Owning Real Estate in Costa Rica
More and more foreign investors are looking at Costa Rica as the place to buy and sell real estate. Even in a slow economy, real estate transactions happen every day, and many people continue to invest their retirement funds in land here. My 23 years of experience as a real estate attorney and Notary Public have taught me that most of these investors need to be informed as to the different types of land ownership available to them in this beautiful Central American country.
Foreigners are entitled to own property in Costa Rica, with only one limitation: concession property. They can own property in their personal name, but most prefer to set up a Costa Rican corporation, as a way of protecting their assets, because the assets of a company are considered a separate patrimony from that of its shareholders. The most common forms of corporations used for purposes of holding real estate are Sociedades Anonimas, stock corporations, and Sociedades de Responsabilidad Limitada, LLC’s. If a person is sued, his personal property can be attached by the court to serve as guarantee of payment of any damages, even from the moment a lawsuit is filed. Property owned by a corporation is technically separate from an individual’s assets. Although the shares of companies may be pursued by creditors, it is usually more difficult to successfully execute a judgment for damages against the shares in a corporation. LLCs are easier to set up because they just require two founding shareholders and one manager, whereas SAs require a board of directors with president, secretary, treasurer and an auditor (fiscal), plus a resident agent when the legal representative does not live in Costa Rica.
In general, titled property is most desirable for its simplicity and peace of mind. Sometimes sellers will not properly explain to buyers that the land they are offering has no registered title, and that only possession rights can be transferred at the time of sale. But even when the property is duly titled, there should be a due diligence period to investigate such matters as possible title annotations or liens, which may include lawsuits, limitations or other encumbrances. Sometimes a property will have a registered mortgage, and in these cases it is especially important to have a clear understanding of the status of the respective debt. Although a title transfer is a bit more expensive than a transfer of shares, it is advisable to buy the title, rather than the shares of the company that owns a real estate property, to avoid possible liabilities that company may have, including possible lawsuits or tax liabilities which are not detected at the time of closing.
There is also another type of title called concession property, where the owner is, and will always be the State, and the beneficiary only enjoys a temporary use of the land, usually a term of 20 years, although this term is generally renewable. These typically exist within the 200 meters from high tide in beach areas. In these cases, transfer of beneficiary status is entirely a different process than a regular title transfer. A concession is basically a contract between the local Municipality, representing the State, and the beneficiary, and a change of beneficiary is basically an administrative process done before the Municipality, which has to approve the change. The Costa Rican Tourism Institute is also involved in the process. Typical requirements include that the beneficiary must be a Costa Rican, or a legal resident with no less than five years of legal residence in Costa Rica. If the proposed beneficiary is a corporation, then at least fifty percent of the company’s shares must be owned by a Costa Rican, and any transfer of shares done after that to a non-Costa Rican is null and void, according to the law. The idea behind this requirement is that beachfront property remain in Costa Rican hands. But there are a few exceptions in the Maritime Zone Law, where certain cities, such as Jaco and Barranca, in the Province of Puntarenas, permit titled beachfront property.
Costa Rica has a National Registry, where all properties with title are recorded, as well as concessions, and this Public Registry is divided into different sections, including one for real estate property. The National Registry has a website where anybody can consult the current status of any property title in the country. This is a very advanced system which offers quick access to information regarding the property title, including the name and identification number of the registered owner, the date the property was recorded in that owner’s name, the boundaries, survey plan number, the type of property, the registered area, and any liens or annotations. It is the duty of the Notary Public performing the title transfer to study and properly inform the parties as to the property status. In Costa Rica, all real estate title transfers must be done before a Notary Public, which is a legal professional with technical training to perform these types of transactions. The Notary fees are established by executive decree, and it is unethical for a Notary Public to bargain on fees. The exact cost of any given real estate transaction, can be calculated using one of several software programs available to legal professionals and to the general public. Transfer tax for property titles is 1.5% of the transaction amount, filing stamps are about 1%, and Notary Public fees are about 1.25%.
Real estate property titles are given a finca number. Finca means “farm” in English but does not mean a country farm but rather the term refers to a real estate piece of land. The system currently used by the National Registry is called the Folio Real number, in which the Finca numbers have two basic parts. The first digit defines the Province in which the property is located. The next six digits are a unique identification number for that piece of real estate.
There are seven Provinces in Costa Rica, so the first digit will be between one and seven (see chart below). For example a finca number for a property located in San José would look something like this: 1-123456-000. The last three digits are used to indicate co-ownership, or undivided interests, or lack thereof. When the last three digits are 000, there is only one owner, if you see a property number ending in 001, for example, you know that the property has more than one owner.
Property Province Numbers:
1 – San José
2 – Alajuela
3 – Cartago
4 – Heredia
5 – Guanacaste
6 – Puntarenas
7 – Limón
F – Condo unit
M – Condominium master property
Z – Concession land
Our firm can take care of due diligence and contracts for any real estate transaction in Costa Rica.