General information on real estate leasing in Costa Rica

We are pleased to start a series of articles that will be published starting with this newsletter, all related to leasing and possessory matters.

Specifically, in this issue we will analyze the most common types of leases in the real estate market and the regulations that govern them.

In this way, with this first article we mention several daily situations in leasing matters that we have detected in our litigation practice and we outline a series of concerns that usually arise to those who are immersed in a leasing relationship and its most common variants (Civil, Residential, Social Interest Residential, Commercial Local, Agrarian, Residential or Commercial Condominium Lease, lease of trust property, and on registered and unregistered real estate).

Types of Real Estate Lease.

I.a- Generalities of residential and commercial leases.

A lease is a contract whereby a party in lawful possession of real estate gives another party the use and enjoyment thereof in exchange for the payment of a rent.

The main element of a lease contract is the onerousness; that is to say, that there is a remunerated use of the property, since if it were not in this way, we would not be in the presence of a lease, but another legal figure that covers the free use, as it could be the gratuitous bailment or the mere tolerance.

The everyday nature of this type of contracts is palpable, hence the relevance of specifying legal aspects that impact basic aspects of the contracting, so that the document to be signed contains the clauses that best reflect the will of the parties at the time of entering into this type of legal acts.

Thus, it is a common practice to make use of lease contract formats that do not necessarily include the totality of the needs for each specific case; or else, it has come to our practice, contracts drawn up by people who are not professionals in Law, who find it difficult to modify or include clauses that adjust to the real needs of the business, or who incorrectly maintain clauses of model contracts that do not correspond to the business they intend to document.

By way of example, it is extremely feasible to conceive certain basic differences that may exist between a contract for a property intended for residential use and one intended for commercial use. In the former, the lessor, according to his preferences, may have special interest in including clauses restricting the number of individuals that may occupy an apartment, or certain clauses tending to avoid neighborhood nuisances; while in a lease of commercial premises, the lessor will have special interest in including some indemnity clause in case of damages caused to passers-by or clients of the lessee.

It should be noted that in housing leases there are also important technical-legal differences, as is the case with the leasing of social housing. This category corresponds to a classification that the General Law of Urban and Suburban Leases establishes for housing whose value is lower than the value established by the BANHVI as a ceiling of social interest, and which, of relevance for this article, it is worth mentioning that it establishes a series of rights and specific rules for leasing relationships on properties that do not exceed that amount. Currently, social housing is considered to be that which has a value between building and land that does not exceed ¢65,801,000.00[1].

In future installments of this series of articles, we will delve into the special rules that govern the housing leases of real estate to be considered of a social nature for not exceeding such ceiling, among which the enervation of the eviction process for lack of payment and certain special grounds for terminating this type of leases stand out.

I.b- Condominium real estate leases.

In view of the growing development of condominium real estate, it is common to see contracts whose contractual object is a housing unit subject to a condominium regime.

In this sense, it is extremely common that both lessors and lessees are concerned only with aspects related to the private leased area and leave aside regulatory aspects of the condominium. Thus, it is always recommended that the lessor keep evidence of having informed the lessee of the condominium regulations, which usually contain specific provisions of social coexistence that are mandatory and must be complied with.

It is usual that tenants come to our practice trying to process an eviction due to non-compliance with the condominium regulations; or, in search of advice because the condominium administration imposed sanctions derived from behaviors of the tenant or occupant of the property, however, they do not always have the robustness and foresight of a contractual structure that fits their interests, even in many occasions the tenant has not even shared with the lessor a version of the Regulations.

On the other hand, it is also usual that the lessees themselves are unaware of their legal obligations to the condominium, which is the one who can manage the eviction of the non-owner occupant (for example, the lessee or possessor of the subsidiary property) with a simple power of attorney from the condominium owner[2]. Likewise, it is common for tenants to be unaware of their right to participate in condominium assemblies, with voice, but without vote [3].

Additionally, it is common in commercial matters that the premises are subject to a condominium regime, requiring a specific analysis of the rules and participation in meetings on the part of the tenants.

In our experience, both in residential and commercial leases, the analysis of condominium regulations is desirable prior to initiating a leasing relationship, since there are regulatory provisions that sometimes take tenants and occupants by surprise, ranging from impositions on opening and closing hours of commercial premises, visual signs, bidding season, policies, use of common areas and loading and unloading zones, which may be included in the daily operation of a business.

In housing units, it is usual the inconvenience suffered by tenants due to ignorance of the fines that the regulations impose on the condominium owner who rents and that could be transferable by virtue of a clause in the contract, or from the opposite perspective, discomfort in the tenants for suffering fines from the condominium administration, which cannot be transferred to the tenants due to a deficient contractual structure.

I.c- Leases of real estate in trust.

In addition, it should be noted that there are also many doubts that are generated when the object of the lease contract is subject to a trust, since it raises questions in lessors, lessees and occupants, with respect to the implications that this entails.

In these cases, it is advisable to perform a casuistic legal analysis, since the power to lease could be vested in the settlor or in the trust owner, which is determined according to the specific letter of each trust contract, since sometimes it may be agreed that the use of the trust property corresponds to the settlor, and on other occasions it may be agreed that it corresponds to the trustee, especially when the rents produced by the property serve as a source of repayment of credits; or when the trustee must exercise greater control over the use of the trust property as part of the functions entrusted by the trustee.

I.d- Partial lease of real estate.

Finally, it is worth mentioning that it is usual to find partial leases of a real estate property, both in commercial and housing matters; for example, when in a single registered property there are several buildings (premises or dwelling houses), or there is even the lease of unregistered real estate property, as long as the registration of the same in the Public Registry has never been processed. In this sense, it is not illegal to execute a lease contract with these characteristics, but it is advisable to develop a clause in the contract that is in accordance with the needs of the case to clearly establish the purpose and limits of the leased property and its proper use by the lessee, especially if the use of parking lots, green areas, corridors or sanitary facilities for commercial premises is shared.

II. Applicable Regulations

In Costa Rica there are two types of regulations that govern leasing relationships.

On the one hand, Law #7527 or General Law of Urban and Suburban Leases, is a special rule that regulates the leasing relations of real estate, destined to housing or to the exercise of a commercial, industrial, artisan, professional, technical, welfare, cultural, educational, recreational or public activities and services.[4] On the other hand, the Civil Code is a special rule that regulates the leasing relations of real estate, destined to housing or to the exercise of a commercial, industrial, artisan, professional, technical, welfare, cultural, educational, recreational activity or to public activities and services.

On the other hand, the Civil Code is the rule of general scope that governs all leases that are excluded from the application of the General Law of Urban and Suburban Leases, i.e., the rules of the Civil Code will apply to:

    • Hotels, boarding houses, inns and similar in terms of the users of their services.
    • Dwellings and premises for tourist purposes duly qualified as such by the Costa Rican Tourism Institute.
    • Market stalls and fairs.
    • Parking lots not linked to the lease of premises.
    • Lease of Advertising Spaces.
    • Rustic and agrarian leases

As indicated above, it is very subtle but at the same time highly relevant, the difference that a person rents a house to a family to be used as a dwelling, or that the same house is used on platforms such as Airbnb for short term destinations and with obvious tourist purposes.

In the same way, each contractual structure responds to its own requirements depending on whether the leased property is subject to a condominium regime or is in a trust. By way of example, the lease of a property for the operation of a parking lot is not comparable to the lease of a complex of premises with a parking lot.

Likewise, special mention should be made of farms with an agricultural vocation, since agricultural leases are extremely special, and the provisions regarding non-payment vary, since above the mere contractual interest of the parties, the interest of both lessor and lessee to develop an agricultural business prevails, for which reason there are specific considerations regarding the term and expiration of the contract, which respond to the cycles of the agricultural activity, depending on whether it is for the breeding of animals or the cultivation of plants.

With these reflections, we begin a new series of articles, this time related to aspects of leasing and possession of goods.

Likewise, with this installment we hope to raise the importance of a matter that, although it is an everyday matter, should not be allowed to become informal; on the contrary, with the present reflections we hope to transmit the rigorousness and level of detail that a consultancy in this matter entails, whether it is a lease of a social housing, a farm for agricultural purposes, or a complex lease for the development of specialized activities such as hospitality, banking services, or those leases of goods located in areas of special regime, such as the Free Trade Zone or the Maritime Terrestrial Zone.

In the next issue we will go deeper into the forms of contracting, parties to the contract and the figure of sublease.

Litigation & Arbitration Department. You can contact us through the following e-mails:

Andrés Martínez Chaves,

Jose Pablo Valverde Marín,

Gerald Hoffman Guillen,

Josué Barahona Vargas,

[1] As stated in Agreement 1 of Session 54-2019 of the Board of Directors of BANHVI.

[2] Article 22 of the Law Regulating Condominium Property.

[3] Article 25 of the General Law on Urban and Suburban Leases.

[4] Article 4 of the General Law on Urban and Suburban Leases.