Connecting Canadians to their tropical dreams since 2005
Buying Land
In Costa Rica
Buying and owning property in Costa Rica, or any foreign country can be
a confusing and intimidating process. How can I make a safe and efficient
transaction? Can I just leave everything up to the lawyer? What are my
rights as a foreigner? Can squatters invade my land? These and many other
questions will be answered in the information provided in this guide.
Costa Rica does have a system; although not perfect… it works fairly
well. Thousands of foreigners have safely invested here. You can be one
of them. Unfortunately, many people become so enchanted with the country
and it’s people that they fail to exercise good judgment and common
sense, or another familiar scenario... making decisions on what "they
thought they understood to be the rules". In Costa Rica, you will
find similarities to Canadian/US rules, but many aspects of the system
are different. Take the time to learn the basics! Also, as a buyer, being
somewhat knowledgeable during the process will cut down on wasted time
looking at properties that don’t fit your needs or properties that
are unsuitable for one reason or another. The information provided here
will go a long ways in getting you started.
Property or Finca - The 4 basic Categories
Private Titled Land
Private Untitled Land
Beach Land
Refuge Land - Alternative to Maritime Lease
Squatters
Option Agreements
Real Estate Agents
Lawyers and Closing - The Process of Settlement
Closing Costs
Land Taxes
PRIVATE
LAND / TITLED
In Costa Rica, foreigners can own titled property in their own name and
share the same rights as a Costa Rican citizen. There are two documents,
which describe "titled" or fee simple property (land outside
the beach zone): First, the title itself or Escritura. Titles are registered
in the national registry or Registro Nacional and show ownership along
with any leans, mortgages, or judgments. The second part is the registered
survey map or Plano Catastrado. The Plano serves the purpose of recording
measurements, size and location along with other useful information like
whether the land falls inside restricted areas such as IDA Land (co-op
owned lands with the government) or inside protected areas like national
parks and reserves. NOTE: The Escritura and the Plano may be different
from each other and yet refer to the same property. The Plano is NOT the
ownership document and may even reflect a previous owner’s name.
Ownership of the land (title or escritura) is recorded in a separate department
of the national registry. Both parts must be checked to verify that ownership
and mapping coincide with the same piece of land. These two departments
are currently making internal changes to make the process a little less
clumsy. Once a property is titled for the very first time (original inscription),
there is a three-year "incubation period" where third parties
can make a claim. However, any new claims must carry a fair amount of
proof before a title can be challenged. After three years, a claim can
still be filed but calls for extraordinary circumstances. There is a ten-year
statue of limitations for such claims.top of page
DECLARATION OF VALUE: (Titled Land)
It is common in many land transactions to not claim the actual selling
price but declare a lower value so as not to pay higher taxes and registration
fees. This is the buyer’s decision but may not be advisable in all
cases. If there were ever a future claim against the seller or the government,
or you wanted to mortgage the property, any reference would be made to
the recorded value and not the actual price that was paid. You may also
consider that in the future if you resell the property, it may be more
difficult to explain a substantial difference between what you are asking
and what you paid for the property. Consult your lawyer before making
this decision. top of page
PRIVATE LAND / UNTITLED
Also called "possession" land. Most of the land in Costa Rica
falls in this category. Even though many lands are untitled, it does not
mean that they do not qualify for title. Some do and some don’t.
In a possession scenario, it is the recording of the legal transaction
that establishes possession or ownership rights...not a title. The reason
for this is that for many years, farmers and settlers (for any number
of reasons) never applied for their title but possessed them in a "legal
manner", established boundaries and transferred rights through private
documentation. When properly recorded, these rights are completely legal,
fully transferable and can qualify for inscription in the national registry
as fee simple title. Legitimate possession rights can be demonstrated
by researching the history of ownership recorded through private documentation.
This is done through a properly recorded bill of sale in a lawyer’s
protocol book. The bill of sale or carta de venta shows transfer of ownership
and describes the property in words relating to the surrounding properties
and well defined landmarks. Pages from the lawyer’s protocol book
are then registered in the national registry.
The other side of the possession issue is land occupied and claimed by
illegitimate settlers or "squatters"; someone claiming rights
of ownership but have no "ownership documentation", only that
they occupied the land for a certain amount of time. In these cases, there
may be some form of rights established but it is more difficult to define.
Costa Rica does have a Homestead law or Precario law that sets the guidelines,
however it is outdated and needs to be modified. Sometimes there is a
clear distinction between "legitimate possession" and "illegitimate
possession" and sometimes there is not!
In 1941, a titling procedure called Ley de Información Posesoria
was created by the government as a means for landholders to record or
"register" their land that has been "held in possession".
Many lands have been registered using this procedure. Minimum requirements
to qualify for a registered title to possession land are a registered
survey and verifiable history of legitimate possession "passively
and publicly" for a minimum of 10 years with no disputes. The remaining
parts to complete the title process are notarized statements from adjacent
property owners along with a judge’s inspection and review of all
documents. This process, done with the help of a lawyer, can take up to
a year (possibly more) and cost between $1,500 and $3,000 depending on
the size of the land. NOTE: Possession lands cannot be liened or mortgaged,
as they have not yet been recorded in the national registry.
In some cases, a buyer will pay for the title process after the sale or
even make it a condition of the sale or escrow. Keep in mind that not
all cases are alike. It takes a good understanding of the history of ownership
for each property. In general terms, it is a good rule to not buy untitled
property if you are not clear about how it works. However, considering
that most of the land in the country is untitled, it is logical that most
of the land transactions have to do with untitled land. Many people have
safely bought possession lands including foreigners. top
of page
BEACH
LANDS
Beach Lands, or Maritime Zone lands, are dealt with in a different way.
The Maritime Zone Law or Ley Zona Marítima Terrestre 6043, commonly
called the "Concession Law", was established in 1977 and defines
the Maritime Zone (ZMT) as the 200-meter strip of land along the shoreline,
calculated from the "average high tide". It is owned by the
state and jointly administered by the local Municipality and the federal
institution of ICT (Costa Rican Tourist Institute). The ZMT is described
in two parts...the first 50 meters is public domain or "public zone"
and cannot be developed or claimed by private persons. The next 150 meters
or "restricted zone" can be legally claimed and occupied by
private citizens by soliciting the Municipality for the rights through
a "concession application" called a Solicitude de Concesión.
Initially, the legal instrument that constitutes the right of occupation
is called a Permiso de Uso, essentially a lease or Arriendo, which is
registered with the Municipality by submitting a Solicitude de Concesión.
Contrary to popular belief, these leases have no time limit as they are
designed as an "interim right" of ownership until proper zoning
and concessions can be processed and registered. Stories of 99-year leases
etc. are simply untrue. According to the law as it is written, the leaseholder
has the right to occupy the land and build a temporary structure. However,
it's important to note that Municipalities around the country handle the
building issue in different ways. Even though constructions of all sizes
and types have been allowed by the Municipalities, certain risks are involved
depending on how you go about it. Each occupant pays a yearly "occupation
tax" or canon to maintain their Permiso de Uso. Traditionally, taxes
have been quite low... normally less than $30 for a few acres. However,
these days, many Municipalities are establishing new guidelines and raising
taxes.
Legally registered occupants can transfer their rights by way of a Cession
de Derechos, where the registered occupant "gives up his rights and
passes them on to another person". Transferring rights is a simple
process but there is a very specific format that must be followed. The
transfer or traspaso MUST be ratified by the Municipal Board or Consejo.
Even though the law does not require an attorney to process lease transfers
and concessions, the vast majority of people who buy land inside the ZMT,
logically, go through an attorney. Anyone can process the paperwork themselves
and just get the attorney to notarize a few necessary documents. This
is not to say that it is a simple process. You still need to understand
it and follow up until the transfer is recorded. This is where most attorneys
fall short. They present the documents and feel their job is done, when
in fact it's the approval and recording portion of the process that requires
the most attention.
Zoning and Concessions: Over time, individual sections of shoreline property
will be declared as having "touristic aptitude", thus qualifying
that section of land for traditional style zoning which is implemented
through a zoning proposal or Regulatory Plan called a Plan Regulador.
Once the Regulatory Plan is elaborated and approved through the corresponding
institutions: ICT, INVU and the Municipality, the legal occupants inside
the newly zoned area can now "activate" their Solicitude de
Concession and transform their Permiso de Uso into a Concesión,
a permanent and more specific form of ownership outlined in the ZMT Law.
A Concesión is as close to a title as you can get even though the
land technically is still owned by the state. The Concession Contract,
spelling out the terms of the Concesión, are inscribed in the National
Registry giving the Concession holder more security with clear rights
to develop, transfer or even take out a mortgage. Concessions for residential
and tourist projects are automatically renewable every 20 years for eternity
assuming terms of the Concession Contract are met by the Concession Holder,
which basically are... respect the public zone, pay your taxes and develop
in accordance to the zoning regulations laid out in the Regulatory Plan.
New taxes are assessed for each Concession and are substantially higher
than the previous occupation tax. If you were paying thirty dollars for
your occupation tax you could pay a few hundred dollars for your Concession
tax.
Even though there has been a substantial amount of development in the
ZMT, to this day, 95% of the coastal lands in the country still do not
have approved zoning or Concessions. And since development cannot take
place without property zoning, 95% of the development inside the ZMT country
wide is technically illegal. Also, since concessions are only granted
once there is approved zoning, 95% of the lease holders have a Permiso
de Uso... NOT a Concesión. This fact may sound alarming but basically,
central government recognizes the fact that zoning the coastline has not
kept up with actual development allowed by the local government. In most
cases, existing development will be "grand-fathered in" once
zoning eventually takes place.
The "purchase" of rights to beach property is essentially a
private agreement between the buyer and seller. Technically, the law does
not allow "buying and selling" of state domain. That is why
a token amount for the value appears in the public transfer documents
instead of the actual purchase price. Costa Ricans or foreigners having
5 years of residency can register beach property in their own name. All
other foreign citizens must register the rights to their beach parcel
through a Costa Rican corporation formed by an attorney, a simple process
that takes about 45 days and costs around $600. The corporate board of
directors may be formed by foreign residents but the corporation must
have at least fifty percent of its shares held by a Costa Rican resident.
You will see the initials S.A after many corporation names. This stands
for Sociedad Anonima or "anonymous society" which is the most
common type of corporation used because shareholders have anonymity. Normally,
a prearranged agreement is made so at the time of closing the property
sale, the Costa Rican shareholder endorses their shares over to the foreign
shareholder so they end up holding 100% of the shares. These are "bearer
shares" and are registered in a private registry (the corporate books).
This procedure has been common practice around the country however some
lawyers have devised other methods by holding the shares in a "legal
trust" as opposed to endorsing shares at closing. Most lawyers will
set it up however you ask them but be sure to understand how it works
before you decide. top of page
ALTERNATIVE TO MARITIME LEASE
In 1992, The Ministry of Environment and Energy or MINAE created a new
law called The Law for Conservation of Wildlife No. 7317. This decree
by the central government offers a program for landowners allowing them
to declare their land as a "protected zone" while maintaining
ownership rights and allowing certain development and or other activities.
This program also encompasses the beach lands or Maritime Zone. In this
case, administration of the Permiso de Uso essentially changes from the
local municipality to the national government. Usage rights are similar
to those described in the Maritime Law except in some ways are less restrictive.
Traditional zoning or a Plan Regulador is not required. Declaration and
rights are solicited through a simpler instrument called a Plan de Manejo
or management plan. The Plan de Manejo describes the project and land
usage, be it a residence, tourist project, agriculture or other uses of
public and social interest. The specified land or protected zone is declared
a wildlife refuge or refugio. Basic guidelines for environmental impact
and sustainable development are spelled out in the new law, however, large
projects are required to present a more detailed study. The purpose of
these refugios is to place more lands in state protection while still
allowing low impact development. For refugios in the Maritime Zone, concessions
are not awarded. Instead, usage contracts are registered with 10 year
Permisos de Uso. Contracts are renewable each term by soliciting the ministry
every 9th year. A fixed occupation tax or canon is paid yearly to MINAE
but refugios are exempt from the vienes inmuebles tax (improvements like
constructions). This has become a popular alternative for maritime property
owners around the country. Refugio rights can be 100% foreign owned. This
option may or may not apply or make sense in all cases. It is important
to compare the benefits for each case. top of page
SQUATTER’S RIGHTS
"What do I do if I am an absentee owner? How do I protect my land
from being occupied by third parties?" The answer is simple…
have someone responsible check on it once a month while you are gone.
You can also have someone live on the property as your caretaker. If you
hire a caretaker, draw up a written agreement and have it notarized by
an attorney. Handshake agreements can be full of good intentions but may
be a problem later. Don’t make this avoidable mistake. Get it in
writing.
Articles in the civil code outline Costa Rica’s homestead law or
Precario law. Basically, the law allows peaceful occupation of "untitled
and unattended land" unless there is opposition by the existing owner.
If your land is unattended and someone moves onto the land, they begin
to establish certain rights after three months. Action for removal is
required before the end of the third month but the process is less complicate
than if they occupy the land for a longer period. If squatters have occupied
the land for more than three months but less than a year, the process
of eviction called desalojar or desalojo, becomes more involved. Although
eviction is more complicated, you are not yet required to reimburse the
occupants for their "improvements" to the property. If the land
is occupied for more than a year but less than ten years, you may still
be able to recover the property, but the legal process may take years
and you will be required to make a settlement for the "improvements"
made by the occupants. "Improvements" can range from the construction
of shacks, planting of crops and even cutting of trees to clear the property.
Improvements and compensation are established by the court. In most cases,
it is best to negotiate an out of court settlement. If someone is living
on a property you are interested in buying, be it the owner, a relative,
a worker etc., you must be sure this is addressed and settled as a condition
of the transaction. Precario rights can affect both titled and untitled
land but the process of eviction for titled property is in theory, faster
and less complicated.
The department of IDA, The Agrarian Development Institute, was established
in 1961. This government agency was formed when Costa Rica was trying
to develop and expand its farming production. The institute was designed
to represent landowners in cases where legitimate possession rights were
being challenged or where land was not being utilized for some form of
productive agriculture. One job of the institute is to defend the rights
of the possessor as outlined in the precario law…sort of a public
defense body for peasant landowners unable to defend themselves against
larger landowners trying to "expand" their territory. However,
there are many cases today where the system is abused and people fall
victim to "de-facto tenants". That is why it is important to
know the history of possession and above all…. follow the rules.
If ownership is legitimate…it must be demonstrated within the guidelines
outlined in the law. It is important to remember that the precario law
and the recognition of possession rights is considered the first step
in the titling process and is the basis of how many lands were originally
settled and eventually titled in Costa Rica … in a legal manner.
top of page
OPTION AGREEMENTS
In some cases, a buyer may want to make a down payment or buy an "option"
on a piece of land. The final deal may depend on some outstanding details
to be worked out or obligations to be met, but both the buyer and the
seller would like to formalize a provisional agreement. Examples might
be that the land needs to be re-measured to verify boundaries or that
the seller offers to make improvements before closing. Option money can
be given directly to the seller or be held by a neutral party, depending
on the circumstances of the deal. Option contracts must be notarized by
an attorney but are normally not recorded in the National Registry. Therefore,
it is recommended the buyer put down a minimum amount in case the deal
goes astray. If the deal falls through, it may be difficult to recuperate
monies spent. Going to court is a lengthy process and not worth the effort
unless large sums are involved. Terms of the sale should be written in
the option contract including settlement if the deal does not transpire.
Usually, the buyer forfeits the option money if he backs out of the deal
without good cause. top of page
REAL ESTATE AGENTS
In Costa Rica, there is little governmental regulation of the real estate
industry. However, a knowledgeable real estate expert will be invaluable
in helping you with many aspects of your purchase. Get a local recommendation
for an agent with a good track record. Ask several of the foreigners living
the area that has the best reputation in town... and then ask the agent
for some references. In general, a good agent performs a more critical
role than stateside agents as the system in Costa Rica is far less sophisticated.
There are no formal escrow companies, mortgage companies or banks that
assist in the process. In some ways, this puts more responsibility on
the agent. For example: All listings must be thoroughly researched before
a property can even be considered, especially in rural areas. In some
cases, a field agent will not only show you property, but also work directly
with the lawyer, the surveyor, the property owner, the registry, and follow
up on a host of details until the transaction is completed. The agent
represents both the buyer and seller so that when it’s time to draw
up the sale document, all issues are discussed and agreed upon before
closing a transaction. In any field of endeavor, competency is paramount.
Never more so than in successful real estate transactions in Costa Rica.
Agent commissions are normally paid by the seller but in some cases, the
buyer and seller may split the commission if agreed to in advance.
There are many properties in Costa Rica where ownership rights are unclear,
borders are undefined or properties with problems due to hidden conflicts
of one sort or another. Getting a lawyer is not enough! A knowledgeable
field agent that knows the area and the history of the property will not
only show you qualified properties, but will help work out many issues
before it’s time to finalize the details with a lawyer. A good agent
will also help educate you so you can make an informed decision! top
of page
LAWYERS AND CLOSING / THE
PROCESS OF SETTLEMENT
Once you have found the property you want to buy, you will need an attorney
/ notary to execute the transaction. As with real estate agents, it is
typical for an attorney to represent both the buyer and seller. It is
the buyer’s right to select the attorney…an important step.
Equally important as selecting your agent! Ask around and get a good recommendation
by others that have had a good experience. Again, you may want to ask
for client references. Documents are in Spanish so if you don’t speak
and read good Spanish, make sure your attorney can translate them for
you. Only a state certified Notary can authenticate a real estate transaction.
In Costa Rica, a Notary must also be a lawyer. However, some practicing
lawyers are not Notaries but work with a partner that is the official
Notary. This is not a problem. Just make sure it is clear that all documents
will be certified by your attorney or his / her partner.
It is the lawyer’s role to draw up the contract or carta de venta.
However, before the sale document is executed, the lawyer must verify
the history of the existing registration including liens, mortgages, etc,
and make sure all back taxes and government fees are paid up to date.
IMPORTANT: Keep in mind that a lawyer may not cover ALL the issues in
some land transactions, be them titled, untitled or beachfront properties.
Some of which may need to be considered in the sales contract. In most
cases, the lawyer never even sees the physical property and can’t
advise you on issues such as describing physical access (it may differ
from access shown on the survey map), or that the survey map coincides
with the physical borders like fence lines, and in some cases (as with
possession property), organize notarized statements with bordering neighbors
stating there are no boundary disputes or usage agreements with third
parties. Also, describing and guaranteeing water rights, and how to handle
existing tenants or crops. Another example is in transferring beach leases.
The lawyer’s job is basically finished when the documents are presented
at the local municipality. Who will follow up to make sure the transfer
is approved? A good agent will. Your agent plays a vital role in the entire
process. Get a good one and remember...getting a lawyer is not always
enough! top of page
CLOSING COSTS
Unless agreed otherwise, it is customary for the buyer and seller to share
equally in the closing costs. Typical costs are shown below. top
of page
ATTORNEY / NOTARY FEES:
The state sets a national fee which most lawyers
abide by. However, fees may vary between a San Jose Lawyer and a small
town lawyer and may also reflect other work performed by the lawyers that
are outside a typical transaction. Established fees are set at 1.5% of
the sale price for the first million colones, 1.25% between one and ten
million colones, and 1% above 10 million colones. One million colones
is approximately $3,500 US.
The following fees apply only to titled property and its subsequent recording
at the national registry. It does not apply to untitled or beachfront
property: top of page
TRANSFER TAX:
1.5% of the declared value
PUBLIC REGISTRY FEE:
0.50% of the declared value is paid to the registry
for recording the documents
DOCUMENTARY STAMPS:
0.55% (approximately) of the declared value for stamps
affixed to the documents. top of page
TITLE INSURANCE:
Steward Title has recently set up shop in Costa Rica
but it is unclear their true role in selling title "insurance".
All types of insurance (except title insurance) in Costa Rica are offered
exclusively by the national government agency called INS, Instituto Nacional
de Seguros. INS is a legitimate government monopoly and technically, it
is against the constitution for outside vendors to offer insurance of
any kind. Aside from that, the national registry is open to the public
and any attorney can perform a title search. The Costa Rican constitution
guarantees your property rights however; "title insurance" may
justify some peace of mind. Stewart Title charges 1.5% of the sale price
or a minimum of $700. The policy covers properties with fee simple title,
not possession land or maritime zone (beachfront) top of
page
FINANCING:
Although the constitution allows equal access of credit
to both foreigners and nationals, it is more difficult for foreigners
to qualify. Out of country collateral and income is not normally considered
by the banks. In some cases you will need a co-signer or fiador. Even
then, interest rates are very high so it is probably more practical to
bring funds from abroad. In addition, many properties don’t qualify
for a mortgage. Beachfront property with a Permiso de Uso doesn’t
qualify for a mortgage (not even for Costa Rican citizens) because the
land is technically owned by the state ... not the occupant. Untitled
property is also non-attachable, therefore, unable to mortgage. On occasion,
some terms may be negotiated with the seller but are usually short in
length. For these reasons, most all real estate transactions are paid
in cash upon closing. top of page
LAND TAXES
Collection of land taxes was turned over to the local municipalities several
years ago. In the case of private land (both titled and untitled), property
tax or vienes inmuebles previously paid 6% of the declared value based
on the Tax Law No. 7509. In May of 1995, this code was changed and the
tax was lowered. According to the new law No. 7729, taxes are based on
0.25% of the declared value. In most cases, lower values are claimed than
what the actual selling price was. Maritime property or Permisos de Uso
pay an "occupation tax" called a canon. Again, very cheap. A
one-acre beach lot with no structures pays less than $10 per year. Improvements
like a house etc. are taxed in addition to the canon and pay a vienes
inmuebles tax based on the value of the construction. A medium size house
on a small beach lot normally pays less than $100 per year. Once a beach
property has been awarded a concession (only after an approved zoning
plan is in place) the tax goes up dramatically and depends mostly on how
the property was declared i.e. residential, commercial etc. top
of page
BUILDING
The process of getting permission to build (outside the beach zone) can
be complicated depending much on where your property is. Beachfront development
has a different set of rules as compared to private land (see section
on the Maritime Zone). Although it is national code that regulates building,
practical application will vary in populated areas like San Jose versus
rural areas such as the area surrounding Playa Samara. Code is not nearly
as strict as in Canada. In rural areas, it is quite simple. You must present
proof of ownership and a set of building plans signed by a Costa Rican
architect. There is a preliminary study and an anteproyecto performed
by the architect. Set fees for architects are between 4%-6% of the value
of the construction. For larger projects, you may be required to do an
environmental impact study and possibly another study for supporting infrastructure...at
your own expense. For residential construction, it is a single permit
issued at the local municipality with a one-time inspection before construction
begins. In rural areas, follow up inspections are rare. It is the architect’s
responsibility to make sure you follow the approved plans. You must have
a proper septic system and water supply. The permit process should take
a couple of weeks not counting the time it takes to draw up your building
plans. In rough numbers, you can build a moderate size, furnished, two-bedroom
house for around $50,000. Granted, they are of a simpler design but decent
quality. Some materials like cement and wood are equal to Canadian prices
but labor is very inexpensive. General labor costs are around $10 per
day and a decent carpenter or block layer will cost around $22 per day.
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