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Fifty Meter 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 such as 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 Leased 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 and never owned.  For a foreigner to lease this land, a Costa Rican must show ownership of more than 50% of the company doing the leasing. A foreigner cannot lease this land personally. A good attorney can 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 that you have a competent attorney who will research this before buying the rights to the leased land. Leases are usually inexpensive and the renewal is usually automatic provided the lesser 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 wants this land returned, 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. The value of the improvements is established by a third party designated by the court.

Frontiers

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

Title

Most land in Costa Rica is titled. A good attorney will check to ensure that the property has good title. 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, claims may be made against the title for ten years. This includes a previous undivided interest registered as a separate parcel for the first time. It is therefore dangerous to purchase or to accept as security any land that has been registered for less than ten years.

The Central Registry for land in Costa Rica is computerized and similar to most registries in North America. Top law firms and title insurance companies have computers connected directly to the Central Registry and can search the title of land quickly from their offices. Registry of mortgages and liens are much the same as in North America.  A buyer should insist on an “Escritura” showing title to the property complete with registry stamps on it. Unscrupulous attorneys have been known to keep registration fees and not register the property transfer allowing the vendor to sell the land again.

Title insurance to guarantee the title of properties can be arranged with Stewart Title or other professional title companies in Costa Rica.

Deposits

Deposits are not common in Costa Rica. When a deposit is given to an attorney or real estate agent, the money usually goes into his or her personal account. Trust or escrow accounts as they are known as in North America do not exist in Costa Rica. For this reason the use of title insurance companies there is becoming more common for the purchase of properties. If the sale or closing of the property purchase is to be on an agreed upon date, an option fee can be given to the seller by which the seller guarantees the buyer a right to purchase the property for a certain period of time.

Options & Contract

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 another buyer 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 attorney. If the seller is owner financing the property, the seller has the right to choose the attorney. Legal fees and costs will be approximately 2% of the property sales price bringing the total transfer cost of the property to approximately 4.5% of the price.

Property Tax

The municipality collects the 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.

Lease & 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. Consult with a competent attorney or a professional property management company that can assist you with this.

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 a competent attorney.

If rent is in a currency other than colones, 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 colones it is possible to contract for an increase of 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 forfeited if notice is not given. The tenant is obliged to leave the property in the same condition as when it was rented with the exception of normal wear and tear.

If the landlord wants the rental property back 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. Afterwards 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 the rent and other agreed upon costs in a timely manner as required, it is possible to evict him.  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 agreed upon 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 that is felt necessary.

Squatters

Squatter (“precaristas” in Spanish) are people who move onto a piece of property which they do not own without the owner’s permission, live there for a year or 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 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 security guard 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 particularly with the state banks. Expect continual delays with requests for additional information over many months and very high “commissions” or legal fees from banks. Fees and commissions can be as high as 10% of the loan amount. While low interest rates may be advertised, check carefully into the total package of costs.

Private mortgage lenders can move more quickly but the rates may be higher. Interest rates for investor lending funds are comparatively high; however commissions, legal costs and renewal fees are lower than most lenders. Some mortgage clients turn to temporary bridge financing through private mortgage lenders due to frustration with the bank bureaucracy. With some private mortgage lenders there may be no penalty charges for large mortgage payments or early payout of mortgages.

Mortgage documents are registered in the Central Registry much as in most industrialized countries. 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 check is cashed an accomplice quickly registers a new mortgage on the property ahead of the one just granted. Mortgages can be for any term, interest rate, amortization period or payment amount agreed upon between the parties.

A different form of mortgage used in Costa Rica is the “cédula hipotecaria”. These consist of certificates registered against the property and can be in any denomination agreed upon. A $100,000 mortgage could have 10 - $10,000 certificates, 1 - $100,000 certificate, 100 - $1,000 certificates or any other combination. The advantage is that it is not necessary to pay full legal expenses to increase or re-mortgage a property. The “cédula hipotecaria” remains in effect.

When a mortgage is paid off the certificates are returned to the property 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 this type of mortgage contact a professional banking or private mortgage institution.


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