Costa Rica due diligence. ☎️ Essential to buy property.
Foreigners buying real estate in Costa Rica should take several steps to ascertain that the purchase goes smoothly. Our due diligence services will ensure that buying land in Costa Rica goes smoothly and securely. We must make sure there are no issues with the property for sale. Legal due diligence is the initial step and is of utmost importance. It comprises a study to ensure there are no legal impediments to the real estate purchase you wish to make. Technical due diligence entrails a professional to ascertain that the property can be developed, the zoning situation and other important factors.
If everything is found to be correct, the property purchase can move forward. You should check our comprehensive legal guide on how to buy real estate in Costa Rica. As property lawyers, we ensure your property transactions are done correctly to avoid future problems and unwanted litigation. In this article, we cover the basics of real estate due diligence.
These are the basics steps to buying land in Costa Rica:
- Due diligence research must be done on the property. (This includes checking for tax and utilities regulatory compliance.)
- We coordinate with escrow.
- An option to purchase agreement may be drafted if needed.
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As a Notary Public I will draft the notarized bill of sale or "escritura pública."
- Both the buyer and seller sign the purchase deed agreement.
- We file the notarized paperwork at the Public Registry.
- The property gets registered in your name.
Property due diligence: General aspects.
All privately owned properties in Costa Rica, are registered in the Public Registry. This public registry shows -amongst many things- who the current owner is, the property´s history, every purchase and every movement it has had over the years. The Registry will also show information on the property, such as its area and cadastral plan. Most importantly, it will show if there are encumbrances to it, and any other important aspects of the property itself.
When you hire our law firm for property due diligence, we will send you a written report with exhibits and a legal analysis. This is a crucial step to take for foreigners buying real estate in Costa Rica. What you will get is a legal evaluation advising you to move forward or to avoid the transaction. The real estate legal services we provide, to buy land in Costa Rica will save you from future headaches. We can provide you with our services, in any of the provinces of Costa Rica: San José, Alajuela, Cartago, Heredia, Guanacaste, Puntarenas, and Limón.
What is legal due diligence?
Legal due diligence is the research we do to make sure the property has the legal aptitude to be transferred safely. Foreigners buying real estate in Costa Rica, must always hire an attorney and notary public, to guide them through the process. The first step is to determine who the owner is. This is done through the Public Registry, by looking at the property title Is the property in trust? Does it belong to a corporation or a physical person? These are the first things to ascertain when buying land in Costa Rica.
As a real estate law firm, we also research the property’s past owners. Its important to review the transfer chain, especially if the current owner recently acquired the property. We want to ensure there was no fraud in the prior transactions. This is important, especially if the property appears to have been recently sold to the new owner and seller. By checking these things, foreigners buying real estate in Costa Rica avoid possible property litigations. Even though it is safe, you should avoid and even being a victim of title theft when buying land in Costa Rica.
Is it in the name of a person, or a corporation?
The Registry will certify if the property is in the name of a physical person or a corporation in Costa Rica. If it’s a physical person, it tells us the name and last name of the owner and other information. In addition, the Registry will provide the identification number and the property purchase date. It also refers to the public scripture or deed used to acquire the property by the current owner.
Corporate due diligence when you buy a property:
A lot of people place properties in the name of corporations. This is a common practice. If so, the Registry will provide us with the corporation’s name and other information. If this is the case, corporate due diligence must be done on the corporation the will sell the property. First, I must check the company by laws and articles of incorporation. We must assess if the corporate structure allows for an easy property transfer.
The company´s representation must also be researched. Who are the members of the board of directors? Who has the power of attorney and representation to sign in the company’s name? Last but most importantly, we must determine who the shareholders are. They must authorize the sale of the property in a shareholder assembly. The corporate legal books must be revised to determine who the owners are.
Does the owner have the full bundle of property rights?
It´s important to determine if the property owner has the full bundle of property rights or full undisputed ownership. We want to see if co-ownership situations exist, third-party possession rights, usufruct, or joint tenancy. This is important to ascertain when buying land in Costa Rica.
Second step: legal due diligence on the property itself.
Does the property have title restrictions or easements?
Once the ownership due diligence is over, your real estate attorney must look into the property itself. The Registry provides important information, such as the area and the property’s boundaries. Are there easements on the property? If so, it’s important to determine what types of easements are and their duration. Easements are called “servidumbres” in Spanish, and there are several kinds: off the top, there are water easements, and right of way easements. For example, if there is a “right of way” easement, it’s important to determine the duration. Most importantly, the boundaries and area will tell us if the real estate property you wish to purchase is in front of a public road or not. And trust me, you want it to be in front of a public road, not an enclosed easement road.
Are there encumbrances on the property?
The Registry will certify if the property has encumbrances. Encumbrances are another reason why due diligence is crucial for foreigners buying real estate in Costa Rica. Due diligence will discover if any encumbrances are on the property. Encumbrances may include mortgages, liens, reserves, embargos, and lawsuit annotations. If encumbrances are found, buying real estate may not be a good idea, at least not for that specific property.
Taxes, and municipal due diligence:
It´s vital to ascertain if the property is up to date with property taxes. This information must be researched in the Municipality where the property is situated. Every property in Costa Rica is taxed with an annual property tax. The tax is 0.25 percent of the property’s registered value as established in the Municipality. As part of due diligence, I must look into this. Buying land in Costa Rica, also entrails checking on this. You don’t want to end up paying taxes that were due by the past owner.
All of this is easily remedied, with a municipal certification, stating that the property is free of tax debt. If you are considering to buy real estate property as your home, there are other considerations you must take into account. In Costa Rica, there is such a thing as a luxury tax, over homes that exceed a certain value. All of these things must be revised accordingly.
HOA and Condominium due diligence:
If you are buying a home or an appartment in an condominium, it´s important to establish if the property is up to date with the HOA cuotas. Just like municipal taxes, the hoa cuotas stick to the property itself, and not to the past owners. You don´t want to end up buying a property that has nasty debts from the past. All of this must be cleared, prior to purchasing. A review of the homeowner´s by-laws are also a good idea. If you want to purchase a house or appartment in a condominium, for investing with Airbnb, it becomes crucial to ascertain, if the home owner´s Association (HOA) bylaws, allow such a thing.
Utilities due diligence and payment compliance:
We check utility compliance when performing real estate due diligence. To check for electricity, first, we get a certification from I.C.E (Instituto Costarricense de Electricidad), which is the Costa Rican Electricity Institution. Secondly, we will do the same for water. There are three ways to legally have water in the property:
1. A y A (Acueductos y Alcantarillados): This is the State´s water utilities company. To determine if water is served through this institution, all we have to do is take a certification of the property by the Public Registry to any local office of A y A.
2. Asadas: If A y A is not directly involved, chances are the water will be provided by an “Asada.” Asadas are controlled by A y A, but are run by a local board.
3. Water Well: Water wells are overseen by the “Dirección de Agua”, which is an inner subdivision of Minae. Unregistered wells in Costa Rica are a problem, since you can´t requested a building permit with one.
In conclusion, you don´t want to end up with a property that doesn´t have water or electricity. Once the property and corporate due diligence are over, if the results are positive, we will make a legal recommendation on whether to move forward or not.
What is technical due diligence?
We highly recommend this extra step, that we call technical due diligence. This will require a topographer and even an engineer to ascertain the technical status of the property itself. For example, if you wish to develop land, we must be clear on wether or not, there are zoning permissions to proceed with the development. Some examples of technical due diligence, are as follows:
Topographic and cadastral due diligence:
When you buy real estate in Costa Rica, how do you know that the property you are buying is the one you saw? For example, suppose you come to Costa Rica and are shown several properties. You wish to purchase real estate, and you settle for one that was shown to you. But when you are signing the sale agreement with the public notary, how can you be sure that the property shown to you is the one you are actually buying? This is where topography becomes extremely important.
Every real estate property has a cadastral plan registered in the Public Registry. A topographer must be hired to ensure you are buying what was shown to you. The topographer must guarantee that the registry’s cadastral plan matches the property shown to you. To do this, the topographer performs an in situ inspection and measures the coordinates to make sure the property that was shown to you matches. When you buy real estate in Costa Rica, it’s also essential to ensure the topographer guarantees no overlaps with other properties. As you can see, cadastral due diligence will involve a topographer and precise field inspections. A field inspection by a surveyor will also help us ascertain if there are squatters or occupants in the property, and in situ boundary information.
Technical due diligence: Municipal zoning.
Zoning due diligence is another step in any serious due diligence study. If you are planning to buy real estate in Costa Rica, you should know there are zoning plans and regulations. Due diligence is crucial to understanding what you can and can´t do with the property you wish to buy. Allow me to explain. Some areas in Costa Rica only have agricultural use, meaning you can´t develop a housing project on the property. Some only have commercial use, and others are for residential use only. Others have mixed use. All of this can be checked in the local Municipality.
You need to get a certification called “Uso de Suelo.” This will determine what you can do with the property you intend to buy. For example, can you build a house on it? Or is it intended for agriculture or preservation? Are you buying luxury real estate in Costa Rica? Clarity of intention is essential when you purchase real estate in Costa Rica.
Hydrological due diligence:
A hydrological study of the area may be necessary to ascertain if there are flooding risks. Costa Rica has eight months of rain. This is a factor to take into consideration when buying land that you wish to develop into a residential area. Another important aspect is to determine if the property has access to water, something that is crucial for land development.
Forestry regulations:
Costa Rica is a highly ecological country, and we cherish our environment. Foliage and tree coverage in properties is a factor that must be considered and dealed with properly. Forest regulations must be observed if you are looking for property development.
Proper due diligence is an essential part of purchasing property in Costa Rica. Let us help you with this delicate matter, and help you avoid problems with the property you wish to purchase.
Dr. Christopher Pirie.