What to buy and not to buy and the myth of the corporation option
Let’s debunk a fallacy: It is not required to have a corporation in order to own property in Costa Rica. If you buy property in Costa Rica, then buy property, do not buy a corporation.
Unfortunately, expats have become prey of mediocre unscrupulous attorneys. Expats have been sold the idea that they are required to have a corporation to do almost any transaction in Costa Rica, such as to purchase and own buying property in Costa Rica, or to own a vehicle, or to open a bank account and even to own guns. In some instances, their attorneys tell them to get the corporation to protect their assets from liability in case they have a car accident. Well, there is a simple solution to that: buy insurance!!! Furthermore, in Costa Rica, the courts have been adopting the theory of “piercing the corporate veil” when the corporation is not used for its intended purposes, which is to do genuine business, not to hide assets.
Anyhow, the Costa Rican Constitution protects the rights of foreigners to own Costa Rica how to choose the right property in Costa Rica guide. According to Section 19th, foreigners have all the same rights as Costa Ricans, including the right to own property. Therefore, foreigners can own property outright, and as far as ID requirements, a passport will suffice, there is no requirement to own a property through a corporation. I have not met a person in this country who can convince me that having a corporation is a good idea as far as owning property purchase in Costa Rica investment in Costa Rica, especially when considering the increasing difficulties to deal with corporations, which is a topic for another discussion. Having a corporation can be convenient when you actually have a business.
If you are looking to buy a piece of legal steps for buying property in Costa Rica, keep the above ownership options in mind. However, the best thing to always buy is fee simple absolute, where you are the master of your domain and you are not sharing any ownership rights with anybody.
When buying Costa Rica real estate considerations, before you make an offer or during the Due Diligence Period, you would like to make sure that the property has at least the following:
- Survey (plano catastrado) which must be approved by the county and registered with the recorder of surveys (Catastro Nacional).
- Property ID (folio real).
Both the survey and the ID confirms the property legally exists. If you are offered a piece of land with none of these features, simply walk away to avoid potential legal issues from it and avoid trouble. However, there are instances where the seller owns a big piece of land and wants to sell you a little piece of that land, but that little piece has not been registered or surveyed. It is legally possible to purchase that piece of land in a safe manner, but very specific clauses need to be added to the purchase agreement, in addition an escrow must be included as part of the purchase agreement. We will discuss these items below, but once again, try to buy a piece of land that has already been recorded.
You will also want to consider the following issues:
Whether the property is in the maritime zone.
First of all, Maritime Zone (ZMT) regulations does not allow foreigners to “own” property in this zone, you need to be at least a legal resident. Second, ZMT has been clouded with a lot of corruption, red tape and mediocrity from government institutions, such as the local municipalities and the ICT. Once again, do yourself a favor and stay away from it.
I am sure that you may know people who own it, but ask them how difficult it was or whether they own it outright.
But let’s start with making something clear, with ZMT, you do not get ownership, you get a lease, which is not freely transferrable at your own will. Everything that happens with ZMT needs to go through the Municipality and/or the ICT. There are some beachfront properties that may not be affected by the ZMT, a due diligence will clear this out for you in order to decide whether to buy.
Whether the property is IDA or IDER property.
These properties were granted by the CR government to poor people in order to farm and make a living, and it came with strings attached.
Whether the property has water and other utilities.
It rains a lot in Costa Rica, and I am surprised to see how many people have water issues. When it comes to real estate, water is a particular issue if you want to build. No water translates into not being able to obtain a building permit.
Whether it has any easements or covenants of title.
It is common to see, particularly in rural areas, that a tract of land will have easements for water or transit. Make sure to understand the limitations the property has when it comes to these issues.
Whether it has any liens.
A report from the recorder of deeds will indicate whether your property is subject to litigation or whether it has a mortgage. Needless to say, this is a significant issue.
To Build or Not to Build
Are you planning on building your dream home? If you have already built a home before, then you know what to expect. But, if you have not ever built a home before, then be prepared for a ride. If you know someone who built a home back in your hometown, go and ask them what their experience was.
Bad contractors are as common as bad attorneys and bad real estate agents. There is certainly a number of people who do a good business, but you are always running the risk of dealing with the bad apples. If building a home in the US (Canada or Europe for that matter) is a daunting task, imagine doing it in a foreign country where you do not speak the language, of which you do not know the laws, and you are surrounded by people eager to suck the last drop of cash out of you. Would you do it? Once again, I would suggest to lower your risk and buy something already in place. Otherwise, get ready to get some Pepto-Bismol. Contractors in Costa Rica are not regulated, so anybody can be a contractor in Costa Rica, the same way that everybody is a yoga instructor, a photographer, and a chef.
When building a home, you need to consider two legal situations, doing the deed for the transfer of the land, and doing the construction contract. Be particularly careful when the seller and the contractor is the same person, try to avoid that situation and use a simple principle: do not put all of your eggs in one basket. There are certainly a number of projects in this category that actually do good business, but special considerations need to be included in the contracts in order to lower your risk.
