Juan Manuel Cordero and Daniel Rojas
Before buying real estate in Costa Rica, there are important legal and technical aspects that the buyer must take into account before proceeding with the purchase, in order to prevent future headaches.
Firstly, it is essential to identify the property that will be purchased. In Costa Rica, the vast majority of properties are duly titled, which means that they have a registered title in the Real Estate Registry of the National Registry and have a registration or “folio real” number, which is a unique number assigned to each property to identify and distinguish it from all other registered properties. This number can be made up of five parts: the first number indicates the province in which the property is located, the second group is the consecutive number assigned to the property itself, the third group is called “duplicate”, which is included only when, by mistake, the same consecutive number is assigned to two or more properties in the same province and therefore the property is assigned a letter to differentiate it from the others, the fourth group indicates whether the property is subject to the condominium property regime and the last group of numbers indicates how many co – owners the property has, if any.
After having identified the property that you intend to buy, it is always advisable to carry out a due diligence process of the property, in which a real estate attorney, together with other professionals, will carry out a detailed audit of all registry, cadastral, tax and legal aspects that could affect the property or its intended use. During the due diligence process, a thorough review of documents registered in the National Registry is made to determine if the property is duly titled and to corroborate if there are any notes or encumbrances that may affect the use of the property. In the same way, a study of the property’s chain of title is made, to verify if the property’s seller is indeed the owner and if such person has enough powers to sell the property.
Likewise, the due diligence process will also involve the revision of the cadastral plan of the property and, if necessary, its revision also by a surveyor engineer, to corroborate if there are any overlaps with neighboring properties that may eventually affect the property. In the same way, during the due diligence revision tax issues are verified to validate if the property is up to date in the payment of the corresponding taxes, so that the buyer does not have to assume these subsequent expenses after purchase. Finally, the due diligence revision will also include a review of urban planning regulations, in order to identify if there are any national or local regulations that may limit the use and enjoyment that the buyer expects from the property. The above is not an exhaustive list of the aspects that are reviewed during the due diligence period, since each case must be particularly evaluated to determine what additional aspects should be reviewed, depending on whether the property will be used for residential, commercial, tourist or office use.
After completing the due diligence process, and having verified that the property is suitable for the buyer’s intended use, the drafting stage of the legal documents for the sale of the property begins. These documents may vary according to the negotiations agreed between the parties. In many cases, prior to starting the due diligence process, an option or promise of sale is signed, in which the parties agree on the conditions under which an eventual sale will be signed, if the result of the due diligence favors the buyer. In many other cases, a purchase option or promise is not signed and the parties decide to proceed with the direct purchase of the property.
The property purchase is made through a public conveyance deed granted before a Costa Rican notary public, in which one party sells the property to the other. In said conveyance deed, it is advisable to insert seller’s representations and guarantees, by means of which the buyer is guaranteed that the property is suitable for the intended purposes. Likewise, if there the buyer is financing the acquisition of the property, the conveyance deed will also include matters related to said financing, either through the constitution of a mortgage or through the transfer in trust of the property, in the event that a guarantee trust is put in place; among other financing options available in the market.
After signing, the conveyance deed must be submitted to the National Registry, for which legal stamps and a transfer tax must be paid; the amount of which will depend on the purchase price of the property, or on its fiscal value, since said expenses must be calculated according to the greater amount between the two. Finally, it is important that the Notary Public who grants the conveyance deed follows up on it, in order to correct defects that the National Registry could eventually point out in the document and, in addition, to verify that, once the document is registered, that the registered information effectively matches the transaction agreed to in the conveyance deed.
In general, the above is a summary of the process of buying a property in Costa Rica. However, it is important to advise that each case will depend on the specific details of the agreed terms and conditions and the particularities of the property to be purchased. In all cases it is advisable to hire the services of a Real Estate lawyer and notary public, to carry out the direction of the sale and thus ensure the success of the transaction.
In case of requiring professional legal assistance regarding the acquisition of real estate in Costa Rica, please contact our Real Estate attorneys Juan Manuel Cordero and Daniel Rojas, at emails email@example.com and firstname.lastname@example.org.