Transactions and Financing in Costa Rica

By Roger Petersen

The Legal Guide to Costa Rica, Chapter 5

The purpose of this section is to introduce the reader to all the legal principles which are related to the ownership of real property.

Costa Rican law recognizes the absolute right to ownership of real property. By real property we mean land, and generally whatever is erected or growing upon or affixed to land. This means that the owner of the property has the exclusive right of possessing, enjoying and disposing of their property as they see fit, unless prohibited by law.119

1.1 The Recording Systems

The Costa Rican government operates a recording system which assists the public in determining who has title to a given parcel of land. The Civil Code specifically requires all documents which relate to title to real property and or which pertain to interests in property be recorded in the property section of the Public Registry.120 The property registry acts as a depository of documents which have been executed and filed in the system.

The Civil Code requires that any document which is to be filed in the property registrar set forth: (i) a legal description of the property; (ii) the type, value, and conditions of the instrument which is being recorded; (iii) a description of the right on which the recorded instrument is based; and (iv) the full name of the grantor and grantee of the recorded instrument.121

The property section of the Public Registry is fully computerized and indexed. The property records database can be searched by name index or by a title registration number assigned to each and every property known as folio real. The Public Registry can issue certificates of title or provide a registry report on a particular property. The registry report provides detailed information on a particular property including the name of the title holder, the boundary lines of the property, tax appraisal, liens, recorded documents. (See Appendix 8 for sample registry report and Appendix 9 for plot plan)

1.2 Purchasing Property

Once the buyer has identified a particular piece of property which he is interested in purchasing, the buyer or his real estate agent will provide the seller with a purchase offer and an earnest money deposit. The purchase offer will set forth the terms of the offer to the seller. If the purchase offer is accepted then the legal procedures to transfer ownership of title begin.

A. How is Title Transferred ?

In Costa Rica, property is transferred from seller to buyer by executing a transfer deed (Escritura) before a Notary Public. (See Appendix 10 for an example of a document transferring legal title to real property). Unlike common law countries such as the United States and Canada, where the role of the Notary is limited to authenticating signatures, in Costa Rica the Notary Public has extensive powers to act on behalf of the state. The Notary Public must be an Attorney and they may draft and interpret legal documents as well as authenticate and certify the authenticity of documents.

In order to close on the property, the buyer and seller must select a Notary Public who will draft the transfer deed and register the sale in the Public Registry. The local custom is that the buyer may select his Notary/Attorney to draft the transfer deed if he is paying all cash for the property. If the purchase price is financed there are generally three alternatives to selecting the Notary/Attorney: (1) If a large percentage of the purchase price is being financed by the seller and a mortgage needs to be drafted to guarantee payment then the seller may request that his Notary/Attorney draft the transfer deed. (2) If a property is purchased 50% cash and 50% financed it is common for the buyers attorney and sellers attorney to jointly draft the transfer deed and mortgage in one single document, this is known as co-notariado. (3) Or, the buyer may insist that his Notary/Attorney draft the transfer deed and let the sellers Notary/Attorney draft a separate mortgage instrument. In this case, since the mortgage is being drafted separately it carries a higher registration fee. The registration fees are discussed in the section on closing costs.

At your option the property can be purchased in your individual name, jointly with other persons or in the name of a corporation. The decision as to ownership should be based upon your particular situation and after consultation with your attorney.

B. How Can I Ensure That I Will Have Clear Title to The Property ?

The first step in the closing process is to ensure that the seller is legally entitled to convey title to the property. This is determined by conducting a title search at the Public Registry. The title search will indicate the owner of title as well as any liens on the property.

Costa Rica follows the doctrine of first in time, first in right. This means that recorded instruments are given priority according to the date and time in which they are recorded.122 For purpose of the transfer of real estate, this means that any mortgages or liens which are not recorded at the time that title is transferred are invalid. Since the certificate of title issued by the Public Registry is prima facie evidence of the condition of title on the date issued, any instrument not recorded at the time the certificate is issued is invalid. This eliminates the need for title insurance since any instrument omitted from the report is deemed invalid. Obviously, every situation differs and in some cases a review of the Public Registry records may not be sufficient to uncover all encumbrances.

C. Property And Municipal Tax Liabilities

At closing, the Seller must also provide proof that they are current with their property tax payments and Municipal assesments.

D . Closing Costs

Unless agreed otherwise, it is customary for the buyer and seller to share equally in the closing costs. The typical real estate closing will involve the following costs:

(1) Real Estate Transfer Tax. - The government collects a property transfer tax (Impuesto de Traspaso ) which is equal to 3% of the registered value of the property.123 The Public Registry will not record a transfer deed unless the transfer taxes and documentary stamps have been paid.

(2) Documentary Stamps - The government also requires that documentary stamps be affixed to the deed. These stamps amount to approximately 1.1% of the registered value of the property as follows: Legal Bar Association Stamp C25.00 for every C100,000.00 (Timbre del Colegio de Abogados) ; Municipal Stamp: C2.00 for every C1,000.00 (Timbre Municipal); Hospital Stamp: C2.00 for every C1,000.00 (Timbre Hospitalario); Agricultural Stamp C1.00 for every C1,000.00 (Timbre Agrario); National Archives Stamp C20.00 (Timbre del Archivo Nacional); Fiscal Stamp: C625 (Especie Fiscal). The Public Registry also imposes its own tax of .05% on documents presented for recordation to the Public Registry. (Derechos de Registro )

(3) Notary Fees - The Notary that drafted the contract for sale and carried out the closing is entitled by law to a fee equal to 1.5% of the first one million Colones of the actual sales price and 1.25% on the balance.

E. The Two Tiered Value System

At this point in time it is appropriate to clarify the difference between the registered value of a property and the sales price. Costa Rican real estate transfers typically are carried out according to a two tiered system. In general Costa Rican properties have extremely low tax appraisal values in relation to real market value. As such, when a property is sold it is standard practice to run the sale through at it's registered value which may be substantially less than the actual sales price. As such, all transfer fees are based upon the registered value of the property as opposed to its sales price. The only exception, of course, is the Notary fee which must be based on the actual sales price instead of the registered value. It should be noted that the government is analyzing it's property appraisal system in order to bring tax appraisal values more in line with market value. A move in this direction is the approval in the Legislature of a law which transfers all property tax collection and administration to the Municipal government where the property is located. Once this mechanism is in place each Municipal government will establish it's own appraisal system for properties located within its jurisdiction.

To illustrate the manner in which the current system operates, the example below sets forth the typical closing costs incurred assuming that a buyer purchase residential property for $100,000.00. If the registered value on that property is C3,00,000.00 Colones then the buyer would incur the following closing costs (assume $1 - $200):

F. The Registration of the Transfer Deed

Now that you have finalized the closing , exchanged the money and taken possession of the property thats it right? - wrong- The original transfer deed (Escritura) must be filed in the Public Registry. It is the obligation of the Notary that drafted the transfer deed to ensure that the deed is presented (Anotado ) and subsequently registered (Inscrito ) in the Property Section of the Public Registry. I have underlined the words presented and registered to highlight the importance of following up with the Notary to ensure registration. Although presentation guarantees your priority (i.e. first in time first in right) it does not automatically guarantee registration. The Public Registry will not register a transfer deed unless all the taxes and registration fees are paid; a certified copy from the Revenue Department (Ministerio de Hacienda - Tributacion ) is provided certifying that the seller's property tax (Impuesto Territorial ) payments are current; a Municipal certification from the Municipality where the property is located certifying that both buyer and seller are current on municipal tax payments. Likewise, any prior instruments which encumber the property (i.e. mortgages, liens, judgments, annotations, etc..) must be lifted before your transfer deed will be registered.

Once a transfer deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed to it and properly sealed. Assuming the transfer deed contains no defects which could delay registration the transfer deed should be registered by the Public Registry within 30 to 60 days after presentation. In any event, follow up with the Notary to ensure registration, otherwise you will run into problems in the future when you decide to resell the property and find out that your sale was not registered.

1.3 Beach Property

Beach property is given separate consideration because it appears to be an area which has generated much confusion among would be Buyers. The confusion arises when a Buyer desires to purchase a piece of property on the shoreline which in many cases is not titled.

A. The Maritime Zoning Law

In Costa Rica the ownership of shoreline property is regulated by the Maritime Zoning Law (Ley Sobre La Zona Maritimo Terrestre) ****No. 6043 del 3 de Marzo de 1977**** The Maritime Zone encompasses 200 meters of beach frontage which is owned by the government. Of the 200 meters regulated by the maritime law, the he first 50 meters of tideland are zoned as the "public zone" and are areas open to the public and private possession or occupation of this area is prohibited. The remaining 150 meters farther inland are zoned as a "restricted zone" and the law allows the government to grant leases called concesiones for the occupation and use of this area for terms that range from 5 to 20 years.

The government concession for possession of land in the maritime zone is carried out by the Municipal government where the property is located and the Registry of Concessions located in the Public Registry in San José. Before a concession can be granted, the particular beach where the property is located must have an approved Zoning Plan (Plan Regulador ) in place. Only the actual Concession will clearly define the rights and terms of ownership which the occupant has to the property. Although local governments will collect a land used tax known as a canon from occupants of land located in the maritime zone it does not mean that a concession has been granted. As such, the payment of a canon is simply a recognition of the right to possession.

The law also restricts foreign ownership of land under concession. A foreigner can only acquire a concession if they have been a resident of Costa Rica for at least five years. An alternative is to apply for the concession in the name of a Costa Rican corporation.

Since the Maritime Zoning Law did not come into effect until 1977 it cannot be applied retroactively. As such any shoreline property previously titled can be freely transferred. All in all, an investment in shoreline property regulated by the Maritime Zoning Law requires extra caution and thorough investigation.

2. Easements

An easement is the right of one person to go onto the land in possession of another and make limited use of it. Typically, easements are created in order to give their holder the right of access across a tract of land. Generally easements involve two pieces of land: (1) the dominant tenement, which is the land whose owner is benefited by the easement and (2) the servant tenement, which is the land whose owner is burdened by the easement.124

2.1 Classification of Easements

An easement is classified as either affirmative or negative. The affirmative easement entitles the holder to enter upon the servant tenement and make affirmative use of it for such purposes as laying and maintaining utility lines, draining lines, etc.. An affirmative easement confers to the holder a benefit to use the servant estate that, absent the easement, would be an unlawful interference with the right of ownership.

The negative easement prevents or prohibits the servant tenement owner from doing some act or making a particular use of their land. An example of a negative easement is one that prohibits the owner from building a structure in excess of a certain number of floors.

2.2 How Easements are Created

The Civil Code provides that easements which are continuous and apparent may be created by express grant, last will and testament, and by prescription.125

(1) By Express Agreement

Since an easement is an interest in land it can be created by express agreement between the parties. (See Appendix 11 for an example of an instrument creating an easement)

(2) By Prescription

To acquire a prescriptive easement, the person must have used it in an open and notorious manner for a continuous period to the adverse interest of the owner.

2.3 Termination of Easements

Since an easement may be created by agreement of the parties it can also be terminated when the stated conditions to which the parties agreed expire. If the expiration term is not specified, the Civil Code provides for different ways in which an easement can be terminated.126

A. Release
The person that enjoys the benefit of the easement (dominant tenement) may execute a release and thus terminate the easement.

B. Merger
If the title to both the servant and dominant tenement come into the hands of a single person, the easement is extinguished.

C. Non-Use of the Easement
A showing that the owner of the easement has not used it for an extended period of time will result in its extinguishment.

D. Destruction of Property
If the property is involuntarily destroyed or altered so that the easement cannot be used then it may be extinguished. If the condition which affects the easement ends then it may be automatically revived.

3. Rights Incident to Possession

3.1 Water Rights

The rights of individuals over water depends on how the water is classified. Water is generally classified as waterways, surface waters, and underground waters.:

(A) Waterways: The waters of the ocean and the sea are considered navigable waterways and one may not interfere with its free use. All coastal waterways, rivers and lakes are part of the public domain and the use of this water is determined by administrative regulation. (B) Surface waters: the water which naturally flows unto the property may be used at the convenience of the owner. (C) Underground waters: Generally, water under the surface is subject to the absolute control and ownership of the surface owner.127

3.2 The Fruits of the Land (Fructus)

Property ownership also includes the surface rights which may include natural vegetation or growing crops. The Civil Code divides these surface rights into two categories, fructus naturales and fructus industriales.128

(1) Fructus Naturales: Fructus naturales is natural vegetation which grows on the land (i.e. plants, trees, shrubs). These are considered part of the land and fructus naturales will pass with the conveyance of the land. They are and remain real property until they are actually severed from the land.

(2) Fructus Industriales: Fructus industriales are annual growing crops which occur as a result of the cultivation and labor of man. These are generally considered personal property.

4. Security Interests in Real Estate

In general terms, a security interest on real estate operates to secure some obligation to pay a loan. If the loan is not paid when due the holder of the security interest has a right to take title to the real estate.

4.1 The Mortgage

The most widely used financing vehicle is the mortgage. A mortgage is an interest in land created by a written instrument providing security for the performance of a duty or the repayment of a debt. The creation of a mortgage occurs between two parties. The mortgagor (debtor) who is the owner of the land and the mortgagee (creditor) who is the holder of the mortgage (i.e. a bank, finance company).

In Costa Rica, a mortgage can only be created by way of a written instrument which is witnessed and recorded by a Notary Public.129 Unless the mortgage instrument is executed in this prescribed manner it will not be accepted for recordation by the Public Registry. (See Appendix 12 for sample mortgage instrument)

A. Mortgage Closing Costs

In addition to any points which the lender may charge, it is customary for the borrower to pay for the costs of drafting and registering the mortgage instrument in the Public Registry. A mortgage can be created simultaneously at the time of sale by adding a mortgage clause in the transfer deed. Or, a separate mortgage instrument can be drafted. Both have separate costs involved and the reasons for choosing one method over the other will depend on the particular situation of the borrower. A mortgage clause within a transfer deed pays registration fees of 0.25% and approximately 0.53% in documentary stamps of the amount of the mortgage. A separate mortgage instrument pays 0.50% in registration fees and approximately 0.53% in documentary stamps. The Notary will also charge for drafting the mortgage instrument and that fee can range from 0.625% to 1.25% of the amount of the mortgage depending on the circumstances and complexity which is involved.

4.2 Foreclosure

Foreclosure is the method by which the mortgage property or proceeds from the sale is applied to the satisfaction of the debt or obligation. The most common method of foreclosure is by judicial sale of the mortgaged property. In Costa Rica, such a procedure is authorized by the Civil Code and requires that all the parties to the mortgage be given proper notice of the foreclosure.130 If the senior mortgage holder purchases the property he will do so free of all encumbrances. If the foreclosure property is purchased by a junior lien holder he will take title subject to the senior mortgage.131

4.3 Mortgage Bonds (Cedulas Hipotecarias)

The Costa Rican Civil Code provides an alternative financing tool in the form of negotiable bonds which are guaranteed by a mortgage on real property.132 In order to issue these mortgage bonds the property must not be encumbered by other mortgages.

The manner in which this works is that an owner of real property decides to issue bonds with a given value. The owner drafts a written instrument which is witnessed and recorded by a Notary Public in the Public Registry. After recordation the Public Registry issues the mortgage bonds to the owner of the property. The owner does not become personally liable for the bonds. Instead, the bonds are backed by a mortgage on the property. As needed, the issuer of the bonds can sell them for cash or exchange them. In practice this system is not as popular as a conventional mortgage and is seldom used. ***INCLUDE CEDULA HIPOTECARIA***

5. Landlord - Tenant

The laws governing the rights and duties of landlord and tenant are found in provisions the Civil Code and its procedures and the law of leaseholds of 1939 and its subsequent reformations.

5.1 The Leasehold

A leasehold is an estate in land. This means that the tenant who occupies a property acquires a present possessory interest in that property and certain rights and liabilities flow from this property relationship between the landlord and the tenant. These rights and duties are governed by the Civil Code and the Tenancy Law (Ley General de Arrendamientos Urbanos y Suburbanos No. 7527 ) (See Appendix 13 for sample residential lease)

5.2 The Tenancy Law

The law which has governed Landlord-Tenant relations in Costa Rica since 1939 was repealed by the Costa Rican Legislature on August 14, 1995. The new Tenancy Law ( Ley General de Arrendamientos Urbanos y Suburbanos No. 7527 borrows extensively from Landlord-Tenant legislation in Chile, Mexico and Uruguay. The law applies to written and verbal contracts which relate to real property used for residential or commercial purposes. Those contracts that are not encompassed by the Tenancy Law must be resolved pursuant to the Civil Code provisions. The new law is divided into 12 chapters as follows:

1. Objectives and the Rental Contract- Chapters I -IV

As stated by the Legislature, the purpose of the law is to harmonize the right of each individual to decent and adequate housing with the right of freedom of contract and economic development. With that in mind, it should be pointed out that any agreement which contravenes the clauses of the Tenancy Law are deemed invalid. As to the content of the rental contract, the law specifies that the written agreement must contain as a minimum the following information (a) Name personal data of the contracting parties; (b) Legal description of the property; (c) Detailed description of the property and its condition; (d) Furniture or items which are to be included in the rental contract; (e) The specific use for the property (i.e. residential, commercial) (f) Price and method and place of payment; (g) The rental term; (h) Legal domicile for Service of Process; (i) date of the contract.

2. Landlord Duties -Chapter V

The landlord has a duty to deliver to the Tenant the premises in habitable condition for their peaceful and quiet enjoyment. Failure to comply with these duties may result in a constructive eviction entitling the Tenant to damages. In the case of emergency repairs, the law gives the Landlord 10 days from the date of notice, to effectuate emergency repairs. Failure to do so entitles the Tenant to withhold a portion of the rent to cover the cost of the repairs. (Art. 35)

3. Tenant Duties - Chapter VI

(1) Duty to pay rent: The Tenant has a duty to pay rent on the date specified in the contract. (2) Use of the Property : The Tenant may not alter the intended use of the property without the written consent of the Landlord. (Art. 45) Failure to comply with this provisions gives rise to a cause for eviction. (3) Duty to conserve the condition of the premises: A Tenant has a duty to maintain the premises in good condition and return it in the condition it was received. (Art. 47) The Tenant will be liable to the Landlord for any deterioration or damage caused to the property that is the result of the Tenants negligent or intentional act.

The new law gives the Landlord the right to inspect the premises during reasonable hours once a month . (Art. 51)

4. The Price and Term of the Rental Contract.- Chapters VII-VIII.

(1) Duty to Pay Rent: The Landlord and the Tenant may freely establish the price of the rent. It is the Tenants responsibility to pay the rent on the agreed upon date and at the agreed upon place. If no place is specified for the payment of the rent then the law will presume that it is at the leased premises. (2) Rental Increase: In residential leases, the law establishes a formula for rental increases in Colones that may not exceed 15% per year. If the inflation rate for a particular year exceeds 15% then the government will set the maximum rate allowed for that year. If the residential lease contract is in U.S. dollars, the law does not allow an annual increase for the lease term. For non-residential leases, the parties are free to set the period, form and amount of the rental increase. (3) The Duration of the Lease: The duration of the rental contract may not be for a period of less than 3 years. This means that if a Landlord signs a one year lease and the Tenant refuses to vacate at the end of the year he has the right to automatically renew, whether the Landlord approves or not, until completing the three years authorized by the Tenancy Law. (Art. 70) In order to terminate the Lease contract the Landlord must give the Tenant a 3 month written notice. Failure to do so will result in an automatic renewal of the 3 year lease term.

5. Transfer , Assignments and Subleases. - Chapter IX

(1) Transfer: If the leased premises are sold or transferred, the rental contract goes along with it. (Art. 75) (2) Assignments and Subleases: The Tenant is not authorized to Assign or Sublease the leased premises unless there is a n express authorization from the Landlord. (Art. 78) If the Tenant does not comply with these provisions the law will presume that he has abandoned the premises which may result in a rescission of the contract.

6. Rules Governing Low Income Housing - Chapter X

The law contains several provisions which are only applicable to residential properties that have been approved by the Mortgage Housing Bank (Banco Hipotecario de la Vivienda ) as low income housing.

7. Termination of the Rental Contract - Chapter XI

(1) Causes for Termination: Pursuant to the Tenancy Law a rental contract may terminate if (a) The contract is deemed null pursuant to Articles 9,10,14, 23, and 24 of the law; (b) Rescission of the contract pursuant to Article 30 and 38 of the law; (c) Eviction pursuant to Article 27 and 28 of the law; (d) Loss or destruction of the leased premises; (e) Expiration of the lease term; (f) Expropriation of the property (2) Termination for Cause attributable to the Tenant: The Landlord may request the termination of the contract if the Tenant : (a) Does to pay the rent as agreed; (b) Fails to preserve the condition of the leased premises; (c) Does not abide by Condominium by-laws, (d) Changes the intended use of the leased premises, (e) Fails to comply with the Landlords request for an inspection of the premises; (f) Damages the leased premises; (g) Abuses the scope of the lease pursuant to Article 78, 79 , 81, 85 of the law. (3) Termination for Causes Attributable to the Tenant: The Tenant may request that the contract be terminated if the Landlord: (a) Does not deliver the premises in a habitable condition; (b) Fails to maintain the property or complete agreed upon repairs, (c) Alters the premises or engages in construction without the authorization of the Tenant; (d) Interferes with the peaceful and quiet enjoyment of the leased premises; (e) Fails to pay for agreed upon Utility services.

8. Eviction and Rental Increase Procedures - Chapter XII

Legal actions for eviction of a tenant or for a rental increase must be filed in the Municipal Court (Alcaldia ) where the leased property is located. The action proceeds pursuant to the Summary Procedure (proceso sumario ) set forth in Article 432 of the Costa Rican Code of Civil Procedure (Codigo Procesal Civil )

5.2 Procedures to Remove a Tenant

A. The Complaint in Summary Procedure

The Costa Rican Code of Civil Procedure specifies that tenant eviction cases may proceed pursuant to the summary procedure set forth in the Code.137 The purpose of summary procedure is to expedite the judicial process. Summary procedure is available if the grounds for removal of the tenant is based upon: (1) Failure of the tenant to pay rent; (2) termination of the rental contract and or other grounds which are established by law.138

The eviction process pursuant to the summary procedure is initiated by filing a complaint with the court and serving the tenant with a summons. The complaint must indicate the names of the parties; the factual and legal basis for the complaint; and the legal description of the property.139 The tenant has five (5) days in which to respond to the complaint for eviction by filing an answer setting forth any of their defenses.140 If the tenant files an answer and formally opposes the complaint for eviction the court will allow three (3) days for the taking of evidence. At the close of this evidentiary period the court will analyze the evidence and issue its final judgment within ten (10) days.141 If the tenant fails to respond and or oppose the complaint for eviction then the court will enter a default judgment and no further action will be required by the landlord.142

B. The Writ Of Possession and Damages

Once the court issues a Final Judgment it issues a Writ of Possession which commands the police to restore possession of the premises to the owner. If need be, the police is authorized to place the personal property of the tenant in storage at his expense.143 Once the tenant is removed and the eviction complete, the landlord is entitled to file with the court a separate motion requesting damages incurred as a result of the eviction action.144

6. Condominium Law

The word condominium means control over certain property owned jointly with one or more other person. The main characteristic of the condominium is that the condominium purchaser acquires ownership title in the unit together with an undivided tenancy in the common interest with other unit owners in the common areas.

In Costa Rica, the rules and regulations pertaining to condominiums is known as the the Law of Horizontal Property (Ley de Propiedad Horizontal ) .145

6.1 Creating the Condominium

The condominium is created by recording a declaration in the Public Registry. (See Appendix 14 for requirements to establish a condominium). The declaration will contain, among other things, a legal description of the underlying land, a description of the building structures that will comprise the project, a legal description for each unit, and a description of the common areas.146 The declaration will also assign to each unit a percentage which is determined by dividing the initial value of the unit by the value of the whole project. 147 This percentage is then used to determine the unit owner's percentage interest in the common areas; 148 to calculate each owner's liability for maintenance of the common areas and improvements;149 to determine the weight of each unit owner's vote for matters related to the condominium. 150

The condominium law also requires that the declaration contain the By-Laws which govern the administration of the condominium.151 This determination is necessary since the law requires that the administration of the condominium building be entrusted to an administrator.152

6.2 The Unit and Common Areas

The common areas make up all of the condominium project except the inside of each individual unit. Common areas include the ground on which the condominium buildings are located, entry ways, parking areas, gardens and all other parts of the property that are necessary for the existence, maintenance and safety of the structure.153

A. Rights and Duties of Unit Owners

The condominium law allows a unit owner to freely transfer, mortgage, encumber, and/or contract out their ownership interest in the condominium.154

Unit owners are required to use their property in accordance with the restrictions included in the condominium declaration document. In addition, the condominium law expressly prohibits any acts by unit owners which will interfere with the quiet use and enjoyment of the property by other unit owners or which threatens the health, safety and welfare of the building. The exterior decoration and facade of the units must be uniform and cannot be varied.155

The unit owners are required to proportionately contribute to the expenses incurred by the condominium to administer, maintain and operate the common areas. The condominium law specifically states that the unit owners are responsible for following common expenses: (i) Any tax liability that affects the property, (ii) insurance premiums, (iii) expenses relative to the administration, maintenance and cleaning of the building and the common areas, (iv) costs of utilities incurred in operating common areas, (v) authorized repairs and improvements made to the building or the common areas, (vi) expenses incurred by the administrator, (vii) other expenses which have been authorized by the owner's association, (viii) the cost of acquiring common goods.156

6.3 Managing the Condominium and the Owner's Association

A. Administration and Management of the Condominium

The condominium law requires that the condominium be managed by an administrator. This administrator is appointed pursuant to the By-Laws for the condominium which was filed with the declaration. The law requires that the By-Laws provide for (i) the method for appointment and termination of a building administrator; (ii) specify the method of assessment of unit owners; (iii) governance of the owner's association; (iv) use and limitations of the common areas; and (v) it must name the administrator for the first period.157

The condominium administrator has a duty to care for the administration and maintenance of the building.158 This includes collecting all assessment fees and maintaining financial statements relative to the income and expenditures of the association.159

B. The Owner's Association

The purpose of an owner's association is to promote and enforce uniformity within the condominium and to allow the unit owner's to pool their resources for the benefit of the association. Each owner is a member of the owner's association. All regulations governing the meetings and voting of the owner's association must be set forth in the By-Laws previously discussed. The law requires that the owner's association meet at least once a year. A quorum of the owner's association requires that 2/3 of the value of the building be present. The number of votes to which each owner is entitled is equal to the percentage of the total value of the building and the value of the owner's property. Any resolutions adopted by the owners' association must pass by majority vote present at the meeting. 160

A meeting of the owners' association may be convened by the building administrator or by unit owners if they represent at least 1/3 the value of the building. 161 At the meeting the building administrator must deliver the annual report and financial statements to the association. At this meeting the annual budget is also proposed and put up for approval.162 All resolutions adopted at this meeting are legally binding on all unit owners. A unit owner who disagrees with any resolutions of the association may pursue legal action to challenge the resolution.163

7. Construction and Development

All constructions in Costa Rica are regulated by the Costa Rican Building Code, law number 833 and its reformations; regulations from the Institute of Housing and Urban Development (I.N.V.U. ), the Association of Architects and Engineers (Colegio Federado De Ingenieros y Arquitectos de Costa Rica ) , and Municipal regulations. Enforcement of the building regulations rests with the Municipality which has jurisdiction over the property. (See Appendix 15 for sample request for municipal building permit)

The law requires that any application for a construction permit be presented by a licensed Architect or Engineer. (Article 83 Construction Law) As such, once the decision has been made to build a home, condominium, or initiate a development project a local Architect or Engineer should be sought out to guide you through the process which can be troublesome and lengthy without expert assistance. It is therefore advisable to contact a reputable licensed Architect or Civil Engineer to guide you through the construction process.

7.1 Fee Schedules for Architects and Engineers

All Architects and Engineers in Costa Rica must be licensed by the Costa Rican Association of Engineers and Architects. (Colegio Federado de Ingenieros y Arquitectos ) This governing body establishes the fee schedule that can be charged by it's members. Most fees are based upon a percentage of the value of the construction project. According to the regulations (***REGLAMENTO PARA LA CONTRATACION DE SERVICIOS DE CONSULTORIA EN INGENIERIA Y ARQUITECTURA***) of the Association of Architects and Engineers the level of participation of a licensed Architect or Engineer in a construction project is separated into two phases. Phase I is construction plans and permits and Phase II is control and execution.

A. Phase I: Construction Plans and Permits: This phase is further subdivided into several distinct professional services which can be provided to the client by the Architect or Engineer. The percentages cited are those that the Association of Architects and Engineers has established as the minimum fee which may be charged.

Those are: Preliminary Studies (Estudios Preliminaries ) 0.5%, which may or may not be required depending on the scope of the project. Pre-project Design (Anteproyecto) 1.0 to 1.5%, Generally, during this stage the Architect or Engineer will meet with the client to discuss construction requirements. With this information the Architect/Engineer will prepare drafts of the proposed construction project for review by the client. These drafts should include site planning and preliminary work drawings. When you contract for this service be sure you agree with your Architect or Engineer before hand what he is going to provide you. Construction Plans and Technical Specifications (Planos de Construccion y Especificaciones Tecnicas ) 4.0%, this is one of the most important steps in the overall construction project since execution of the project will depend upon the quality and accuracy of your construction plans. Once you and your Architect/Engineer have agreed on the layout and design of the project they will begin drafting the plans. In Costa Rica, a complete set of plans should include: a site plan, distribution plan, elevation and transversal and longitude perspectives, roof design and drainage, design of footings and support beams, structural plans, electrical design, mechanical and sanitary system design, as well as a plan which details all the interior finishings of the construction. Budgeting (Presupuesto ) 0.5% for global budgeting and 1.0% for itemized budgeting. Here the Architect/Engineer prepares a materials lists based upon your construction plans and prepares a construction budget for you.

B Phase II. Control and Execution. This stage involves the actual construction and project supervision. The regulations authorize three kind of supervisory tasks each of which requires a larger amount of time responsibility by the Architect or Engineer. Inspection (Inspecci�n ) is 3% of the total value of the construction project. Here your Architect /Engineer will visit the construction site at least once a week and will inspect it to ensure that the plan specifications are being followed by the general contractor. They will also verify the quality of the materials being used and review invoices being presented by the General Contractor. Supervision (Direccion Tecnica) is 5%. This requires more direct involvement by the Engineer or Architect in the day to day operation of the project. Administration (Administracion) 12%, here the Architect or Engineer takes complete responsibility for the execution and completion of the project.

The option you choose will depend upon the type of project involved, the reliability of your builder / general contractor and the amount of time you are willing to dedicate to the construction project. All told, phase I and II can range from 9% to 18% of the estimated value of the construction project. As such, it is common practice to negotiate fees with the Architect or Engineer. Most of course will be eager for your business and, depending on the scope of the project will be willing to work out an agreement which is tailored to your particular needs.

Before you sign any contracts be sure that you understand the fee structure and know exactly what is and is not included in the fee. Likewise, clearly define the responsibilities that your Architect/Engineer is going to assume. Do the same thing with your general contractor and any sub contractors. Summary of Fee Schedule:

Source: Contrato de Servicios Profesionales Para Consultoria Colegio Federado de Ingenieros y de Arquitectos de Costa Rica (C.F.I.A.)

7.2 Construction Permits

Before you purchase a lot with the intent of building on it you should conduct some preliminary studies on the property to ensure that obtaining a building permit won't be a problem. First, determine if the lot has basic services such as water, electricity, telephone, and drainage. Second, make sure there are no restrictions placed on the lot which could result in the denial of a construction permit. It will not be enough to check the Public Registry, you should also check at the Ministry of Public Works (M.O.P.T.) for future road construction projects; Ministry of Health (Ministerio de Salud ); Housing and Urban Development (I.N.V.U ) and the Municipality where the property is located (Municipalidad ). And finally, be aware of any environmental regulations which may affect your construction project such as national wildlife refuges and areas deemed protected by the Forestry Law.

Requests for construction permits are filed with the Permit Reception Office (Oficina Receptora de Permisos de Construccion ) , which is a centralized office that houses government representatives from the M.O.P.T (roads), INVU (housing), ICE (telephone), A Y A (Water), SNE (Electricity) C.F.I.A.. (Association of Architects and Engineers), and the Ministry of Health. For a single family home that measures more than 70 m2 (753.2 square feet), the applicant must provide the following documentation: Four (4) copies of the construction plans, four (4) copies of the property cadastre plot plan (plano catastrado ), four (4) copies of the permit checklist (hoja de comision ), two (2) copies of your property deed (escritura ), one (1) copy of the consulting contract with your Architect or Engineer (contrato de consultoria ), an approval from the water company (AYA ) regarding availability of water, and one (1) copy of your electrical design plan approved by the Electricity Institute (SNE ). Condominium projects, commercial construction, and urbanization projects all carry additional requirements to obtain construction permits.

In addition to these requirements you will need to request a building permit from the Municipality (Municipalidad ) where the property is located. By law it is the Municipality which is delegated the responsibility to ensure that all constructions comply with building regulations. (ARTICLE 1 CONSTRUCTION LAW As such, you can expect periodic visits to your construction site by the Municipal building inspector who must certify that the construction is proceeding according to code. One can choose a turnkey type builder who will agree to a fixed cost, or one may choose to act as the general contractor and subcontract the labor and finishes. Whatever you decide be sure to have a good sense of humor and lots of patience.

Footnotes Chapter 5 - Real Estate Transactions and Financing

119 Article 264 Codigo Civil
120 Article 459 Codigo Civil
121 Article 460 Codigo Civil
122 Article 48 Reglamento del Registro Nacional (Decreto No. 9885) and Article 455 Codigo Civil
123 Article 8 Ley de Impuestos de Traspaso de Bienes, Ley No.: 6999 de 3 de Setiembre de 1985; reformado Ley 7088 de 30 de Noviembre de 1987
124 Article 372, 373 Codigo Civil
125 Article 378 Codigo Civil
126 Article 381 Codigo Civil
127 Brenes, Tratado de Los Bienes, p. 100
128 Article 337 Codigo Civil
129 Article 409 Codigo Civil
130 Article 417 Codigo Civil
131 Article 417 Codigo Civil
132 Article 426-440 Codigo Civil
133 Article 1140 Codigo Civil
134 Article 1144 Codigo Civil
135 Article 1129 Codigo Civil
136 Article 1145 Codigo Civil
137 Article 432 Codigo Procesal Civil
138 Article 448 Codigo Civil
139 Article 433, 448 Codigo Civil
140 Article 433 Codigo Civil
141 Article 433, 434 Codigo Civil
142 Article 434 Codigo Civil
143 Article 454 Codigo Civil
144 Article 454 and Article 1143 Codigo Civil
145 Ley de Propiedad Horizontal No. 3670 de 22 de Marzo de 1966
146 Article 7 Ley de Propiedad Horizontal
147 Article 7 (c) Ley de Propiedad Horizontal
148 Article 21 Ley de Propiedad Horizontal
149 Article 30 Ley de Propiedad Horizontal
150 Article 35 Ley de Propiedad Horizontal
151 Article 9 Ley de Propiedad Horizontal
152 Article 40 Ley de Propiedad Horizontal
153 Article 16-20 Ley de Propiedad Horizontal
154 Article 25 Ley de Propiedad Horizontal
155 Article 26 Ley de Propiedad Horizontal
156 Article 31 Ley de Propiedad Horizontal
157 Article 45 Ley de Propiedad Horizontal
158 Article 41 Ley de Propiedad Horizontal
159 Article 43 Ley de Propiedad Horizontal
160 Article 35 Ley de Propiedad Horizontal
161 Article 36 Ley de Propiedad Horizontal
162 Article 37 Ley de Propiedad Horizontal
163 Article 38 Ley de Propiedad Horizontal

Roger Peterson is a partner in the law firm of Vargas Siverio & Petersen. He is a member of the Florida Bar and the Federal Court for the Southern District of Florida. He also holds a master's degree in business administration and is author of the best-selling book The Legal Guide to Costa Rica. Tels.: (506) 240-3295 / 235-3328

The Legal Guide to Costa Rica

Table of Contents

Preface

Chapter 1

Costa Rica: The Civil Law System

1. What is a civil law system
2. The development of Costa Rican law
3. The structure of Costa Rican government
3.1 The Executive Branch
3.2 The Legislative Branch
3.3 The Judicial Branch
A. The Lower Courts
B. Appellate Courts
C. The Supreme Court
3.4 Local Government
4. The Public Registry

The Rules of Court Procedure

1. Civil practice and procedure
1.1 The Lawsuit
2. Criminal Practice and Procedure
2.1 The Players in the Criminal Arena
2.2 Arrest and Pre-Trial Detention
2.3 Initiation of Criminal Prosecution and Trial

Chapter 3

The Laws of Commercial Transactions

1. Corporate formation
1.1 Limited Partnerships
1.2 The Limited Liability Company
1.3 The Corporation
A. Formation
B. Capital Structure
C. Shareholders Meetings and Voting
D. Managing the Corporation
2. Contractual Obligations
2.1 Requirements of Contract Formation
2.2 Offer and Acceptance
2.3 The Effect of Formation
2.4 Defenses to Formation
2.5 Breach of Contract and Damages
3. Commercial Transactions
3.1 Scope and Definitions
3.2 Offer and Acceptance
3.3 Seller's Obligations
A. Delivery of Goods
B. Risk of Loss
C. Warranty of Goods
3.4 Buyer's Obligations
A. Right to Inspect the Goods
B. Acceptance
3.5 Remedies for Breach of Contract

4. Bankruptcy
4.1 Who May File for Bankruptcy
A. Voluntary Request by Debtor
B. Involuntary Request by Creditor
C. The Court's Ruling on the Bankruptcy Petition
4.2 The Bankruptcy Trustee
4.3 The Creditor
A. Creditor's Claims
B. Creditor's Committee
4.4 The Adjudication of Bankruptcy
4.5 Culpable or Fraudulent Bankruptcy

Chapter 4

Employer-Employee Relations - The Labor Code

1. The Labor Code
1.1 Employer Regulations and Policy
1.2 Wages, Hours and Vacations
A. The Work Week
B. Wages
C. Time Off and Vacations
1.3 Termination of Employment
A. Termination for Cause
B. Other Terminations
(1) Pre Termination Notice (Preaviso)
(2) Severance Pay (Cesantia)
(3) Accumulated Vacation Pay
C. A Sample Termination
1.4 Domestic Servant Employees
2. Injuries on the Job / Worker's Compensation
2.1 Worker's Compensation Insurance
3. The Social Security System

Chapter 5

Real Estate Transactions and Financing

1. Property Rights
1.1 The Recording System
1.2 Purchasing Property
A. Closing Costs
2. Easements
2.1 Classification of Easements
2.2 How Easements are Created
2.3 Termination of Easements
3. Rights Incident to Possession
3.1 Water Rights
3.2 The Fruits of the Land (Fructus)
4. Security Interests in Real Estate
4.1 The Mortgage
4.2 Foreclosure
4.3 Mortgage Bonds
5. Landlord-Tenant
5.1 The Leasehold
A. Tenant Duties
B. Landlord Duties
C. Assignments and Subleases
5.2 Procedures to Remove a Tenant
A. Grounds for an Eviction
B. The Complaint in Summary Procedure
C. The Writ of Possession and Damages
6. Condominium Law
6.1 Creating the Condominium
6.2 The Unit and Common Areas
A. Rights & Duties of Unit Owners
6.3 Managing the Condominium and the Owner's Association
A. Administrative and Management of the Condominium
B. The Owner's Association
7. Construction and Development

Chapter 6

Family Law

1. Matrimony
1.1 Type of Marriages Recognized under Costa Rican Law
A. The Civil Matrimony
B. The Church Matrimony
1.2 Marriages Not Recognized By Costa Rican Law
A. Legally Impossible Marriages
B. Void Marriages
C. Prohibited Marriages
1.3 Pre Marital Legal Formalities
1.4 Pre Marital Agreements
2. Marital Dissolution
2.1 Dissolution by Mutual Consent
2.2 Dissolution by Judicial Determination
A. The Grounds for Marital Dissolution
2.3 Legal (Judicial) Separation
3. Adoption
3.1 The Adoption Agency
3.2 Adoption Proceedings
A. The Adoption Application
B. Consent
C. Court Investigation, Hearing and Decree
3.3 International Considerations

Chapter 7

The Laws of Succession (Wills and Trusts)

1. Introduction to Wills
1.1 Intestate Succession
1.2 Testamentary Disposition
A. Types of Wills and Formalities
B. Testamentary Capacity
1.3 Restrictions on the Power of Testation
A. The Family Allowance
B. Community Property
C. Testamentary Gifts to Charity
1.4 Satisfaction of Legacies
1.5 Revocation of Wills
A. Revocation by the Testator
1.6 Probate and Estate Administration
A. The Role of The Personal Representative
2. Trusts
2.1 Legal Formalities in Creating A Trust
A. Creation of the Trust
B. The Trustee
2.2 Termination of Trusts

Chapter 8

Immigration and Nationality Laws

1. The Immigration Laws
1.1 The Duties of the Department of Immigration
1.2 Visa Processing
A. Visa Categories
1.3 Applying for Residency Status
A. Permanent Resident Status
B. Temporary Resident Status
C. Resident Investor
1.4 The Rights and Obligations of Foreign Residents
1.5 Cancellation of Resident Status
2. Nationality
2.1 Costa Rican Citizenship
A. Citizenship by Birth
B. Citizenship by Naturalization
2.2 The Naturalization Process

Chapter 9

Intellectual Property Laws

1. Copyright
1.1 How to Apply for A Copyright
A. Deposit Requirements
B. Notice and Certification of Copyright
1.2 The Duration And Protection of the Copyright
A. Duration of the Copyright
B. Copyright Protection
2. Patents
2.1 Categories of Patents
A. Duration and Expiration of the Patent
B. Unpatentable Inventions
2.2 The Patent Application Process
3. Trademarks
3.1 What is a Trademark
3.2 What can be Registered
A. Trademarks That Cannot be Registered
3.3 The Application Procedure
A. Documents Required
B. Registration Procedure
C. Effect and Duration of Registration
3.4 Licensing and Enforcement

Chapter 10

The Tax System

1. The Tax System in General
2. The Income Tax
2.1 Who is The Taxpayer
A. Entities Exempt from Income Taxation
2.2 What is Taxable Income
A. Gross Income
B. Deductions
2.3 Income Taxes on Resident Individuals
A. Employment Income
B. Self Employment Income
C. Imputed Income
2.4 Corporate Taxation
3. The Sales Tax 
4. Transfer Taxes

Chapter 11

Environmental Legislation

1. The Forestry Law
2. Wildlife Preservation Law
2.1 The Wildlife
A. Hunting
B. Fishing
C. Wildlife Refuge
D. Violations
2.2 Flora
A. Violations
2.3 Water Pollution

Chapter 12

Legal Representation

1. Attorneys
1.1 Attorney's Fees
2. The Public Notary

Figure A The Costa Rican Court Structure
Figure B The Costa Rican Registry System
Figure C The Costa Rican Criminal Justice System
Figure D Minimum Wage for Selected Occupations
Figure E Construction Fee Schedule

Appendix

Appendix 1 Address of Costa Rican Ministries
Appendix 2 The Costa Rican Judicial System by Province
Appendix 3 Sample Summons
Appendix 4 Articles of Incorporation (S.A.)
Appendix 5 Sample Share
Appendix 6 Worker's Compensation Application
Appendix 7 Social Security Payroll Report
Appendix 8 Registry Report
Appendix 9 Plot Plan
Appendix 10 Sale of Real Property
Appendix 11 Easement
Appendix 12 Mortgage
Appendix 13 Lease of Residential Property
Appendix 14 Condominium Declaration
Appendix 15 Municipal Building Permit
Appendix 16 Matrimony
Appendix 17 Pre-Marital Agreement
Appendix 18 Dissolution by Mutual Consent
Appendix 19 Application for Adoption
Appendix 20 Open Will
Appendix 21 Trademark Application

Bibliography

Index

About the author: Roger Petersen is a member of the Florida Bar and the Federal Court for the Southern District of Florida. He also holds a master's degree in business administration and is author of the best-selling book The Legal Guide to Costa Rica.

Copyright 1996-2004

Please contact the author of this article to obtain professional Costa Rica real estate legal advice.