INTRODUCTION, DEFINITIONS, AND PURCHASE TIPS
The process of purchasing property in Costa Rica, or any other foreign country for that matter, can be a confusing and intimidating process. For most, transactions of this magnitude rank as one of the most important investments in ones life. How can one make a safe and efficient purchase? What are ones rights as a foreigner? What about “squatters?” These questions and others will be addressed in this and the following sections in an attempt to help prospective clients learn more about how real estate transactions are carried out in Costa Rica. Thousands of foreigners have safely invested here and you can be one of them. It is easy to get “caught up” in the beauty of the environment and the allure of the people that some investors may be prone to not exercise good judgment and common sense, or another familiar scenario, making decisions based on what they thought were the rules. In Costa Rica, you will find similarities to stateside rights and definitions, but many aspects of the system are different. It is to the benefit of the buyer to take a little time to educate oneself on some of the basics. This will give one confidence, greater facilitate communication between involved parties, and generally promote a smoother overall process. This would be a good time to introduce the types of property normally bought and sold in Costa Rica.
Titled or “fee simple land”.
The most comprehensive form of property ownership in Costa Rica is fee simple ownership, more commonly known as “titled land.” 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, similar to the states, describe titled property: First, the title itself or escritura. Titles are registered in the national registry or Registro Nacional, and show ownership along with any liens, mortgages, or judgments. The second document 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, described below) or inside protected areas like national parks and reserves. 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 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. Executing this check up is an easy service that your lawyer would be happy to provide. Fortunately for foreigners, the conditions for this type of ownership are the same for Costa Rican nationals as they are for foreigners. The concept of fee simple ownership is the same in Costa Rica as in the US. Basically, fee simple ownership gives the owner of the property the absolute right to materially own the property as well as use, enjoy, sell, lease, and improve said property which will be of course subject to conditions outlined in the Costa Rican Laws.
Untitled land
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; however, extreme caution must be taken when purchasing property of this nature. It’s very possible that a 3rd party, i.e. an extended family member or neighbor, can attempt to make claim on the property itself or parts thereof during the transaction. As a general rule of thumb, unless you are well versed in Costa Rican law or are close to the seller, it is advised that you consider titled or concession properties only.
There is also the issue of lands 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! Again, use good judgment with the help of a reliable real estate agency to navigate through these situations.
Concession Land (beach properties)
Property that is leased from the government for a specified time; which can be subject to renewal once the concession (lease) has gone to term is known as concession land (beachfront land) and is regulated by a zoning plan (plan regulador) in an area known as the Maritime Zone (with all laws therein established in 1977). Building restrictions are dependant on which zoning a particular property falls in. Roughly 85-95% 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 Rican 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 state, through its respective municipality, grants this right. This 200 meter zone is divided into two areas: The Maritime Zone Law or Ley Zona Maritima Terestre 6043, commonly called the "Concession Law" 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 corresponding municipality and the federal institution ICT (Costa Rican Tourism 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 claimed by private persons who solicit the municipality for the concession rights.
First, it is important to understand that the Maritime Law and awarding concessions was designed under the assumption that the land has undergone an approval process establishing what we know as "zoning" or planificacion. If no zoning by the proper government authorities has been established, rights of ownership and development of coastline property is strictly on a provisional basis. In these cases, the municipal government administrates what is considered a "right of occupation" through a permiso de uso, a provisional lease or right of usage also called an ariendo, which is recorded with the municipality once an application or solicitude de concesion is received and acknowledged. Contrary to popular belief, these provisional leases have no time limit as they are intended only as an "interim right" until proper zoning is in place and concessions can be awarded. The "interim occupant" may pay a voluntary, symbolic "occupation tax" or canon for the corresponding permiso de uso and has the right to make certain improvements to the land and build a "temporary structure", nothing more. The local municipality decides what type of structure is legal. Even though you will find permanent structures of all types and sizes all along the coastline country wide, this does not necessarily mean that the mandatory zoning and concession process took place. In the past, municipal governments have been very complacent about development along the coastline. However, the law is clear, development on any particular parcel of land is allowed only once zoning has been approved and a concession has been awarded, and recently the government has begun to enforce this law with greater frequency.
Second, unlike fee simple property, foreigners do not have the same rights as citizens when it comes to purchasing concession property. The law establishes that foreigners cannot be majority owners of a concession property. A foreigner can, however, enter into a partnership with a Costa Rican citizen where the ownership is divided 49% / 51% between the foreigner and Costa Rican respectively. An exception to this is if a foreigner has resided in Costa Rica for at least five years, then they may be majority owners of a concession. Both foreigners and Costa Ricans alike are required to purchase all Maritime Zone property through concession. The “49/51” debacle is settled when you form your corporation with the help of your lawyer. Just because ownership is divided doesn’t mean the Costa Rican majority can make decisions or execute power of attorney. Board members are chosen by the purchaser and this can not be contested. All concession properties must be purchased in this way. Leases (concessions) are granted up to 20 years and can be renewed indefinitely as long as the purchaser has remained in accordance to the laws pertaining to the Maritime Zone and the local municipality.
IDA Land
This is land given to poor people from the government for agricultural development entitling these people sustenance. IDA in English means, Institute of Agrarian Development. Sometimes after a time that may be pre-determined (usually about 15 years after it is issued), this land can be liberated into clear title, and thus bought and sold legally. It is technically illegal to buy and sell IDA land; however, private agreements between buyer and seller have been honored in some cases where a deposit is made based on the assumption of an IDA piece being liberated in the near future. This is very tricky territory and is not recommended for various reasons, most notably, if a family member decides not to sell on a whim it could be difficult to recover a deposit. There are also other risks and legal implications. This agency does not carry out transactions for properties still in IDA.
The Purchase Process
A not too uncommon scenario: one arrives to Costa Rica on vacation which may be the first, second, or tenth time. During the course of said vacation, one decides to look at some properties “just to see what’s out there.” After finding a great property on a whim, one decides to go for it. Of course people come with the clear intent on investing as well. Whatever the motivation may be, once you’ve chosen the property you wish to purchase it would only serve to your benefit to know how the process is carried out from beginning to end.
Real Estate Agents
The process should begin with establishing a relationship with a reputable real estate agent. This can not be stressed enough. 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 foreigners living in the area which agencies have the best reputation, and finally, don’t hesitate to 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, though things are changing.
Up until very recently there were no formal escrow companies, mortgage companies or banks that assisted in the process. And even now with the advent of such conveniences, there are still “bugs” to be worked out. 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. 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.
It’s important to watch out for people trying to sell you real estate off the street, i.e., bartenders, taxi drivers, etc. (Costa Ricans or foreigners). They most likely have no sense of real estate as a business and the attraction of a commission from the seller may outweigh their concern for the protection of the buyer, which is you! 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 informed decisions about possible contractors, architects, etc.
The Steps of Purchasing Property
Once you have found a property that you wish to buy the first thing to do is “tie it up” with an Earnest Money Deposit Agreement (EMDA) or an Option to Buy Agreement. The EMDA is drafted by your real estate agent and presented to the seller with the signature of the buyer to convey a serious intent to buy. The EMDA presents details of the transaction that will be carried over into the actual Purchase/Sell Agreement drafted by the purchaser’s attorney.
The earnest money or down payment is usually kept in an escrow account with the buyers attorney or with an escrow service such as Stewart Title and is normally not released until the transfer of title occurs at the time of closing when the balance is also cancelled. During the time between when an offer is accepted and the closing date (cash deals close normally between 30-45 days after acceptance of an offer) the buyer’s attorney conducts the due diligence for the property to ensure that it is safe and legal to buy and sell.
Everything is open to negotiation, however, and sometimes money can be released to the seller based on special circumstances if agreed by both parties. Monies normally change hands in the form of wire transfers and cashiers checks and in the case of international wire transfers, time needs to be allotted for the actual money to get to its destination, usually about 5 business days.
This is important to note so payments are met on time so there is no chance for penalty of late payment. At the time of closing, title is transferred or the capital stocks of the corporation are transferred, the balance is cancelled, and the new name of the owner/corporation is ready to be added into the National Registry. The fee’s for transfer of title and stamps are about 2.85% of purchase price with lawyer fee’s having a government set constant at 1.25% of purchase price.
Corporations
During the due diligence process your lawyer can start the process of setting up your corporation. It is a common practice in Costa Rica to acquire properties through a new corporation or through an existing corporation that currently owns the property of interest. The process of setting up a corporation is not complicated, but does require a knowledgeable attorney who understands the exact protocols and procedures necessary to properly set up the corporation.
The advantage of this system is that it allows a buyer to protect their asset anonymously. Further, if a purchaser acquires a property through an existing corporation that already owns the property, there are no government transfer taxes and stamps to pay.
The reason is that transfer taxes and stamps must be paid anytime that there is a change in the ownership of the property. If a buyer acquires the shares of an existing corporation, technically there is no change in the recorded owner of the property (i.e. the corporation still owns the property). However, if a property is acquired through forming a new corporation to buy the property, the transfer taxes and stamps must be paid because the name of the property owner has changed.
The risk for the buyer in acquiring an existing corporation is that the corporation might have other liabilities and there is no way to verify 100% that the corporation is clean. When buying a Costa Rican corporation, it is important to keep in mind that there are other obligations and responsibilities that must be addressed.
Examples include yearly tax declarations (even if the corporation is inactive), payment of income taxes if any, and keeping the legal books of the corporation up to date and in order. All in all, it is a good idea for foreigners and nationals alike to purchase their property and all assets for the matter in the form of corporations, but by no means is this mandatory, except when dealing with concession properties of course.
About Residency
A step that due to recent polices you should not wait too long to take, many foreign citizens living in Costa Rica with an irregular immigration status may have felt a real and immediate threat in the last few months: a considerable increase in actions by the Immigration Authorities against individuals staying illegally in the country has been detected, which, although mainly targeted to the large number of Nicaraguan irregular immigrants historically present in Costa Rica, has certainly affected Americans, Canadians and Europeans as well.
The above-mentioned measures are a follow-up to a policy established during the administration of ex-President Rodriguez for the massive deportation of illegal aliens. To that effect, the Immigration Authorities acquired buses to transport illegal immigrants (mainly Nicaraguan) to their country of origin and trained specific officers for the duty of investigating and deporting them. Nevertheless, once this policy was ready for operation, the process was stopped by a decree authorizing an immigration amnesty for Central American citizens.
By the end of the amnesty period the deportation process reinitiated. Immigration officers and policemen have gone to several areas of the country where a large number of illegal aliens live and many of them have been deported and taken to their countries of origin. Immigration Authorities also randomly visit companies that employ foreigners and other places frequented by them in order to detect and deport individuals with an irregular status. It must be clear that although these measures mainly affect Nicaraguans, they definitely apply and cover all foreign citizens staying illegally in Costa Rica, either because they entered the country illegally or because their tourist visas or residency permits have expired.
Under those premises, it is surprising how many foreigners living as investors or working as expatriates for multinational companies in Costa Rica do not legalize their immigration status and that of their dependents. In many cases, we consider that this happens mainly due to a lack of appropriate knowledge of the regulations and policies in force. In most cases, as stated above, these individuals face the uncertainty of an irregular situation which; if they would have been better informed, could have allowed them to become legitimate residents of the country: As we have also made clear, this situation may even result in being deported from the country, as well as spending the night in jail and/or not being permitted to re-enter after leaving for a few days.
A considerable number of the individuals forming the above mentioned groups assume that the country’s immigration “entanglement” will not permit them to obtain their residency because the procedures are very complicated and offer uncertain outcomes and that the requirements are impossible to be met. In such situations, it is important to make them aware of the existence of a fairly broad menu of possibilities of being covered by the law and that although the different regimes, procedures and requirements seem not to be aligned following a clear path, understanding them, together with qualified counsel, can make obtaining residency in Costa Rica a reachable goal.
Based on the above, we consider important to briefly refer to the different immigration regimes that might be applicable for the previously mentioned profiles.
General Requirements
When initiating residency procedures, it is important for the applicants to produce a series of documents which must meet several key formalities that will facilitate the progress of the applications; among them:
1. Birth Certificate, to be issued by the appropriate authorities at the place of birth.
2. Certificate of Clean Criminal Record, to be issued by the corresponding authority of the country where the applicant has lived during the last six months before his arrival to Costa Rica.
3. Marriage Certificate, to be issued by the country of registration of the marriage (if applicant’s spouse is to be included under the regime).
4. Physical presence in Costa Rica for fingerprinting (which generates a background check).
5. All documents originating abroad require authentication by the Costa Rican Consulate nearest to their place of issue and in the event they are not in Spanish, they must be officially translated in Costa Rica.
Resident Annuitant and Resident Pensioner Policies
These two policies allow a fast and positive outcome for residency applications based on (I) receiving a monthly income of no less than one thousand United States Dollars for at least five years, in a permanent, irrevocable and constant manner (in the case of the resident annuitant status) or (ii) receiving a life pension of no less than six hundred United States Dollars (in the case of the resident pensioner status), pension that we recommend to come from a government entity.
In both cases, the applicant’s spouse and children under eighteen years old can be covered in the regime.
Company Recognition Status
This policy permits companies established in the country and with an accounting net worth currently higher than approximately one hundred forty five thousand United States Dollars to be granted, after filing a series of corporate and legal documents, a specific authorization in the form of a recognition from the Immigration Authorities, permitting to obtain residencies for its foreign employees. Currently there is no limitation as to the number of non Costa Rican employees that could be covered by this regime by the company.
This residency will be linked directly to working for the applicant company (this residency allows staying in the country as long as the beneficiary works for said company only). This status allows coverage of the main applicant’s spouse and children under eighteen years old, who may study but not work while in the country.
Entrepreneur's Residency
This type policy is applicable to financially sound people who wish to establish a business venture in Costa Rica. The business plan must be determined beforehand, and presented to the immigration authorities as part of the application.
The applicant must be able to prove that he or she will not be a burden to the country and that his or her enterprise (of which such individual shall be the holder of a full power of attorney) will produce enough revenue to support the applicant while residing in Costa Rica.
The applicant must incorporate his business according to Costa Rican law, and must prove that all necessary permits and authorizations for the business have been at least requested, if not already granted. The existence of actual business premises must be documented, and the financial feasibility or soundness of the business venture proven. The residency status produced in this case does not permit the beneficiary to be hired as an employee, and he or she may only work as an administrator to his own business.
Temporary Work Permit
This regime allows the applicant to obtain the residency based on the existence of a labor contract. The applicant must be able to prove that, he has been hired by a local company, attaching a copy of the labor contract and an application by the company.
Financially Sound Immigrant Residency
This status is applicable to financially sound foreign citizens who want to reside permanently in Costa Rica, but prefer to determine how their income will be generated only after they are established in the country. The Immigration Council has ample discretion regarding this kind of application. Policies and procedures of this entity may change from time to time and its determination of what is a financially sound individual is subjective. Due to such fact, it is difficult for us to offer certainty as to the outcome of this kind of application, although adequate planning and analysis allows for a high rate of success. As with other similar policies, it is imperative that the applicant proves that he or she will not be a burden to the country. Among the most accepted, the following constitute strong proof of income: real estate ownership in the country or abroad, revenue from rental of houses or business premises, bonds or securities and bank accounts with balances of at least US$100.000, and any other sources of income that could be duly documented. An assessment of each case’s particular situation will permit to better support a decision on one of the above indicated options. The applicant’s awareness of the existing choices and his understanding of the broad range of existing alternatives certainly justify the regularization of a precarious immigration situation.
The above on residency is taken directly from The Costa Rican Real Estate Guide.
