Documents Involved in Real Estate Acquisition in Costa Rica

Daniela Quiros,  Thursday, 14 November 2013

 

This article is part of a series of 8 articles about buying property in Costa Rica. The other articles in the series cover the following topics:


The following summary describes the types of property ownership common in Costa Rica, the limitations imposed on foreigners looking to buy property, contract types and basic documents required for the legal transfer of ownership.

Some of the obvious prerequisites of the purchase are the buyer’s passport; cedula, residency in Costa Rica, and driver’s license if the buyer is a Costa Rican resident; in case the purchase includes financing, all related paperwork from the corresponding financial institutions, be it a local bank, or a bank from your home country. In addition, take into account your marital status. If married, a buyer must present the spouse’s written consent for property acquisition. Depending on the contract type and the property type, the list of documents also differs.

Basic Documents Involved in Acquiring a Property in Costa Rica

Real estate transactions in Costa Rica involve several key documents: Folio Real; Transfer Deed; Public Registry of Deed; Poder, or Power of Attorney (if someone acts on your behalf); Survey Plan.

Folio Real is so-to-speak a social security number for the property. It is a unique combination of numbers that carry specific information in it, such as the area, the number of the property itself and the number of owners. This is a must-have document for any ownership transfer.

The Transfer Deed, Escritura de Traspaso, is the contract itself. It must be drafted by a lawyer, and contains all details of property ownership transfer: information about the buyer, the seller, the property itself, terms and conditions of purchase-sale, mortgage or financing, if any. Lawyers in Costa Rica are also Public Notaries. They have the power to draft and notarize the signed deeds. It is the lawyer who has to prepare this document and register it properly.

After the deed has been signed, the lawyer has to present it to the National Registry for the ownership changes to take effect. Note: Costa Rican laws operate on ‘first in time, first in right’ notion. Registering your ownership rights secures your investment from claims from third parties willing to have a try with fraud. The deed must be presented, anotado, and registered, inscrito. You will have the receipts from your lawyer. All taxes and all registration fees must be paid for the new ownership to be registered.

Impuesto Territorial, a certificate from the Finance Ministry, Ministerio de Hacienda, is required to certify that the seller’s property tax has been paid in full amount. A certificate from the local municipality is also required to state that both the buyer and the seller are aware of the municipal taxes. Likewise, all paperwork related to mortgage, liens, and other encumbrances must be presented before you can register the ownership. Once the National Registry registers your ownership, you receive the original deed with all stamps and seals. The registration usually takes 40 to 60 days. Follow up with your notary on any updates until you are presented with the registered deed.

Survey Plan, Plano Cadastro, is another must-have document for property transfer, acquisition of mortgage or property. In the case of property segregations, this survey must also have municipal authorization to it. Make sure the survey plan is up-to-date and accurate. If you doubt its accuracy, request a new copy of it with all adjustments annotated in the plan.

Types of Property Ownership in Costa Rica

Understanding the different types of property available to foreign and national buyers in Costa Rica is critical for evaluation, purchase and security of your investment. Each property ownership type involves different implications and additional paperwork associated with them.

Fee Simple

Fee simple is considered to be the most beneficial form of property ownership because it is exactly the same as in countries like U.S.A., Canada, most European countries. The owner, in this case, retains the absolute right to own the property and enjoy it to his own discretion: lease it, use it, sell it, transform it, provided the transformations comply with current laws of Costa Rica. Foreigners are equal with Costa Ricans in their rights when buying fee simple property. In this case, the property owner can have the property restored to its original condition, and overall, enjoy all rights to the property that are regulated by current laws.

Concession Property, or the Maritime Zone Specifics

Special regulations and laws apply to the beachfront property in Costa Rica. Be advised that 95% of Costa Rican beachfront properties are concession properties subject to MZL, the Maritime Zone Law. In addition, a number of other specific rules regulate this land. Among them are the local municipalities and Costa Rican Institute of Tourism, ICT.

Note: foreigners have limited rights in owning concession properties in the Maritime Zone. The very notion of concession means that the owner can have the right to use and enjoy the concession property in the maritime zone for a limited period of time. The right to own a concession property is granted by the state itself through local municipalities. The first 200 meters from the high tide define the line of the maritime zone boundary. Small islands, estuaries, mangroves and other natural formations overcoming the ocean level are also included in the maritime zone. Further, these 200 meters are divided into two zones: public are, and concession are, sometimes called restricted.

Public area comprises the first 50 meters from the high tide line and is not subject to concession of any kind. Only governmental approved construction project are allowed in this zone. Moreover, all beaches are public in Costa Rica, and anyone who wishes to enjoy this area has the right to do so. In other words, all beaches are public in Costa Rica.

Concession area comprises the next 150 meters and is available for purchase of concession rights. In simpler words, concession is a lease granted to the buyer by the government for a specified period of time. In most cases, concessions are granted for 20 years. The owner in this case may construct buildings on the property, divide it, and perform other altering acts provided they comply with Costa Rican laws. In any case, all altering acts and construction require permits from the municipality and in case construction involves cutting trees, a permit from SETENA, authority regulating ecological issues.

Note: foreigners do not have rights equal to those of Costa Ricans when buying concession property in the Maritime Zone. According to Costa Rican laws, a citizen of a foreign country cannot be the main owner of a concession property. Nonetheless, common practice suggests a foreigner enters into a partnership with Costa Rican citizen to buy the concession property. The ownership, in this case, is divided into shares of 49% for the foreign partner, and 51% for the Costa Rican partner.

Exceptions comprise the cases when a foreign citizen residing in Costa Rica during five years prior to purchase may be the majority owner of a concession property. Both foreign buyers and Costa Rican citizens can only purchase maritime zone property through concession.

Condo Properties

In Costa Rica, condominiums are subject to a Condominium Law that offers certain privileges to project developers, especially the ones developing single family residence finished projects, condo complexes in gated communities with luxury amenities and the like. A developer of a condo complex has rights to restrict and regulate various aspects of property development and division. A condominium property ownership is fee simple ownership that carries along with it a set of restrictions imposed by the developer. If you consider buying a condominium, request the by-laws copy to check the architectural guidelines, restrictions on land use and other possible limitations set forth by the developer. In most cases, architectural guidelines protect the initial design and overall look of the structure from further alterations by owners.

Untitled property

At all times, avoid even negotiating on purchasing an untitled property. Some families have lived on these properties for generations; they have fences separating their property from that of the neighbors and other attributes of a long inhabited property. Nonetheless, irrespective of the number of years people have lived on the property, if it is not in the National Registry, it has no title. Consequently, its status is unclear, and you cannot buy it, regardless of what the seller is telling you. Unless the property is registered, the owner has no way of proving that the property belongs to him. Likewise, the owner has no proof of the property’s dimensions whatsoever.

Time Share

Although, timeshare property is not a widespread type of property in Costa Rica, it is still worth mentioning. This type of ownership allows the owner to use the property during a set period of time within a year. Thus, a single property is divided into parts and sold to different buyers who time- share resort properties.

Types of Ownership Contracts

Direct ownership implies that the buyer is one or more physical individuals buying property in their name.

Alternative type of ownership implies acquiring a property through a corporation. It is a common practice in Costa Rica when a buyer acquires the property through a new or existing corporation that currently owns the property in question. Many owners favor this type because it allows transferring the property ownership without paying government transfer taxes and stamps. In this case, the property technically does not change the owner, and it is the ownership change that imposes governmental taxes. The owner remains the same corporation; it is the shares that are transferred to a different holder.

Note: if you form a new corporation to acquire the property, then your purchase is subject to governmental taxes because technically the corporation owning the property is a different one. Unlike the cases when the buyer only buys shares within the existing corporation. Nevertheless, as attractive as it seems this type of purchase involves certain risks because there is no sure way to verify if the existing corporation has other liabilities and obligations with it. When buying an existing corporation in Costa Rica, buyers must be aware of yearly tax declaration, income taxes, legal bookkeeping and the like responsibilities.

One of the peculiarities of Costa Rican tax system is that authorities leave it up to property owners to remember to pay property taxes on time. In case the owner forgets about the quarterly or yearly payment he may face foreclosure.




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