ACQUIRING A PROPERTY IN COSTA RICA
There are different ways and several steps to be followed in order to acquire a property in Costa Rica. The present memo is aimed to briefly answer the most frequently asked questions when a person or company desires to acquire a property in Costa Rica.
- Where and how are Costa Rican properties registered?
A/ There is one sole National Registry located in the city of Zapote, San José. The National Registry is a public registry and it has a Property Section where all titled properties are registered with an independent folio real number (i.e. 6-155600-000). The first number identifies the province where the property is located, the second number refers to the folio property number, and the third number refers to the property right (since a property can be co-owned by more than 1 person), where 000 means that full ownership is held by one single owner. The Civil Code indicates that Ownership and Property include the rights of possession, use, transformation and disposal, defense, exclusion, and restitution, which in order to be effective must be recorded before the National Registry. By means of said system, publicity is granted so that any third party can identify or verify who the recorded owner of a property is. In order to transfer a registered property, the recorded owner must appear before a Notary Public and grant a public conveyance deed which affidavit must be presented and recorded before the National Registry.
Exceptions: (A) Properties located within the restricted zone of the Maritime Terrestrial Zone (MTZ), which is a two hundred meters wide strip of land in the Pacific and Atlantic coasts, measured from the low tide water mark. The MTZ is comprised by two sections, the public zone (which occupies the first fifty meters which are of public domain), and the restricted zone (which occupies the remaining one hundred and fifty meters, same that can be possessed by means of a concession granted by the local Municipality and ratified by the Costa Rican Tourism Board). Said concessions over the restricted zone of the MTZ are registered in a different section of the National Registry called the Concessions Registry, with a different independent registration number. There are a few very special cases in which a property located within the restricted zone may have a registered title. Such cases need to be carefully analyzed case by case to double check the legality and validity of the title. (B) There are also non titled properties, which are not registered in the Property Section of the National Registry. In order to register said properties, a judicial process regulated by the Costa Rican law named “Ley de Informaciones Posesorias”, must be followed by those parties that by means of adverse possession seek title for their land, provided that they comply with certain requirements, among them a minimum possession of 10 years.
- Can I acquire a property under my personal name, even being a foreigner?
A/ Yes. However, a property can also be acquired through a corporation, which is usually recommended in order to separate possible personal liabilities that may jeopardize the property and also to facilitate the closing procedure and future operating needs in relation to the management of the property. A Costa Rican holding company may also be required by a foreigner in order to have access to certain public services.
Exception: In the case of properties located in the restricted zone of the MTZ, a foreign person can only be the beneficiary of 49% of the concession’s rights or 49% of the shares of the company holding the concession rights.
- What is the procedure to be followed in order to acquire a Costa Rican property?
A/ The most recommendable course of action is the following:
- Sign a Purchase and Sale Promissory Agreement or Option to Purchase Agreement, clearly stating the conditions to be fulfilled in order to proceed with the execution of the Conveyance Deed. In some particular cases due to complexity of the transaction or the negotiation process, before the execution of a Purchase and Sale Promissory Agreement or an Option to Purchase Agreement, a non binding Letter of Intent LOI, or Memorandum of Understanding MOU may be signed for the parties to agree on the general terms and structure of the transaction;
- Due Diligence Period, which is basically a complete legal research to be performed during the Option or Promissory Agreement’s term in order to verify the absence of actual contingencies related to the property, its title, constructions, etc.;
- Sign a conveyance deed or public purchase and sale deed before a Notary Public. As an alternative option, if the property to be acquired is owned by a company, a Share Transfer Agreement may be signed in order for the shares of the owner company to be transferred, instead of the conveyance deed. In this scenario, a due diligence over the company shall also be performed in order to verify the absence of actual contingencies for the company (such as debts, etc). In many cases this alternative may not be advisable due to the impossibility of detecting certain past circumstances which may cause the company to be potentially exposed to contingencies and/or obligations;
- Once the conveyance deed is signed by the parties, and the transfer expenses are cancelled, the respective Notary Public has the obligation of presenting and recording said deed before the National Registry in order for the new owner to appear as the new recorded owner. Until the Conveyance deed is duly recorded, the acquisition will not be binding to third parties but only amongst the parties of the deed. This is one of the main reasons why the Notary Public to be chosen needs to be a responsible and diligent professional. Well structured law firms providing services as a “team of professionals” may give additional security to the parties. Additionally, this is a good reason for the purchaser to be the one appointing the Attorney and Notary Public who will be in charge of the deed of transfer and its corresponding recording process at the Registry, as the purchaser´s interests are not fully satisfied but until the recording process has been fulfilled;
- Finally, after the conveyance deed is duly recorded, it is important to report to the corresponding local government (Municipality), that the property has been transferred and if need be, to update its declared value for tax purposes. For declaring a property before the respective municipality, some requirements and a form to be signed must be presented. The foregoing is an important post closing task to be achieved as every owner must pay annual land taxes before the local Municipality.
- If I live outside the country, should my presence in Costa Rica be required for signing the Conveyance deed or Purchase deed?
A/ The presence of the buyer is not strictly necessary. If the buyer desires to acquire the property in his personal condition, then he/she can grant a special power of attorney before a Costa Rican notary public or Consulate to any third person he trusts, in order for him or her to sign the conveyance deed on his behalf. If a company is going to be used to acquire the property, a proxy letter can be signed by the shareholders of the company, authorizing a third person also by means of a special power of attorney to execute the acquisition act on behalf of the company.
- How can I check the status of my property?
A/ The National Registry has the following web page http://www.rnpdigital.com/ where any person can check the status of his property, you just need to create a username to do so.
- How much expenses, taxes and legal fees would I have to pay for the acquisition of a property?
A/ By law, every acquisition of a property has to pay the following registry rights:
Registry: 5 colones for each 1000 colones of the purchase price; Agrarian: 1.5 colones for each 1000 colones of the purchase price; Municipal: 2 colones for each 1000 colones of the purchase price; Fiscal: a maximum of 625 colones; Bar Association: a maximum of 10.000 colones; Archive: 20 colones. In addition, a transfer tax of 1.5% of the purchase price must be paid in favor of the National Registry.
With regard to the legal fees for a property’s transfer, our Law Firm charges from 1% to approximately 1.5% of the purchase price, depending on the purchase price of the property and the complexity of the transaction. Such rates are established by the Costa Rican Bar Association.
- If I live outside the country, how can I transfer the funds to Costa Rica for the property’s acquisition?
A/ By means of an international wire transfer, the funds can be received in Costa Rica by recognized escrow companies, who will keep under custody funds and provide escrow services. Our law firm has excellent business relations with all these escrow companies and will contact you with any of them, if necessary. Wire transfers from the buyer´s account to the seller´s account may also be carried out in certain cases but will need special coordination on the closing for everything to occur almost at the same time. (sellers may not feel comfortable in signing the closing documents without having a bank confirmation that the wire transfer has been completed and buyers shouldn`t send the purchase price to the seller`s account before the closing documents have been signed.)
- Where and how should I pay municipal land taxes and eventually urban services?
A/ Before the respective Local Government or Municipality. Land taxes correspond to 0.25% per year which are calculated over the recorded value of the property. Please note that normally in urban districts or certain areas with urban development, some urban services are provided, such as garbage collection and maintenance services, which payment is normally included in the taxes bill. These taxes need to be paid every three months but may also be paid for 6 or 12 months in advance if the property owner wishes to do so. Some Municipalities will apply a discount to property owners paying for the full year in advance.
We hope this memo would be useful to better understand the process of purchasing properties in Costa Rica and feel safe while doing a real estate investment in our country. We have always believed it is nice and pleasant for an investor to understand exactly what he is doing and keep a certain legal of control even being miles away from home.
At 1st Choice Realty we are looking forward to provide you professional and efficient real estate and legal services. Each and every client is attended by a team supervised by one of the partners in order to guarantee top quality service. We have also created an important network with many other professionals such as architects, builders, accountants, appraisers, topographers, etc, that may be useful for our clients.