Before you Buy

Osa Peninsula Real Estate Regulations, Rules, and Costa Rica Laws governing Properties for sale and real estate.

Before You Buy Property in Costa Rica

In Costa Rica, property is transferred from seller to buyer by executing a transfer deed (escritura) before a Notary Public. Unlike common law countries, such as the United States and Canada, where the role of the Notary is limited to authenticating signatures, in Costa Rica the Notary public has extensive powers to act on behalf of the state. The Notary public must be an attorney and she or he may draft and interpret legal documents, as well as authenticate and certify the authenticity of documents.

In order to close on the property, the buyer and seller must select a Notary/attorney who will draft the transfer deed and register the sale in the Public Registry (Registro Nacional). The local custom is that the buyer may select his or her Notary/attorney to draft the transfer deed if paying cash for the property. If the purchase price is financed, there are generally three alternatives for selecting the Notary/attorney.

  1. If a large percentage of the purchase price is being financed by the seller and a mortgage needs to be drafted to guarantee payment, then the seller may request that her or his Notary/attorney draft the transfer deed. Financing is generally not offered in Costa Rica.
  2. If a property is purchased 50 percent cash and 50 percent financed, it is common for the buyer’s attorney and seller’s attorney to jointly draft the transfer deed and mortgage in a single document. This is known as co-notariado.
  3. Finally, the buyer may insist that his or her Notary/attorney draft the transfer deed and let the seller’s Notary/attorney draft a separate mortgage instrument. In this case, because the mortgage is being drafted separately, it carries a higher registration fee. The registration fees are discussed below in the section on closing costs.

At your option, the property can be purchased in an individual’s name, jointly with other persons, or in the name of a corporation. The decision as to ownership should be based upon your particular situation and after consultation with your attorney.

Costa Rican law requires that all documents relating to an interest and/or title to real property be registered in the property section of the Public Registry (Article 460 of the Civil Code). Most properties have a titled registration number known as the folio real, and the records database can be searched with this number or by name index. The Public Registry report (informe registral) provides detailed information on the property, including the name of the title holder, boundary lines, tax appraisal, liens, mortgages, recorded easements, and other recorded instruments that would affect title.

Since Costa Rica follows the doctrine of first in time, first in right, recorded instruments presented to the Public Registry are given priority according to the date and time in which they are recorded. Obviously, every situation differs and in some cases a review of the Public Registry record will Not be enough to uncover all encumbrances. That is why it is important that the buyer have her or his own attorney conduct an independent title search and investigation rather than rely on the seller’s attorney.

The general custom is for the buyer and seller to share equally in the closing costs. This can be modified by agreement and usually depends upon the particular transaction. Closing costs involve three things: government taxes and fees, Notary fee, and mortgage costs, if any.

  1. Real Estate Transfer Tax. – The government collects a property transfer tax (Impuesto de Traspaso) which is equal to 1.5% of the registered value of the property. The Public Registry will not record a transfer deed unless the transfer taxes and documentary stamps have been paid. (The transfer tax was reduced from 3% to 1.5% by Law No. 7764 effective May 22, 1998)
    Documentary Stamps – The government also requires that documentary stamps be affixed to the deed. These stamps include the following: Municipal Stamp: (Timbre Municipal) ;Legal Bar Association Stamp (Timbre del Colegio de Abogados); Agricultural Stamp (Timbre Agrario); National Archives Stamp (Timbre del Archivo Nacional); Fiscal Stamp:(Especie Fiscal). The Public Registry also imposes its own tax of .05% on documents presented for recordation to the Public Registry. (Derechos de Registro)
  2. The Notary that drafted the contract for sale and carried out the closing is entitled by law (Decree 2307-J) to a fee equal to 1.5% of the first one million Colones of the actual sales price and 1.25% on the balance. The Attorney and Notary fee schedule which was established by Executive Decree No. 2307-J on April 4, 1991 was repealed on February 9, 1999 (Decree No. 27624-J). However, in October of 1999, the Supreme Court of Costa Rica ruled that the Decree which repealed the Fee schedule was unconstitutional and reinstated the original fee schedule.

Once all the fees have been paid, it is the obligation of the Notary who drafted the transfer deed to ensure that the deed is presented (anotado) and registered (inscrito) in the Property Section of the Public Registry. I have stressed the words presented and registered to highlight the importance of following up with the Notary to ensure registration. Although presentation guarantees your priority (i.e., first in time, first in right), it does Not automatically guarantee registration. The Public Registry will not register a transfer deed unless all taxes and registration fees are included; a certified copy from the Municipality where the property is located is provided certifying that the seller’s property tax (bienes inmuebles) and municipal assessments (impuestos municipales) have been paid through the date of closing. Likewise, any prior instruments that encumber the property (i.e., mortgages, liens, judgments, etc.) must be lifted before your transfer deed will be registered.

Once a transfer deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed to it and properly sealed. Assuming No defects in the transfer deed, it should be registered by the Public Registry with 45 to 60 days after presentation. It is therefore important to follow up with the Notary to ensure registration, otherwise you will run into problems in the future when you decide to resell the property and find out that your sale was Not registered.

Beach front property is untitled property because in Costa Rica the ownership and possession of the shoreline is governed by the Maritime Zone Law (Ley Sobre la Zona Maritimo Terrestre) which restricts the possession and ownership of beach front property. By law the first 200 meters of beach front starting at the high tide markers is owned by the government. Of the 200 meters, the first 50 are deemed public zones and Nobody may possess or control that area. On the remaining 150 meters the government through the local Municipal government will lease by way of concessions the land to private individuals. The Maritime Zone Law provides restrictions as to foreign ownership or possession of beach front property so a more through and careful study is always required when considering beach front property in Costa Rica.

Real Estate info courtesy of Osa Property