Legal Options for Owning Real Estate
Under Costa Rican law, the following options are available to purchase and to own real estate.
- Fee Simple Absolute
This option is the absolute title for a piece of land, free of any other claims against the title, which one can sell or pass to another by will or inheritance. This is a redundant form of “fee,” but is used to show the fee (absolute title) is not a “conditional fee,” or “determinable fee,” or “fee tail.”
- Tenancy in Common
This option allows two or more people to have title of a given piece of property, in which each has an “undivided interest” in the property and all have an equal right to use the property, even if the percentage of interests are not equal or the living spaces are different sizes.
One example is, two friends decide to purchase a hectare of land in the country or a house in the city. Their ownership is going to be defined in the deed according to their agreement. It can be in equal parts of 50% each, or any other proportion they see appropriate. Once the deed is recorded in the recorder of deeds (Registro Nacional) the records will show how much ownership each person will have for the property in question.
- Tenancy by the Entirety
This is a variation of co-tenancy, in which there is joint ownership of title by husband and wife, and by which both have the right to the entire property.
Although, the recorder of deeds may not necessarily reflect the 50% ownership of both spouses, the reality is that under Family Law, each spouse is entitled to 50% of the assets of the other spouse. If during the marriage, a couple purchases a home, lot, condo, etc., each spouse is 50% owner of that property. Rarely do couples indicate in the deed the proportional ownership of the property, which as you may expect, will later result in legal battles in family court if they decide to get divorced.
- Life Estates
A life estate is the right to use or occupy real property for one’s life. Oftentimes this is given to a person (such as a family member) by deed or as a gift under a will with the idea that a younger person would then take the property upon the death of the one who receives the life estate. Title may also return to the person giving or deeding the property or to his/her surviving children or descendants upon the death of the life tenant. This is called “reversion.”
Life estates are not very common. An example is when an owner wants to pass their property on to their children prior to death. The owner passes the ownership but retains the right to use the property until his/her death. Upon death, the possession and the right of use will be passed to the children.
As you can see, these options are very similar to the ones you can find in other countries. There is something that baffles me and bothers me about expats buying real estate in Costa Rica; they seem to forget about the rules they knew back home. I have seen it time and time again, that when expats buy real estate in CR, their common sense dissipates into thin air and disaster happens.
For instance, I have seen endless number of times when expats “buy” real estate and do not get any type of title to the property, they believe it is normal because they are in another country and they believe this is the way things work. They may erroneously believe that because their attorney told them, or the real estate agent told them, or they found it in a blog that it is a fact. Please remember to do your due diligence and apply what you know about real estate to purchasing here.
What to buy and not to buy and the myth of the corporation option
Let’s debunk a fallacy: It is not required to have a corporation in order to own property in Costa Rica. If you buy property in Costa Rica, then we recommend you simply buy the property; do not buy a corporation.
Unfortunately, expats have become prey of mediocre unscrupulous attorneys. Expats have been sold the idea that they are required to have a corporation to do almost any transaction in Costa Rica, such as to purchase and own real estate, or to own a vehicle, or to open a bank account and even to own 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 been adoption the theory of “piercing the corporate veil” when the corporation is not used for its intended purposes, which is to do genuine business, not to hide assets.
In any event, the Costa Rican Constitution protects the rights of foreigners to own real estate. According to Section 19th, foreigners have all and 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 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, keep the above ownership options in mind. However, the best option for buying is the Fee Simple Absolute option, where you are the master of your domain and you are not sharing any ownership rights with anybody.
When buying real estate, before you make an offer or during the Due Diligence Period, you would like the make sure that the property at least has the following:
- 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 ID confirms the property legally exists. If you are offered a piece of land with none of these features, just makes things simple for you and walk away from it 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 an 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 or not.
First of all, Maritime Zone (ZMT) regulations do not allow foreigners to “own” property in this zone, you need to be at least a legal resident. Secondly, 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. I am sure that you may know people who own it but ask them how difficult it was or whether they own it outright.
But let us start by 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. Doing some due diligence will clear this up for you to help you decide whether to buy that particular property.
- Whether the property is an IDA or an IDER property.
These properties were granted by the CR government to poor people in order to farm and make a living, and it came with 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 a particular issue 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 your 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 US (Canada or Europe for that matter) is a daunting task, imagine doing it in a foreign country where you do not speak the language, 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 to lower your risk and buy 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: 1. creating the deed for the transfer of the land and 2. creating the construction contract. Be particularly careful when the seller and the contractor is the same person. Put simply, try to avoid that situation, and follow the old adage of not putting all your eggs in one basket. There are certainly a number of projects in this category who actually are reliable and do a good job, but special considerations need to be included in the contracts in order to lower your risk.