So you’ve found your piece of paradise in Costa Rica and you’re ready to buy. What do you need to know and what steps need to betaken? Properties are transferred from the seller to the buyer by the execution of a transfer or conveyance deed (escritura de traspaso) before a notary public.
Notaries in Costa Rica must be attorneys and are responsible for preparing and supervising the execution and recording of all publicly registered documents. Depending upon a notary’s professionalism (and the clarity and security he or she provides), the process may range from merely appearing at the office and quickly signing documents and exchanging money to a much more sophisticated process involving clear and concise purchase agreements, professional escrow services, extensive title searches and reports, owner’s and surveyor’s affidavits, trust agreements, prompt registry of documents, certified money transfers and title guarantees.
All titled land in Costa Rica is registered in the public land records of the National Registry. The registry assigns a folio real (matricula), a permanent identification number, to each property that has been officially recorded.
The search of the public records (estudio), will provide detailed information about the property such as the name of the person or entity holding the title, the name of the previous owner, the location of the property, boundary lines, survey number, mortgages or liens, declared value of the property, encumbrances (right of ways or easements) and any other recorded documents that may affect the title.
The property report will normally show an existing registered survey of the property, though in some cases a survey does not exist. Property can not be transferred if the land does not have a registered survey and the survey must be referenced in the deed of transfer.
When the property to be transferred is owned by a corporation, it is essential to perform a corporate search in the Commercial Section of the registry to verify that the corporation is in good standing and that the proposed signatory has the capacity to sign on behalf of the corporation.
The transfer deed is signed by the buyer and the seller (as well as the notary public). The deed is recorded in the notary’s record book and a copy is presented to the Registro for annotation and registration. After the National Registry reviews the deed and any potential defect is corrected, the property is registered in the name of the new owner.
Make sure that the transfer deed is indeed recorded, not just presented to the registry. The registry will not record a transfer deed without the full payment of transfer taxes, documentary stamps, notary fees and property taxes. Transfer taxes and documentary stamps are approximately 2.5% of the purchase price and notary fees are set by law at 1.25% of the purchase price.
You can hold title to property in the name of an individual, the names of several individuals or in the name of a corporation. Holding title in the name of a registered corporation provides greater flexibility in estate and tax planning, liability and overall general management.
Some will suggest that you purchase the shares of the corporation that currently owns the property rather than transferring title to a new corporation to avoid the transfer taxes. However, while you will acquire the assets of the corporation, you will also acquire any liabilities of the corporation, disclosed or not disclosed.
The legal system in Costa Rica provides adequate assurances and protections for foreigners to legally and confidently invest and hold title to property. However, if the law is not fully followed and the transaction is not properly executed, losses can occur. Insist on experienced legal and notary representation in real estate transactions and the services of a reputable escrow agent to act as an intermediary liaison for the disbursement of the funds relating to the purchase.
BUYING property in Costa Rica can be a complicated process fraught with pitfalls if you don’t know all the laws and regulations governing such transactions. Simple steps to verify the title of the land to be acquired and the validity and legal representation of corporate sellers should always be kept in mind and be among the first moves you make before undertaking any negotiation for land in the country.
In Costa Rica, most land is titled, and titles are registered and centralized at the offices of the Public Registry in San José. Most titles are currently organized by means of a computer system called the folio real, although some, for properties that have had no transfers or other transactions affecting them for a long time, are not included in the computer system and are still registered the old way – in specific books, pages and entries of hard records at the registry. Property transfers require the buyer and seller to sign a deed before a notary public – different from notary publics in the United States, Canada or the United Kingdom and required to formalize all real estate transactions – and for the deed to be recorded at the Public Registry.
Title Searches All titled land in the country, whether registered in the newer folio real system or the older book/page/entry system, can be accurately and safely title searched in order to determine ownership, liens, encumbrances, annotations or other issues that may affect ownership rights or the possibility of transferring the land to a third party. Title searches on folio real properties may be initiated in the computer system, accessible on line at www.registro nacional.go.cr, but will probably need to be continued in the book/page/entry system, especially when the computer search shows liens, encumbrances or other property characteristics “inherited” from older transactions on the land before it was transferred to the folio real system.
Additionally, although the computer system will indicate a list of liens and encumbrances, in most cases a thorough and complete title search will require the review of microfilmed or scanned documents, which are not accessible online and can only be obtained at the offices of the Public Registry. Although, as previously mentioned, the folio real system is accessible online, individuals generally lack the legal training necessary to accurately and thoroughly interpret the information, or follow up on any required further steps.
It is therefore advisable to contract a knowledgeable professional to perform and report the title search. If the property is owned by a corporate entity, in addition to a title search it is necessary to perform a corporate search at the commercial section of the Public Registry; only this step can verify the transferring entity is in good standing and the proposed signatory of the transfer deed is empowered to authorize the transfer. Form of Ownership although titled land can be purchased in an individual’s name or a company’s name, and foreign ownership is fully permitted; it is advisable to purchase property through a corporation.
This structure allows flexibility and more predictability in areas ranging from estate planning (if share ownership is properly structured, the investor can save his heirs a painful and lengthy long distance probate procedure), tax management (for example, rules for corporate expenses are more flexible than for personal ones), and representation (shareholder meetings can facilitate granting special powers of attorney or other types of authorization for many actions, thus not requiring physical presence in the country).
Buying Company Shares a somewhat common practice is to transfer the shares of the company that owns the land to be purchased, instead of transferring the land through the Public Registry to a third party. The share transfer system may sound appealing at first, as it saves money on notary fees and transfer taxes and may seem like a faster way to achieve the goal of transferring control of the property to the buyer.
However, this course is not advisable, because when you acquire the shares of a corporation in Costa Rica – as in most other countries – you acquire not only the company’s assets (in this case, mainly, the land) but also its liabilities. No mechanism exists to satisfactorily list them or rule out their existence. Such liabilities would directly affect the land being acquired. Under such terms, it is advisable to pay the extra cost for a regular transfer through the Public Registry. You might consider the extra cost a form of insurance that may shield you from possible future claims by the seller’s creditors.
Buying Portions of Registered Property Purchases of portions of a titled property are possible in Costa Rica; this is called segregation. A registered map of the land to be purchased is required, as well as authorization from the relevant municipality. This authorization must appear on the registered map in the form of a stamp called a visado municipal. Concession Land several areas of the country, mainly those on the coast affected by the Maritime Zone Law, are not subject to private ownership; their possession is granted as a concession that could simplistically be compared to a lease made from the government for a specified period of time.
Concessions are difficult to examine, and in many cases the prospective buyer cannot be absolutely certain on what is being acquired. This type of transaction should be avoided if a similar piece of land that is titled can be found; if not, extra caution should be used, Being an informed buyer means taking the time to know the basics, understand what you are acquiring and perform proper title and corporate searches. These simple steps can serve as strong foundations for a successful transaction.
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