Protecting your property

Title guarantee: In many countries when you are in the process of investing in real estate, The Title of Ownership of the land is crucial. In Costa Rica though, we have the National Registry, where all property is registered with the name of the current owner and the need for a physical Title of Ownership is not necessary. The National Registry will provide certified documentation of ownership of any registered property at any time. These ownership documents are a matter of public record.

However, the National Registry alone does not provide you with any guaranty that no defects or recording errors have occurred during the registration process related to the transfer history of a particular property. Any errors may place in jeopardy the rights acquired and in extreme cases could even result in a loss of your investment.

For this reason, the use of Title Guarantee is highly recommended as it can provide an investor security against questionable title issues. Guarantee offered by an internationally known and respected company is the best choice for your protection.
The benefits of the Title Guarantee are strictly related to the prevention of loosing the property due to defects in the transfer history and do not extended to buildings or land-structure problems. It also may help to secure credit with a financial institution. Additionally, if the owner decides to sell the property, the Title Guarantee will give the prospective buyer the same reassurance.

In case of a legal problem regarding the Title, the company that issued the Guarantee will usually compensable the owner the value of the property or the legal cost of the Titled Guarantee is 0.5% of the property value and it a one time payment.

The closing

At this stage everything is ready for consummate the deal: you have found the land you wanted, the real estate due diligence has been completed; your legal counsel has given you the green light, the price of the transaction has been established by you and the Seller and now you are ready to sign all the documents required to complete the closing and finally become the owner of the property.

The main document that you and the Seller will sign before a Notary is a “Deed of Transfer”. This is a very formal document printed in the Notary's Protocol or legal book. In this Deed the Notary will indicate all the information of the property, the Seller and the Purchaser, the kind of transaction that is being performed, and also its cost. This document will be signed in Spanish. The lawyer will translate it to you under oath that everything he/she will read to you be an accurate translation of the Deed. The original document, the one signed by all parties will remain in the Notary's Protocol and a certified copy will be sent to the National registry to be recorded. You can have a copy of this original document if you want to, but never the original.

Once the document is signed by all parties, the transaction is considered to be closed. Once the amount agreed is presented to the Seller, the property will now be yours. However, the Deed needs to be presented to the National Registry for them to registry that you are the new ownership of the property. The Notary Public is responsible for presenting the Deed to the National Registry in a timely fashion. You should check with your attorney law for verification that the transfer deed has been presented as soon be patient as it may take up to several months for the registration to be completed (don't ask why). Once this has been completed your attorney will provide you with the certification of the ownership.

Closing costs

The closing is managed by a Notary Public: he/she will write the Deed, he/she has the obligation of presenting the Deed to the National Registry and to make sure that the Deed is registered correctly and on time. Additionally he/she will be the one paying the taxes and stamps to the Government, and is responsible for collecting the notary fee. This is the reason why when closing the deal you need to give the Notary Public the amount necessary to cover all these costs. The Government has established the percentages that will be considered as closing costs:

- Legal Stamps: 1%of the contract price.
- Property Transfer Taxes: 1.50% of the contract price.
- Notary Fees: 1.25% from the total real price (negotiable)

Who pays for the Closing costs?

There is no established rule about who pays for the closing costs and that’s why it is so important to negotiable this issues with the Seller while negotiating the price that you will be paying for the property. The most common scenario is that the notary fees are shared equally but all other transfer related expenses are paid for by the Purchaser. However, as we said, this is something you can negotiate with the Seller.

Additional observations related to the Closing

Sometimes the property you are purchasing has been mortgage previously by the Seller. This situation usually doesn’t represent any problem and your lawyer will inform you of it at the time he does the Due Diligence. Sometimes, when there’s a mortgage on the property, it is cleared prior to the Closing; in some cases it is paid / removed at the same time and even in the same Deed as the Transfer Deed.

Either scenario represents no problem because your lawyer will insure against any complications. The cost to remove the mortgage is paid by the Seller, and the Purchaser has the right to choose the lawyer.

The power of attorney

If a person is to leave Costa Rica for some reason and has investments or interests of any kind in the country, it is recommended leaving a person of trust in charge of those interests for as long as he/she is away. The legal procedure to do so is by granting a Power of Attorney. The Power of Attorney is a legal instrument by which a person (the principal) gives another (the agent) the legal capacity to act on his/her behalf according to the extension that the Power itself allows him/her.
There are different kinds of Powers of Attorney:

- Full Power of Attorney: This power allows buying and selling any goods, accepting mortgages on properties, acquiring debts, giving any good as warranty, signing checks, etc. It is a Power of Attorney in which the agent can appear before almost any authority on behalf of the principal and act in almost any kind of situation in his name.

- General Power of Attorney: This Power of Attorney is to be used for administrative purposes. It's the power given usually when you have a business on your behalf. It allows hiring help, signing invoices and, if not limited to the contrary, performing any activity considered normal for the business or company.

- Special Power of Attorney: It allows the agent to perform only a specific act or sequence of acts, each one specially described in the power. Any other act that is not enclosed in the Power itself cannot be performed legally.

As a general note to powers of attorney it is important to emphasize that when a principal gives the power, he/she can state any limitations he/she will consider appropriate, depending on the needs and trust he/she has in the agent.