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What to Buy and Not to Buy

Starting off, let's immediately debunk a fallacy: a corporation is not required in order to own property in Costa Rica. If you buy property in Costa Rica, then buy property, do not buy a corporation. People

What to Buy and Not to Buy and the Myth of the Corporation Option

Starting off, let’s immediately debunk a fallacy: a corporation is not required in order to own property in Costa Rica. If you buy property in Costa Rica, then buy property, do not buy a corporation.

People have been sold the idea that they are required to have a corporation to do almost any transaction in Costa Rica, such as purchasing and owning real estate, or owning a vehicle, or opening a bank account, or even owning guns. In some instances, their attorneys tell them to get the corporation to protect their assets from liability in case they have a car accident. Well, there is a simple solution to that: buy insurance. Furthermore, in Costa Rica, the courts have adopted the theory of “piercing the corporate veil” when the corporation is not used for its intended purposes, which is to do real business and not to hide assets.

That being said, the Costa Rican Constitution protects the rights of foreigners to own real estate. According to Section 19, foreigners have all the same rights as Costa Ricans, including the right to own property. Therefore, foreigners can own property outright, and as far as ID requirements, a passport will suffice. There is no requirement to own a property through a corporation. I have not met a single person in this country who can convince me that having a corporation is a good idea as far as owning real estate, especially when considering the increasing difficulties of dealing with corporations, which is a topic for another discussion. Having a corporation can be convenient when you actually have a business. 

If you are looking to buy a piece of real estate, the best option is the “fee simple absolute” option, where you are the master of your domain and you do not share any ownership rights with anybody.

When buying real estate, before you make an offer or during the due diligence period, you should make sure that the property has at least the following two items: 

  • A property survey (plano catastrado) which must be approved by the county and registered with the recorder of surveys (Catastro Nacional)
  • Property ID (folio real)

Both the survey and the property ID confirm the property legally exists. If you are offered a piece of land without these features, just makes things simple and walk away from the deal and avoid trouble. However, there are instances where the seller owns a big piece of land and wants to sell you a little piece of that land, but that little piece has not been registered or surveyed. It is legally possible to purchase that piece of land in a safe manner, but very specific clauses need to be added to the purchase agreement. In addition, escrow must be included as part of the purchase agreement. We will discuss these items below, but once again, try to buy a piece of land that has already been recorded.

You will also want to consider the following issues: 

  • Whether the property is in the maritime zone.
    First of all, the Maritime Zone (ZMT) regulations do not allow foreigners to “own” property in this zone; you need to be at a legal resident. Second, the ZMT has been clouded with a lot of corruption, red tape, and mediocrity from government institutions, such as the local municipalities and the ICT. Once again, do yourself a favor and stay away from it.
    But let’s start with making something clear: with the ZMT, you do not get ownership, you get a lease, which is not freely transferrable at your own will. Everything that happens with the ZMT needs to go through the Municipality and/or the ICT. There are some beach front properties that may not be affected by the ZMT and doing some due diligence will clear this out for you in order to decide whether to buy. 
  • Whether the property is IDA or IDER property.
    These properties were granted by the CR government to poor people in order to farm and make a living, and they come with various strings attached.
  • Whether the property has water and other utilities.
    It rains a lot in Costa Rica, and I am surprised to see how many people have water issues. When it comes to real estate, water is an issue to consider if you want to build. No water translates into not being able to obtain a building permit.
  • Whether it has any easements or covenants of title.
    It is common to see, particularly in rural areas, that a tract of land will have easements for water or transit. Make sure to understand the limitations the property has when it comes to these issues.
  • Whether it has any liens.
    A report from the recorder of deeds will indicate whether your property is subject to litigation or whether it has a mortgage. Needless to say, this is a significant issue.

To Build or Not to Build

Are you planning on building your dream home? If you have already built a home before, then you know what to expect. But, if you have not ever built a home before, then be prepared for a ride. If you know someone who built a home back in your hometown, go and ask them what their experience was.

Bad contractors are as common as bad attorneys and bad real estate agents. There are certainly a number of people who do a good job, but you are always running the risk of dealing with the bad apples. If building a home in the U.S. (Canada or Europe for that matter) is a daunting task, imagine doing it in a foreign country where you do not speak the language, where you do not know the laws, and you are surrounded by people eager to suck the last drop of cash out of you. Would you do it? Once again, I would suggest lowering your risk and buying something already in place. Otherwise, get ready to get some Pepto-Bismol. Contractors in Costa Rica are not regulated, so anybody can be a contractor in Costa Rica, the same way that everybody is a yoga instructor, a photographer, and a chef.

When building a home, you need to consider two legal situations, doing the deed for the transfer of the land, and doing the construction contract. Be particularly careful when the seller and the contractor is the same person. Try to avoid that situation and use a simple principle: do not put all of your eggs in one basket. There are certainly several projects that have done a good job and are reputable, but special considerations need to be included in the contracts in order to lower your risk.

 

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rvalverde@outlierlegal.com

Attorney and Entrepreneur with more than 15 years experience in: immigration law in the US and Latin American countries including Argentina, Chile, Colombia, Brazil, Costa Rica and Panama. In addition, Rafael has extensive experience in Business Law, Estate Planning, and Real Estate. Lastly, Rafael has developed experience in people management, talent development and business development.

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