LEGAL TIPS, TRICKS AND TRAPS IN COSTA RICAN REAL ESTATE
Published in Paradise Properties Magazine
By Thomas A. Burke, Real Estate Attorney
In a previous article I addressed the question commonly asked by foreigners wishing to acquire real estate in Costa Rica: "Can I legally own real estate in Costa Rica?" I also spelled out the steps I advise be taken when purchasing real estate here. Enlarging upon that advice, in this article I offer a few pointers for our readers considering purchasing a residential, business or rural property in Costa Rica.
But first let's review the answer to that basic question on land ownership. Yes, a foreigner can purchase real estate on par with nationals. The exception is most shoreline property, which can only be leased from the state by CR citizens, long term residents or CR corporations and then only in accordance with the specific regulatory plan for the particular area. In all respects, foreigners enjoy the same degree of constitutional and legal protection as Costa Rican citizens. The principle of private property is a basic tenet of the Costa Rica legal and economic system, as well as the culture itself. This means that to acquire or hold property rights in Costa Rica one need not to be a citizen, a legal resident, or even physically present. And now, on to some specifics:
Conventional wisdom when purchasing real estate has often been to form a corporation to hold the property being purchased by a non CR citizen. A corporation can be used to advantage in several manners, such as privacy and liability limitation separation from other assets, purchasing and selling by proxy to save travel and expenses, holding separate powers of attorney among partners, and possibly avoiding complicated probate issues. On the other hand, one must take into account that corporations are theoretically businesses; therefore, they are potential taxpayers and may be subject to filing requirements and so on. Owning a corporation may also unnecessarily complicate tax filing in the home country and, therefore, should not be used carelessly.
If purchasing a home for the personal use of a married couple it might be more advantageous to place it under the "homestead" protection provided for family homes in the Costa Rican Family Code. This protects the property from all liens or attachments except those arising out of liability stemming directly from the property itself, such as mortgages and property taxes.
In terms of avoiding complicated international inheritance situations, it is best to have your attorney draft a Costa Rican will to make provisions for handling a local residence in the event of the owner's passing away. A simple and properly formalized will guarantees a smooth and fairly rapid court procedure for transferring such property to an heir(s). If one desires nonetheless to avoid the court procedures entirely, and use a corporation as a holding company for the property, in order to ensure that the heir(s) can to claim the corporate stock, the share certificate(s) should be endorsed to the heirs by name, and kept in place accessible to them should the owner(s) pass away. The heirs would have to register powers of attorney after holding a stockholders' meeting to that effect, plus other attendant notarial formalities. Another often used solution is to have powers of attorney in the corporation preregistered for the heir(s) particularly in the case of a spouse.
Finally, in terms of avoiding property transfer taxes by transferring the stock of the company holding a property, I see little purpose since a careful attorney will advise a purchaser to transfer a property out of the corporation and into a newly formed one, paying the transfer taxes rather than risk taking on any liabilities not reflected on the corporate books. Take into account that tax values in Costa Rica are usually far lower than market values for most properties.
Before purchasing a property for a business venture, do consider that according to the Costa Rican Code of Commerce a foreigner cannot carry out business in his own name unless he or she has accumulated at least ten years of legal residency. The foreigner may, however, carry out business through a Costa Rican corporation, which he may wholly own and fully represent. This is so because a Costa Rican corporation that is formed and registered in Costa Rica is by definition a Costa Rican legal entity and specifically created for organizing business ventures here. Nevertheless any business venture requires very careful research with qualified consultants before committing to a corresponding real estate transaction, to assure the legal feasibility of the venture.
It is also worth mentioning that mortgages in foreign currency are legally possible and even common; however, the debtor always retains by law the right to pay in local currency at the current exchange rate of the foreign currency specified in the mortgage. This applies unless the debt is registered as originating in foreign commercial financing.
Concerning rural properties, the U.S. Consulate has advised purchasing a rural property only when you plan to live on it and not for purely speculative purposes. This is because Costa Rica takes a generally peaceful approach to the not uncommon squatter problems that usually involve absentee-owned properties. The law actually provides for mandatory government expropriations for land disputes when squatters have put the property to agricultural production for at least a year. The problem lies with getting prompt and effective payment for expropriations and, to make a long story short, Costa Rica has a poor reputation in this regard. Along the same line, another type of land holding problem arises when neighbors take advantage of the absence of the owner by, for example, changing a fence line and encroaching on an unwatched property, gradually taking possession of significant portions. The legal remedies are almost always more costly in terms of money, time, and aggravation that would be making good security and maintenance arrangements to begin with.
Due to the fact that roughly a quarter of the national territory is included in national parks, forest reserves, wildlife protection areas, and similar such categories, it is wise when considering purchasing a rural property to check maps showing where these areas lie. Although it is best to have an experienced attorney double-check for you, good topographical maps and aerial photographs are available from the National Institute of Geography. These can be either matched with commercially sold maps showing protected areas or taken to the Ministry of Natural Resources for more precise comparisons.
That's all on the tips and the traps for now. The trick is to use common sense, good research, and, of course, competent professional advice.
This document is published and distributed by Burke & Quirós S.A., and is under copyright. The information contained within may be copied in part or in whole if accompanied by a clear reference to the author's name with complete phone, fax and email addresses, and notice is given to same of the use of the information with a copy of the corresponding publication.
Thomas A. Burke, LL.M.