Why you should always have a written lease for residential properties in Costa Rica
If you are moving to Costa Rica and have done your research, you have likely gotten the advice "rent before you buy". At Outlier Legal, we agree. With Costa Rica's 12 different climates, differences in
If you are moving to Costa Rica and have done your research, you have likely gotten the advice “rent before you buy”. At Outlier Legal, we agree. With Costa Rica’s 12 different climates, differences in internet accessibility, traffic patterns and distances to the things that may matter to you (IE medical care, schools, travel or shopping), renting a home first makes sense. Keep in mind, there are many homes available to rent before you buy, allowing a kind of trial period before committing to something permanently.
They are one of the most popular civil contracts to this day. A lease agreement is a valuable legal instrument that outlines the rights and responsibilities of the parties involved. For the purpose of this article, we will be discussing Residential property leases only.
If you are not well informed of what you are signing, you may acquire some obligations that might cause you more trouble than its worth. It is of vital importance to have a general idea of what a lease agreement entails in Costa Rica, so here are some important notes to consider.
In Costa Rican law, a lease agreement is a legally binding civil contract in which two parties known as the Landlord (Arrendante) and the Tenant (Arrendatario) enter into an agreement in which the landlord leases a property to the tenant, so that tenant may use this property in exchange for a fee that is known as rent (renta de alquiler).
In regards to such contracts we wanted to provide you vital information to take into consideration:
1. Get it in writing
While verbal contracts are permitted in Costa Rican Law, this is something we do not recommend. Verbal agreements are subject to misinterpretation between the parties or simply forgetting what was agreed upon, therefore making it very complicated to adhere to such a contract. It is equally important to add an addendum in the event terms change during the course of occupancy and both parties agree.
For instance, 6 months into the lease, tenant decides to install a dishwasher at their own cost. Landlord agrees verbally. When moving out, landlord requests that tenant bring the kitchen back to its original state when rented, as he assumed this would be temporary. The tenant expected to leave the connection for the dishwasher intact, and this verbal agreement has now created confusion and a point of contention for both parties. In short, avoid these kinds of snafus by getting it in writing.
2. Proper identification and proof of ownership
It is very important (and required by law) that the contract clearly states the details of the property. This must include the property registration number (Folio Real) so that the tenant may check the status of the property at the National Registry, along with verifying if the owner has the right to rent the property out in the first place.
3. Use of the property
A lease agreement should specify the sort of use the tenant can have while occupying the property. Especially with so many of us creating flexibility by working from home, get an understanding of what is and is not allowed. Can the tenant, who is perhaps a mental healthcare provider, see patients in the home? Will they be permitted to convert that spare bedroom to open their dream recording studio? Can they Airbnb the home when they are traveling? Get the intended use in writing.
4. Rent and Terms of the lease
In Costa Rica, rent can be paid in colones or US dollars and it is important to note that if the rent is fixed in US dollars, residential leases are not permitted to have a rent increase or decrease throughout the term.
In regards to the length of lease, it is important to specify that by law, the length of any lease has to be at least three years, however, it can be established in the lease agreement that an anticipated termination can happen with advanced notice and be mitigated either with additional payment from the tenant or the loss of the security deposit if necessary.
5. Condominium Bylaws to take into consideration
Regarding properties that are part of a condominium: it is important for the landlord to first inform the tenant that the property is subject to condominium regulations and occupants of the property are subject to following an additional set of rules that are established in the condominium’s bylaws.
It is important for the landlord to inform the tenant and provide a copy of such bylaws before the lease is signed, for the tenant to be fully aware of the rules they must follow.
Finally, the Landlord has to inform the condominium administration about the new lease agreement to accommodate and establish the new tenants in their home and obtain written permission from the condominium board, if necessary.
6. Permittable reasons to break a lease as the tenant or landlord
In accordance with Costa Rican Law, there are some exceptions that allow the tenant or landlord to break or terminate the lease agreement. If the lease contract has expired or is considered void, if the landowner or one of his family members needs to take occupancy of the property, if the property is subjected to total loss due to an unforeseeable consequence or if it is expropriated by the State.
In the case of expropiation, if the State has an interest in building common use infrasctructure (a road for example) and it needs to pass by a home, the State would have to begin the expropiation proceedings. This would be considered an unforseen situation and would cause the termination of the lease in which both parties are not liable.
Another example would be if by some natural disaster such as an earthquake (which are common in Costa Rica) the property is destroyed. Again, due to it being unforseable for both parties, it would cause for the termination of the contract without any liability.
7. Removal of tenant for disobeyance of lease terms
As common in law, there are causes or justifications that would allow the landlord to begin eviction proceedings against the tenant out of their property. The basic reasons are usually non-payment of rent or not taking care of the property are both valid reasons to initiate eviction.
If the tenant’s pets are causing provable harm to neighbors and a court finds the pet to be a nuiscance, the landlord has the right to request removal of the pet or begin to evict the tenant. It is important to note that if a tenant disobeys the condominium bylaws (for instance smoking in a non smoking property, playing loud music at night, leaving trash outside on non-trash days), this could also be counted as a legal reason to remove the tenant,
8. Taxation Matters
In Costa Rica rent is subject to tax, specifically subject to the VAT (Value Added Tax). The amount to be taxed depends on the amount of rent that it is paid, and if the rental amount is below an approximate amount of $800, the rental price is then exempt. This is an obligation that falls on the Landlord, to ensure that the tax is paid on time.
However, some Landlords have the bad habit of tricking their tenants in order to exploit this exemption to avoid paying taxes. For example: if your rent is $1,000 a month, you should be receiving a receipt for exactly that amount. If for some reason the Landlord indicates on this receipt that the rent is less than $800, then it is very likely that the Landlord is falsely trying to reduce the amount in order to avoid paying their fair share of taxes.
This should be brought to his/her attention in order to amend and request the real amount in the invoice, or to pursue legal action if necessary. The penalties to the landlord for not paying IVA range from fines to penal action. For the tenant, there is no way of defending the difference in rent should you ever find yourself in a legal dispute with the landlord.
“A contract is only as good as the people signing it” – Jeffrey Fry
Lease agreements are a complex matter and require very detailed knowledge of the Costa Rican law. Before signing a lease, please send it to our Real Estate division for review and legal opinion. We’re expats who have been there, and we are here to help.