Properties in Costa Rica Blog

Real Estate Insights

Real Estate Insights

November 26, 2021

Properties in Costa Rica

  1. Are foreigners and entities controlled by foreigners permitted to own real estate directly, or are there specific licence requirements or restrictions in place that must be complied with for a non-citizen to own real estate? Are there restrictions on ownership of beachfront or coastal land, or land near beachfront?

According to the Costa Rican Constitution, foreigners and entities controlled by foreigners have the same rights of Costa Rican citizens. Both are equally permitted to own real estate directly in Costa Rica. Moreover, an investment in real estate in Costa Rica, with a minimum of US$200,000 grants a foreign purchaser the right to opt for a resident investor visa. As for the second part of the question pertaining to owning beach front or coastal land, or land near a beach front, there is a special programme applicable in Costa Rica. Its regulations are provided in the Maritime Zone Act of Costa Rica (Act No. 6043 of 1977), which states that the maritime zone will be 200 metres wide starting at the ordinary high tide mark. After these 200 metres, the first 50 metres inward will always remain in the public domain and may be fully accessed by any interested party. Therefore, access cannot be restricted. As for the remaining 150 metres in the 200 metres in the maritime zone, which is defined as the “restricted zone”, the state may grant a real estate concession for private individuals. Concessions can be held by corporate entities controlled by foreigners with a percentage that does not exceed 50 per cent of the actual stock issued in said corporation.

  1. Is all real estate capable of being owned as a property right (fee/freehold), or is the land owned by a government or monarch with only the ability to acquire leasehold rights? What other forms of real property ownership exist other than property right or leasehold?

Under the Costa Rican legal system, the rules for owning real property will generally be classified as freehold (fee simple), whereas ownership by leasehold is not applicable. There are special programmes in Costa Rica with characteristics similar to leasehold right systems. An example of this system is the concession system under the Maritime Zone Act. To illustrate this point, concessions to the maritime zone are granted by the state and can derive in administrative property rights. This is particularly true in situations where the interested party used and enjoyed the concession for the granted legal period and possible renewal periods. Nonetheless, ownership of the area subject to concession will continue to be held by the government.

  1. What overriding rights of the public exist that may affect land, such as inalienable rights to access certain natural resources or the use of beaches? Who owns mineral or riparian rights?

First of all, it is important to clarify that mineral and riparian rights are owned by the State of Costa Rica. These rights may only be exploited by obtaining a concession from the government. As for the overriding rights of the public that could affect land in Costa Rica, many of these rights may be related to the environmental protection legal system, whose legal framework is described in question 18 in relation to the environmental framework. As for inalienable rights to access certain natural resources or to use beaches, the programme for the coastal areas and beachfront properties, as regulated by the Maritime Zone Act, grants the character of public domain and inalienable effects over the public area contained in the maritime zone. Moreover, the status of inalienability and public domain are extended to all-natural resources and override private interests. In addition to beachfront properties, similar regulations apply to the limits and setbacks in terms of rivers, lagoons, mangroves, wetlands, etc, as described in the Waters Act (Law No. 726), also included in the Wildlife Conservancy Act (Law No. 7317). To provide an additional example, private interests may also be overridden by public interest when it is declared by the government of Costa Rica in the form of an executive decree. These procedures must follow the provisions of the Expropriations Act of Costa Rica (Law No. 7495) and its Rulings. By means of the Expropriations Act, if a public interest is justified and determined for a determined property, the Public Administration may exercise its power to declare eminent domain.

  1. Is title insurance customary to obtain in connection with a purchase or a loan? If so, is it available?

Title insurance, as conceptualised in other jurisdictions, is not available in Costa Rica. On this point, the types of insurance available for real property, usually in connection with a purchase or a loan, are related to hardship or damages that could affect the property. It is important to note that in Costa Rica the insurance market is regulated by the Insurance Market Regulations Act (Law No. 8653) and its Regulations. Taking this into consideration, the good standing and complete validity of a real property’s legal title is not something for which insurance providers may issue coverage. Most of the precautionary measures regarding the legal title (its background, existence, validity, singularity, etc) are subject to review during the due diligence proceedings for the property. These proceedings are entirely advisable for a potential buyer before buying. Precautionary measures other than insurance, such as cadastral or registry alerts to avoid fraud, duplicated sales and similar irregularities are available to the public.

  1. Are boundary or other surveys typically completed delineating particular property boundaries, or is reliance placed on registered maps? How are boundary disputes customarily resolved?

Surveys are typically completed by delineating the correct boundaries, which is also an issue that should be verified during the legal and topographical due diligence procedures. These procedures are carried out to validate that the property boundaries and area completely match what is indicated in the recorded survey and title. For a survey to be properly recorded, it must be prepared and submitted by a topographer, as a commissioned expert in such matters. The topographer will register the survey at the Cadastral Department of the National Registry. If there are differences in the property related to its actual measurements or boundaries (due to subdivisions, the effects of rivers or other natural forces that may erode the area, etc), the survey for the property must be updated and a new record must be submitted to the National Registry that reflects the current measurements. Reliance on cadastral surveys is generally safe and possible, although disputes may naturally arise from boundary issues.

Interested parties may settle these issues by non-contentious mechanisms, but there are also judicial remedies available. As for non-contentious mechanisms, parties may request an opinion from independent experts (topographers) who may attest to the correct measurements for a property and the applicable boundaries based on the recorded titles, their background domains and measurements. If disputes are not settled by extrajudicial mechanisms, parties may turn to the summary proceedings established in article 106 of the Code for Civil Procedures (Law No. 9342 of 2018). Namely, they may file a motion for reinstatement of property boundaries. These summary proceedings will only resolve issues related to the real property’s momentary possession and not to the substantive issues. However, it is a method of relief available to the interested parties.

  1. What taxes or other fees are payable in connection with the purchase or sale of real property (eg, notary fees, recording, alien licensing), and what are the amounts of such taxes and other fees?

The overall applicable costs in a real estate transaction have varied in certain aspects that will be pointed out below, following the recent enactment of the Law for the Reinforcement of Public Finances (Law No. 9635, also referred to as the “Tax Law”), which was published in the Official Gazette on 4 December 2018, entering into force as of 1 July 2019.

This Tax Law significantly amended the Income Tax Law, as well as the Law for the General Tax on Sales. Among several changes in separate fields, this new Tax Law implemented two major changes in connection to real estate ventures: First,

the introduction of the Value Added Tax (VAT), applicable to services (including legal and notary services), on a general basis. The situation used to be the opposite prior to the implementation of the VAT, since the General Sales Tax applied on limited scenarios and services were generally exempt. Second, the Tax Law implemented the Capital Gains Regime, which focuses on passive income impacting the net worth of a person owning real estate, whether on a personal title or by means of a corporation.

Consequently, the capital gains tax will imply that if an asset is sold for a higher value than the amount that is registered in its accounting, said income will be taxed with an applicable rate of 15 per cent. It is important to highlight that the 15 per cent tax is calculated over the margin of profit. An exception is established for the capital gains tax when the transaction involves profits related to: (i) The sale of the asset that corresponds to the usual residence of the seller (whether an individual or corporate basis);

(ii) donations and (iii) inheritances. These assets are not subject to this tax. Moreover, as of the 15 per cent applicable tax, it is also relevant to highlight that there is an alternative for paying a 2.25 of the transactional value, if the seller is performing the first sale of an asset that was acquired prior to 1 July 2019. This exemption will not apply if the habitual economic activity is related to the sale of real property, in which case the applicable tax will be of 30 per cent, based upon the traditional income tax regime.

Considering the above, a purchase or sale of real property will pay transfer expenses (transfer tax and legal stamps), in addition to the notary’s legal fees. As for the legal stamps, the applicable percentage (which runs between 0.75 per cent and 0.8 per cent) may be calculated for real property transactions, whereas according to the Real Estate Transfer Tax Act (Law No. 6999 of 2012), the applicable taxes for transferring real property are 1.5 per cent, calculated on the transaction’s value set forth in the public deed or the property’s registered fiscal value (the higher of the two amounts). The transfer tax set out in the Real Estate Transfer Tax Act is payable for direct transfers (by conveyance using a public deed) or indirect transfers (if the property is sold indirectly, by selling the stocks or interests in the company that owns the property). In addition to the transfer tax, if the property is conveyed by public deed, it must also pay the legal stamps for said act at the National Registry. Moreover, the legal fees applicable to transferring real property will vary between 1 per cent and 1.25 per cent, according to the minimum fee schedule, which is established by the Costa Rican Bar Association and the government my means of an Executive Decree. In short, the total costs (including expenses and fees) will vary between 3.25 per cent and 3.55 per cent for the specific transaction. However, if we were to contemplate the payment of the capital gains tax (in the applicable scenarios) by using the differentiated rule of the 2.25 per cent above explained, said percentage in costs should be contemplated as a part of the transaction, with the clarification made in the sense that the capital gains tax is to be covered by the selling party.

  1. Which party customarily pays taxes and fees in connection with a purchase/sale of real property – the purchaser or the seller? What is the allocation of responsibility between a purchaser and seller of all taxes and fees payable to consummate a conveyance of real property?

Legally, the tax responsibility may be allocated to both the purchaser and seller in equal parts according to article 6 of the Real Estate Transfer Tax Act (Law No. 6999 of 2012), which expressly indicates that both parties are equally bound to make said payments. The customary practice in Costa Rica is for the parties to negotiate that the transfer costs and fees be allocated equally between the purchaser and seller. Nonetheless, the seller is the responsible party for covering the applicable capital gains tax, in accordance to the enactment of such regime by way of the Law for the Reinforcement of Public Finances (Law No.9635, also referred to as the Tax Law), which was published in the Official Gazette on 4 December 2018, entering into force as of 1 July 2019. On the subject of the capital gains tax, it results of relevance to indicate that if the property to be sold is owned by a non-Costa Rican resident, there is an obligation from the purchaser’s side to withhold the tax, in the sum of 2.5 per cent over the transactional value. In this scenario, a non-resident will be the person without a Costa Rican residency card or whose stay in Costa Rica does not surpass a time period of 183 days. This withholding obligation is furtherly explained in question 17.

  1. Can real estate be indirectly acquired by purchasing the shares or ownership interests of a corporation or other entity that owns real estate? What taxes and fees would be payable upon a purchase of shares of a company that owns real estate as compared to a purchase of the real estate directly?

Real estate in Costa Rica may also be acquired indirectly by purchasing the shares or ownership interest in a corporation, which is a common practice as well. For tax purposes, as referenced in question 6, the applicable taxes on the transfer of real property will be 1.5 per cent, as an indirect transfer. A possible benefit of this scenario is that the parties will not have to pay the stamps at the National Registry, since no change in ownership of the title would take place. The applicable legal fees will be the same as indicated in question 6, varying between 1 per cent and 1.25 per cent, according to the minimum fee schedule.

  1. What taxes and fees are paid on the conveyance of personal property accompanying a conveyance of real property, and in what amounts? Is it more favourable to allocate purchase price towards personal property or real property for tax purposes?

For registry purposes in terms of the conveyance itself, there are no distinctions in terms of personal property or real property for legal stamps and applicable fees. There are no distinctions either for tax purposes, depending on the purchase price for personal property or real property.

  1. What recurring annual fees or real estate taxes are payable in connection with the ownership of real property?

Owners of real estate must always pay municipal taxes on an annual basis, which are calculated in four quarters, from January to December. Municipal taxes will include fees for garbage collection and the property tax as calculated based on the value. If the ownership is held by means of a corporation, a yearly tax on corporations will also be applicable. Moreover, as will be mentioned below, there is also a solidarity tax (also termed luxury tax) that applies to the properties having an estimated value of more than US$210,000. The following list outlines the main taxes applicable to real estate in Costa Rica:

  • Municipal taxes: Includes Property Tax and Garbage Collection Tax. This tax is payable to the Municipality (local government) where the property is located and is based on the value of the property.

  • Solidarity tax: This tax is payable to the Ministry of the Treasury and applies to those properties with an estimated value of more than US$210,000 and is based on the value of the property.

  • Corporate tax: If the property is owned by a corporate entity, the owner corporation will have to pay an annual tax, in accordance with the Corporate Tax Act (Law No. 9478). This tax may vary depending on whether the corporation is economically active or not, and the payable amount will range between US$120 and US$380 approximately.

  1. Are preliminary agreements, memoranda of understanding or other concession agreements typically negotiated between purchasers/developers of real property and the government? What types of matters are incorporated into such preliminary agreements, memoranda of understanding or concession agreements?

Concession agreements must follow the rules and procedures that were outlined in questions 1 and 2 if they are subject to the maritime zone programme. In addition to those rules and procedures, the preliminary agreements and memoranda of understanding do not have to be negotiated with the government in connection to private property. Developers who will be selling the project’s units must register the draft agreements with the Ministry of the Economy, Industry and Commerce

(MEIC), based on the provisions for agreements for ongoing or continuous sales programs. The applicability of this procedure is established by the Law for the Promotion of Competition and Consumer Protection (Act 7472 or the Consumer Act), which contains public law provisions that must be followed. For real estate developers, if the previously referenced elements are concurrent, they should appear before MEIC and file for approval of the sale projects. The following are the conditions applicable to the registration requirements at the MEIC: (i) the programme must be offered publicly and in a generalised manner for consumers with no discrimination among the target consumers, (ii) the delivery of the good, service or project (depending on the programme) is conditioned on future execution of the terms and agreements contained in its obligations, (iii) the execution of the programmes depends on a person or entity either: (a) delivering the good; (b) providing the service, (c) Executing the project, and/or (iv) Allowing consumers to exercise their rights for any future programmes.

  1. What rights of first refusal or other rights exist by law in favour of third parties or tenants of real property?

Rights of first refusal in favour of third parties or tenants of real property are not applicable by law, although they are commonly negotiated between the interested parties. It is important to clarify that tenants do not legally acquire a right to purchase the property unless it is negotiated by private agreement. Moreover, the tenancy conditions for the property do not impede or affect the owner’s right to sell the asset.

  1. How is real property conveyed – by deed or other instrument of conveyance? What is the procedural process for completing a conveyance? Is there a registration or recording process?

For real property to be directly conveyed, the conveyance must be in the form of public deed instrument. In this case, the parties (seller and purchaser) must appear directly before a Notary Public, who will record the details of the transaction, including the elements requested by the Real Estate Assets Department at the National Registry. Once the public deed is issued, signed by the parties and authorised, an official deed certificate will be submitted to the National Registry that includes payment of the applicable taxes and legal stamps for the recording process.

  1. When is title actually and officially conveyed to a purchaser – upon execution of a deed or other instrument of conveyance, upon submission of the instrument of conveyance to a recording office or registrar, upon acceptance of such instrument of conveyance for registration or recording, or upon the happening of some other event?

Title to real property is officially conveyed when the public deed is registered with the National Registry after having followed the procedures indicated in question 13. In this regard, the Real Estate Assets Department of the National Registry will register the public deed within a period of five business days after the deed is submitted for filing.

  1. What types of governmental liens or encumbrances on title could result in a forfeiture of the land? Real estate taxes, government-owned utilities?

Governmental liens or encumbrances may derive from circumstances related to environmental protective measures, mandatory servitudes related to government owned utilities, eminent domain provisions, legal mortgages, etc. As for the latter, for example, failure to pay the applicable real estate taxes may result in a legal lien being placed on the property, once the competent collection authority initiates legal recovery proceedings. Real property may remain titled and still have governmental liens or encumbrances. However, if the measures affect the use and enjoyment of the property to a limited degree, they may be deemed expropriatory. To provide an example, a property may be categorised as Cultural Heritage (Law No. 7555). Such a measure may imply limitations applicable to the owner in terms of the permitted uses for the property. If the ownership is affected to the degree that freehold rights are being blocked, the property could be subject to definite forfeiture, following the procedures contained in the Expropriations Act (Law No. 7495) and its Rulings. As complementary examples, real property may have liens or encumbrances levied related to the Forest Law, which introduced the concept of Natural State Heritage as administered by the Ministry of Energy and the Environment (MINAE). The Natural State Heritage comprises forestland and national reservations and is inalienable and could affect legal title to real property.

  1. Upon a sale of real property, would any portion of profits or proceeds be required to be paid to any third party? For example, are employees entitled to a share of profits?

These provisions are not applicable under Costa Rican law. Employees or other third parties are not entitled to a share in the profits, unless there is a private and specific agreement declaring that they are entitled.

  1. Upon a sale of real property, what taxes must be paid in connection with any gain, and are there withholding taxes? Are taxes different if the seller is an entity?

As indicated previously, Congress approved the Law for the Reinforcement of Public Finances (Law No. 9635, also referred to as the Tax Law), which was published in the Official Gazette on 4 December 2018, entering into force as of 1 July 2019. As a result of this legislative amendment, which introduced major changes to the legal framework in Costa Rica and its tax regime, capital gains are currently applicable upon the sale of real property. The applicable tax will consist of 15 per cent based on the difference between the initial purchase price and the selling price. However, if the sale of real property is the party’s normal line of business, the applicable rate may be up to 30 per cent, based upon the traditional regime. There is a differentiated rate established in the law, which allows the selling party to pay a 2.25 per cent over the transactional value (not on the margin of profit) in the first sale and purchase of a property that was acquired prior to 1 July 2019. This is a significant change in Costa Rica’s real estate regulations, considering that this tax was not previously applicable in this jurisdiction. The tax is not of a withholding nature in principle, although if the transaction involves a selling party that is not domiciled in Costa Rican territory, then the purchaser has the obligation to withhold a 2.5 per cent over the transactional value. In this regard, the Notary Public in charge of conveying the property shall indicate in the public deed that the Tax Administration perceived the obligation related to the sale.

  1. Are there any environmental regulations, and are environmental assessments customarily performed prior to acquiring real property?

To answer the first prong of this question, Costa Rica has a broad legal framework targeting environmental protection. This framework grants major powers to the competent governmental authorities in terms of enforcing this legislation, as will be indicated below. Therefore, environmental assessments are customarily performed during the due diligence process. Moreover, it is highly advisable and relevant to obtain a certificate from the competent governmental authority that certifies that the property to be acquired is not acquired in a protected area and does not belong to the Natural State Heritage (PNE) that is administered by the MINAE. The Natural State Heritage is comprised of forestlands and national reservations and is inalienable. This point needs to be mentioned for this analysis since it could affect real property due to the previously explained reasons. To complement this idea, the following are some of the most relevant environmental regulations:

  • Water Act (Law No. 246 of 1942), currently in the process of imminent amendments by the Legislative Branch);

  • Biodiversity Act (Law Number 7788 of 1998);

  • Law for the Conservancy of Wildlife (Law Number 7317) and its recent Ruling, as amended in 2017;

  • Law for the Ratification of the Convention on International Trade of Protected Species (Law Number 5605 of 1975);

  • Law for the National Park Services (Law Number 6084 of 1977);

  • Forest Act (Law Number 7575 of 1995);

  • Constitutional Law for the Environment (Law Number 7554 of 1998) and its Rulings.

  1. Are there building, land use and zoning codes?

There is a broad applicable programme for this item. Construction activities in Costa Rica are subject to a broad regulatory framework that grants hierarchical priority to the specific provisions as adopted by the local governmental entities in each county. Consequently, the first point of reference to determine the applicable construction regulations and binding zoning regulations for a property is the Municipal Regulatory Plan, as approved by each Municipality for the specific districts under their territorial jurisdiction where the real property is located. In the absence of a Municipal Regulatory Plan, the construction activities will be regulated by the general acts and regulations of Costa Rica, as detailed below. The following are the main laws and regulations applicable to construction activities in Costa Rica:

  • Regulatory Plan of the Municipality where the property is located;

  • Regulatory Plans Administered by the Costa Rican Institute of Tourism (ICT);

  • Construction Act of Costa Rica (Act No. 833);

  • Regulations of the Constructions Act of Costa Rica, issued by the National Institute of Urban Housing (INVU). The current Rulings were published in the Official Gazette of Costa Rica on 2 March 2018;

  • Historical Heritage Act (Act No. 7555);

  • Act for Equal Opportunities for People with Disabilities (Act Number 7600);

  • Regulations of the Act for Equal Opportunities for People with Disabilities (Executive Decree No. 26831);

  • Code for Hydraulic, Mechanical and Sanitary Installations;

  • Code for Structural Foundations of Costa Rica;

  • Seismic Code of Costa Rica (Executive Decree No. 37070-MIVAH-MICIT-MOPT);

  • Rulings for the Electrical Code in Costa Rica (Executive Decree No. 36979);

  • Rulings for the National Fire Protection Association; and

  • Rulings for Contracting Services in Engineering and Architectural Services.

  1. Are there laws permitting or contemplating condominiums or otherwise subdividing properties, or creating multiple ownership existing on one plot of land or building?

There are laws permitting condominiums and regulating their function. The Condominiums Act (Law number 7933 of 1999) established the main rules that apply to real property and ownership when existing in subdivided properties, such as

condominiums. Moreover, when a property is located in a condominium, the ownership of the property will be subject to the regulations established in the by-laws of said condominium. Consequently, when performing due diligence, it is of the utmost importance to analyse said bylaws in relation to the interests of the potential purchaser.

  1. Are there any restrictions on, or specific legislation relating to, subsurface rights and air rights?

In Costa Rica, real property ownership does not grant subsurface rights and rights, which are elements in the public domain. Moreover, construction work on real property must abide by the regulations of the Directorate of Civil Aviation of the Ministry of Transportation. Mainly, in buildings or any sort of construction in zones influenced by airfields, airports, aerodromes or similar items, where it becomes necessary to obtain the approval for construction from the competent authority.

  1. Are there any laws relating to the preservation of views or light?

A lender for a real estate project can be a private or public financial entity. If lending is provided by a financial entity (whether private or public) this agent will have to be registered with the Superintendence for Financial Entities of Costa Rica (SUGEF) to be able to provide credit facilities and to handle and administer third-party funds. Entities or individuals (national or international) providing private money lending are required to be licensed by SUGEF in this jurisdiction to provide facilities for real estate projects.

  1. Is a lender for a real estate project in your jurisdiction required to register or be licensed in such jurisdiction?

A lender for a real estate project can be a private or public financial entity. If lending is provided by a banking entity (whether private or public) this agent will have to be registered with the Superintendence for Financial Entities of Costa Rica (SUGEF) to be able to provide credit facilities and handle third-party funds. Nonetheless, entities or individuals (national or international) providing private money lending are not required to be licensed in this jurisdiction to provide facilities for real estate projects.

  1. What determines the priority of a mortgage, charge- or guaranty trust – the date of the loan, the date of execution of the mortgage, charge or guaranty trust, the date such mortgage or charge is actually recorded or registered, or some other factor?

The priority of a mortgage in terms of recovery will depend on the degree of registration for the real property (depending on whether it is first degree, second degree or third degree). This priority degree for a mortgage derives from the date on which the obligation is recorded with the National Registry. Provisions related to the priority degrees are applicable to mortgages, which are regulated by Chapter IV of the Civil Code of Costa Rica. Nonetheless, guaranty trusts, which are subject to the provisions of the Commerce Code of Costa Rica, are commonly employed as a valid mechanism as collateral.

  1. What taxes or fees are payable by a borrower or by a lender in connection with a loan secured with real estate in your jurisdiction?

If the loan is secured with real estate, the expenses will depend on the amount of the security, as determined by the schedule of fees set forth by the National Registry. The applicable legal fees will be calculated in a range of 1 per cent to 1.25 per cent of the property’s value, as established by the Costa Rican Bar Association and the government, my means of an executive decree.

  1. What typical remedies does a lender with a security in real property in your jurisdiction have in the event of a default by its borrower?

In the event of default on payment, when the loan is secured by real estate, a typical remedy for the lender is to turn directly to the foreclosure procedures, to be explained in the following question. A lender also may secure the real property by means of a guaranty trust. In this scenario, the trust agreement should include a foreclosure procedure related to due process for the debtor, following a structure that is similar to the structure provided for in the legal foreclosure mechanisms. A benefit of the execution proceedings for a guaranty trust, in the event of a default in payment, is that the foreclosure proceedings for the property will be more expeditious since they will not be subject to a court decision. Instead, the proceedings will be handled by a trustee who is legally entitled to conduct the foreclosure. It is important to clarify that any direct award of the property to the lender, without having followed the procedures related to foreclosure and auctions, will not be deemed to be valid. The details related to foreclosure procedures are explained in the following section.

  1. Is there judicial or non-judicial foreclosure in your jurisdiction, and what is the foreclosure process generally?

There is judicial foreclosure in Costa Rica. The procedure is established in the Civil Code (1888) and the Code of Civil Procedure, which was recently updated in 2018. If the debtor fails to make payment, the creditor may file a foreclosure proceeding for the mortgage. The foreclosure procedure generally functions as follows:

  • To initiate the proceedings, the lender must file a petition with the court system (i) attesting to the existence of the mortgage with a certificate issued by the Public Registry, (ii) describing the debtor’s breach of contract, and (iii) indicating the total amount owed up to the petition date (principal and interest).

  • The first ruling issued by the judge must be served personally on the debtor by the court system or by a notary public appointed by the court system to do so. Furthermore, the court will instruct the Public Registry to annotate the process on the property’s title.

  • The debtor has the right to file a written objection. If the objection is legitimate and well grounded, the judge will set a date for an oral hearing, at the end of which a final ruling will be issued.

  • The debtor may terminate the process at any time by paying the total amount owed to the lender, including the legal fees and any related costs.

  • Three auctions on different dates are scheduled for each foreclosure. Bidders are invited through an announcement published in the judicial newspaper that sets the time, date, place, and the baseline for the bids at each auction.

  • As a condition to participate in the auction, each bidder must provide a certified check for an amount equal to 50 per cent of the opening bid.

  • The winning bidder will have three business days to pay the outstanding balance. Failure to complete the payment implies forfeiting the deposit, which is in turn credited to the debt. In such an event, the judge will announce three new auctions.

  • The starting bid in the first auction is the base value, which is agreed to by the parties in the mortgage document (usually the total amount owed for principal and interest).

  • If the first auction is unsuccessful because no bidders attended, the foreclosure will move on to the second auction. The starting bid will be 75 per cent of the baseline value. If the second mortgage is also unsuccessful, a third and final auction will be held in which the opening bid will be 25 per cent of the baseline value. As an example of how this procedure works, bids for a property with a baseline value of US$100,000 will begin at US$75,000 in the second auction, and US$25,000 in the third.

  • In the event of a successful bid and payment of the offered amount, the judge will transfer the property to the new owner and instruct the police to assist him or her in taking possession of the property.

  • If no auction is successful, the judge will assign the property to the lender as partial payment. The value of the assignment will equal the opening bid of the last auction. The debtor will continue to be liable for paying the outstanding balance of the debt; therefore, the lender may seek payment by seizing other assets owned by the debtor.

As referred in question 26, non-judicial foreclosure also exists in Costa Rica. Trustees of guaranty trusts upon creditor’s default execute foreclosure. Non-judicial foreclose must always follow due process through a procedure based on judicial foreclosure.

  1. What rights does a tenant have by law that cannot be varied by agreement or a lease?

The Tenancy Act contains mandatory provisions (law of public order) that are meant to protect the tenant’s interests. Said legal provisions cannot be relinquished by the will of the parties. For instance, tenants have the right to establish a lease agreement for a minimum period of three years, which is a period that cannot be varied by the lessor. Article 26 of the Tenancy Act provides for additional general rights that the lessor must respect in favour of the tenant, including guarantee of the safe enjoyment of the property. Among other rights that cannot be varied: the lessor may not block or throttle the basic utilities (potable water, electricity, sewers). Moreover, no increases or readjustments to the lease rent may exceed the limitations established in article 67 of the Tenancy Act, although it is important to point out that such increases do not apply to rents payable in US dollars.

  1. How long can someone own property as leasehold? What statutory or legal rights does a long-term leasehold owner have with respect to its property?

There are no maximum limits for holding property as leasehold. However, as mentioned previously, the Tenancy Act provides a minimum term of three years for housing lease agreements to the benefit of the tenant. Article 44 of the Tenancy Act provides the main requirements that the tenant must meet, including: (i) Prompt payment of the rent, (i) abiding by the use for which the property was leased, (iii) maintaining the property in good condition, (iv) delivering the property at the end of the lease, (vi) respecting the activities that are allowed based on the lease agreement. In connection to item (i), failure to pay the stipulated rent for more than seven consecutive calendar days grants the leasehold owner the right to initiate eviction procedures.

  1. What are the most common reasons for a dispute or a conveyance of real property in your jurisdiction not to be completed?

Examples of real estate disputes may usually involve individuals and/or foreign entities against the state. For example, in connection with the maritime zone programme as described above: disputes may arise between private individuals, disputes may arise due to the existence of duplicate titles on real property, or there may be registration inconsistencies or transactional frauds that could block the conveyance of real property.

  1. Does your legal system incorporate or defer to the laws of another country?

As a civil law jurisdiction, with a significant influence from the Napoleonic Code, rulings in connection to real estate and ownership will be based upon the written law. This is a major difference in relation to the common law jurisdictions, since the rulings by previous courts (precedents) are not binding in Costa Rica, but the written norm will prevail when they are being interpreted. There is respect and deference to the rule of law and the laws of other countries, but real property issues are mainly ruled by written acts, especially the Civil Code and the Civil Procedure Code.

  1. Is there a standard schedule of legal fees for real estate transactions? If so, what is it, and is it based on a percentage of the transaction value or some other methodology?

There is a minimum standard schedule for legal fees in real estate transactions, which is established by the Costa Rican Bar Association and the government by means of an executive decree. The current schedule sets a fixed amount of 1 per cent and

1.25 per cent for legal fees calculated based on the total value of the transaction. As of the enactment of the new Tax Law, all notary services are subject to the 13 per cent VAT. However, transactions for real estate are not subject to VAT




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