So you want to retire to Costa Rica, or invest in beachfront real estate or ocean view property, or perhaps purchase a commercial business opportunity? How to get started? Sometimes one hears that “buying titled land in Costa Rica is very different from the way it works ‘back home.’” Wrong answer! Assuming of course that home is the US, Europe, or Canada. Such a statement probably means that the person dispensing the advice is, at best, not a real estate professional, or, at worst, may have ulterior motives. That’s because the truth is that the process of buying real estate here should very closely mirror the way it happens “back home.” Of course, the language will vary, as well as the letter of the local laws. But what really matters is that the legal principles associated with a safe purchase—and the procedures designed to protect them — are indeed very similar.
Before we turn to the legal principles, hovering over them all is the requirement of transparency. This is the key to any reputable deal. Everything good, bad or indifferent about the property should be disclosed by the sellers and their agent, if such items are relevant to the intended use or not. Also, there should be no hidden fees; everybody who gets paid at the closing should have his or her cards on the table, with the amounts they are charging agreed to in writing ahead of time. The commissions that will go to certain parties must also be spelled out in advance. An example of a clear violation of the transparency rule is the practice of overpricing, also called net listing. The broker lists a property for a higher price than the true selling price, and tries to pocket the difference at the closing without the buyer ever realizing it. This is all-too common in Costa Rica. However, a broker is only entitled to the standard, agreed-upon commission. This is usually 10% for raw land and can fall to as low as 5-6% for large deals or centrally located houses. But more important than the exact figure is that all the parties agree in advance to the nature and type of fees.
The Info You Need to Buy Land in Costa Rica
The critical legal principles and procedures include the following:
1st Principle: The land you are shown must correspond to the legal description on the title page in the Public Registry, as well as to the plat map which is inscribed in the “Catastro N a c i o n a l ” ( platmap registration bureau). With a small lot, this is pretty straightforward, but for large properties, it’s hard to be sure that you are getting what you were shown.
Procedure: After walking the borders, and inspecting the title and plat map to be sure they correspond to each other and to what you were shown and told, you must hire a topographer to verify the borders, before (not after) you buy. If there is a discrepancy, it should be worked out prior to the closing. If your new survey is materially different from the old one, you should re-register your new survey over the old one, again, before the closing.
2nd Principle: When an offer to buy is accepted here in Costa Rica, just as in the US, the terms should be duly written up in a signed purchase agreement, and earnest money placed in escrow. At that point, the owner has a duty to sell to no one else and to honor the established price at the closing.
Procedure: You get a written contract in the lawyer’s “protocolo” attesting to the terms of the offer and acceptance. Your lawyer records this option in the National Registry, under the title page. That way, nobody can buy the property out from under you during the contract period without facing a loss in court. That’s because the buyer would not qualify as a thi rd par ty good faith purchaser, thanks to the notice in the Registry of a pending sale.
3rd Principle: Ownership of real property is called fee simple absolute under US common law. The concept is the same here, although the name may be different.
Procedure: The title to the property should already have been recorded in the National Registry, so that when you buy it, the ownership is transferred to your name or the name of your corporation (see sample registered plat map or plano catastrado in the adjacent column). Now nobody can try to claim it without due process, just as we are used to “back home.”
4th Principle: You must actively protect and/or use your land or you risk losing it to the jungle or third parties (squatters). In Costa Rica this applies only to rural land, not houses or land in towns or cities. The US has similar laws, known as “adverse prescription.” [Even thought the laws have now swung back in favor of title holders, and it is very hard under current law to successfully “squat” a titled property, it can still be a hassle to deal with an invader]
Procedure: Putting up and maintaining fences and signs, having the property checked or patrolled on a regular basis, keeping the weeds down, and performing other signs of active ownership are all you need to protect you property from squatters; moreover, in the last five years or so, squatters have begun to lose consistently in litigation, as the courts increasingly recognize that valuable ocean view land should not be taken from a careless owner just so that someone can grow beans on it.
Avoid Untitled Land
Rural real estate throughout Costa Rica is often untitled. The land may have been settled, farmed and perhaps sold several times in the past with nothing more formal than a bill of sale (carta de venta). We used to feel that this is not necessarily an obstacle to purchase, assuming a low enough price, since the title may be acquired after purchase through a legal process known as Información Posesoria (Law Nº139 of July 14, 1941). Minimum requirements to qualify for a registered title to possession land are a registered survey and documentation of peaceful, public and undisputed possession of the land for a period of at least 10 years. This procedure involves verifying the history of the real estate, its boundaries and the declarations of owners of adjacent land.
However, we no longer can advise anyone to consider purchasing real estate without the title. The reason is a little-known law that allows a long-standing claimant to untitled land to establish a case for its return up to 10 years after title is acquired through adverse possession! Most people who buy untitled land don’t know about this statute, but it can come back to haunt them big-time. For this reason, we have to advise folks to deal only with titled land — and even then make sure that title was not granted within the past 10 years.
Written and Updated by Timothy Woodruff – copyright August 2014