Real estate leasing in Costa Rica: Parties and forms of contracts

In this new installment, we continue with the series of articles on leasing and possessory matters.

Previously we analyzed the usual types of leases in the real estate market and the regulations that govern them, and this time we are pleased to delve into aspects related to the parties that may be involved in a leasing relationship, as well as their forms of contracting.

I. The Parties

When we think of a lease, the first thing that comes to mind is usually a person (natural or legal) who rents a house or commercial premises to another person who pays a fee to enjoy the property.

However, we consider it enriching to deepen in the different possibilities that the market offers and that legally justify that the leasing relationship is approached in a more detailed way as far as the application of the rules of substance and the procedural ones.

I.a The lessor

Article 9 of the General Law of Urban and Suburban Leases is clear in determining that lessor and owner are not synonymous and that it is not necessary to be the owner of the property in order to be entitled to lease it.

In what is of interest for this delivery, the aforementioned article 9 indicates:

ARTICLE 9.- Power to give.

The owner, the possessor of the property by any legitimate title, as long as it is not a lease, and whoever acts in the exercise of a special or general power of attorney or of a power legally conferred by a competent authority, may give in lease.

The co-owner of an undivided thing may not lease it without the consent of the other co-owners.

I.a.i The lessor-owner

It is the most common and pure form of lease, it is what is usually thought of when conceiving a lease. We refer to a person, natural or juridical, who gives in lease a property that belongs to him, in a simple form, the registered owner of the property offers in lease the property of which he is the owner.

Clearly, even if at the time of signing a contract the owner is represented by an attorney-in-fact, this does not affect the lessor’s status as lessor in the leasing relationship.

I.a.ii The non-landlord lessor

Although it is less common, there is the possibility that the lessor is not the owner of the property, which responds to the attribute that the law grants to the legitimate possessor of the property.

An example of this could be found in those cases in which the bailee (gratuitous possessor of the property) leases the property he occupies, or when the settlor holds the rights of possession of a trust property (if so expressly indicated in the trust contract).

It is worth mentioning that although possession obtained as a result of a lease is legitimate, our legislator chose to prohibit the lessee from having the possibility of giving in a new lease the same property, except with the express consent of the lessor.

I.a.iii Plurality of Lessors

In cases where there is a property in rights and therefore different owners, in such contractual relationship the consent of all the co-owners must concur in order for the lease to be valid.

That is to say that according to our legal system, the common thing must be leased by all the co-owners, which is relevant when the condition of lessee is held, since in order to avoid contingencies, an adequate advice must necessarily require that all the co-owners sign directly or through representation, the lease contract.

I.a.iv Usufructuary Lessor

In case the registered owner of the property does not have the use and enjoyment of the property, but it is held by a third party (usufructuary), the registered owner of the property does not necessarily have to give his consent, but the contract is valid with the sole subscription by the usufructuary, since he is the one who holds all rights of use, enjoyment and possession of the property and, consequently, he is the one who can lease it.

Within the limits that the usufructuary has to give in lease the property stand out:

a. The destination of the property, since the usufructuary cannot vary the destination of the thing that he is usufructuary of (article 343 of the Civil Code), in such a way that the fact of holding the usufruct in a dwelling house does not allow him to lease the property for commercial use.

b. The term for which he has his usufruct right, in this sense, although it is common practice that the usufruct is for life, it is possible that the usufruct is for a determined term, and the usufructuary cannot lease the property beyond the time for which he has the usufruct.

Regarding this aspect of the time limit that establishes the term of the usufruct, it is important to mention that in case the usufructuary is a legal entity, by express rule such usufruct cannot exceed 30 years (article 359 of the Civil Code), so that the term of the lease cannot exceed the remaining term of the usufruct at the time of signing the contract.

I.a.v Fiduciary Lessor

When the property subject of the lease is registered in the name of a person in the capacity of trustee, it is always advisable to have access to the trust agreement in order to legally assess the different aspects that this relationship may present.

In our experience, the provisions regarding the use and possession of the trust property vary according to the type of trust (administration, guarantee, estate planning, etc.) and also by virtue of the will of the parties themselves, so that sometimes the lessor that must appear in the contract is the trustee, while in other cases it must be the settlor, depending on whether or not possession has been reserved to the latter at the time of transferring the property to the trust.

It is not unusual that in trusts in which the use and possession of the property is not reserved to the settlor, either in the same trust or separately, the trustee grants special power of attorney to the settlor to lease the property, in which case it should not be confused that legally the lessor is the trustee, regardless of whether or not the economic rights of the lease contract are part of the trust estate.

Finally, it should be mentioned that, as in the case of a lease by the usufructuary, in the case of a lease by the trustee, the term of the lease cannot exceed the term of the trust.

I.b The lessee

According to Article 10 of the General Law of Urban and Suburban Leases, anyone who possesses legal capacity or is legally represented, may take in lease; that is to say, be a lessee.

In the event that someone takes in lease on behalf of a third party, the same rule establishes that a special or general power of attorney is required; or else, that the representative possesses a legal power conferred by a competent authority.

I.b.i Non-Occupying Lessee

From the perspective of the lessee, in our daily practice we identify two clear situations in which the person who signs the lease contract does not make use of the property:

a. The rental of a dwelling house for the use of a family member.

b. The lease of commercial premises subscribed by a company that is part of an Economic Interest Group to be exploited by another company of the same Group.

In any case, regardless of the reasons for which the person appearing as lessee is not the one who enjoys the property, it is important to take into consideration such particularity at the time of contracting the relevant clauses and all the aspects related to the urgent improvements, the security of the property, the use thereof, as well as any other term deemed relevant to the owner-occupant relationship, beyond the lessor-lessee relationship that perfects the lease.

Forms of Contract

The lease contract is not subject to special formalities, i.e., it is not solemn, which allows it to be legally valid both verbally and in writing.

In the same way, it can be subscribed both in person and between absentees, following the guidelines of informality of the contracts of article 413 of the Code of Commerce.

Beyond aspects related to the undeniable validity of verbal contracts, a written contract is always advisable as a means of proof of certain conditions and particularities that are difficult to prove in a verbal relationship; For example, cases in which the lessee is responsible for the deterioration due to normal use and the passage of time, the right to withdraw improvements by the lessee in case of deterioration of the property, the payment of the price at a different frequency than monthly, special guarantees, or the establishment of a different term for the lessee to terminate the contract in advance (articles 33, 37, 58, 59 and 72 of the General Law of Urban and Suburban Leases, respectively).

In addition, if the relationship is recorded in a document, in the event of expiration of the term and non-payment, this allows the lessor to file a lease payment proceeding and not a summary eviction proceeding, an aspect that will be developed in subsequent installments.

It is also convenient to make a final remark, in some lease contracts, we have detected an undue practice of including an arbitration clause in which the processing of the eviction of the property is not excluded, which generates a later undesired contingency in the delay of the process, This generates a subsequent undesirable contingency in the dilation of the process, since it encourages the defendant to allege, with obvious dilatory purposes, a lack of jurisdiction of the common jurisdiction in favor of the arbitration, and if the arbitration is used, to allege lack of jurisdiction of the latter in favor of the common jurisdiction, an undue but generalized practice in the event of attempting to delay the processing of an eviction. Furthermore, in the event of taking the process to arbitration, the need arises to enforce the decision of the arbitral tribunal in the court (enforcement of the award), which clearly discourages the insertion of a generic arbitration clause.

This concludes the second installment of articles on possessory and leasing matters. In our next article we will develop aspects on the most common clauses that appear in lease agreements, such as those that regulate the security deposit, term, useful and necessary improvements, urgent repairs, as well as the figures of the excusion to pay, rent adjustments depending on whether it is in local or foreign currency, and aspects related to the formalities of communications between lessor and lessee and, finally, the impact of the auction of a leased property in the leasing relationship.

Litigation & Arbitration Area. You can contact us through the following e-mail addresses:

Andrés Martínez Chaves,

Jose Pablo Valverde Marin,

Gerald Hoffman Guillen,

Josué Barahona Vargas,