By Richard Philps
I have over twenty-eight years of combined experience as primarily a Real Estate Attorney, in both Canada and Costa Rica, fourteen years in each jurisdiction, with a Law Degree from each jurisdiction (English Common Law and Roman Civil Law respectively), and a Notary and Registry Degree from Costa Rica in addition.
I belong to a very “exclusive club” of two, or three Attorneys in Costa Rica, that have a similar academic and legal practice background.
During my fourteen years of practice in Costa Rica, I have seen several real estate cycles completed. From a residential and commercial real estate point of view, these cycles are largely driven by the state of the U.S. Economy at any given time, with a lag-time of eighteen months to two years for the economic effects in the U.S. to “take-hold” in Costa Rica.
At the moment, although there has been a steady improvement in the U.S. Economy from the 2008 downturn, the effects of this improvement have yet to be felt in any significant fashion in Costa Rica. The real estate market in Costa Rica is currently “slow” when it comes to property sales, making it a “Buyers’ Market” price-wise.
Taking this “lag-time” factor into account and the up-coming U.S. Election in November, my prediction is that the Costa Rica real estate market is “on the cusp” of changing into a “Sellers’ Market”, starting late this year and continuing into 2017.Accordingly, property prices will rise consistent with the “Sellers’ Market” conditions arriving.
In my opinion, there will be a significant exodus of U.S. Citizens from the U.S., from the losing side, following the Election. In other words, if Hillary Clinton wins, it will be Republicans leaving and of course, if it’s Donald Trump, it will be the Democrats.
I have seen this happen previously following U.S. Elections, but with the significantly more emotionally charged Election and the deep divisions politically which exist in the U.S., I expect this pattern to be amplified this time around. Apparently, there have been well over one million inquiries to Canada by U.S. Citizens, inquiring how to move to Canada, if Donald Trump wins the Election.
Having set the scene for a potential Costa Rica property purchase, what should a property purchaser be looking for and what basic due diligence should be followed, to avoid pit-falls? In my opinion, only registered title properties in the National Registry, should be considered for purchasing. The Costa Rica Government guarantees the state of the property title as registered in the National Registry, except in the case of fraud. The Property Transfer Deed must be prepared by a Costa Rica Notary.
In Costa Rica, it is possible to hold property by way of a “Right of Possession”. In that scenario, a Private Deed may be prepared by a Costa Rica Notary, passing by way of a contract, without registration in the National Registry, the possession rights of a current property possession holder, to a third party purchaser of those rights. Unfortunately, in that scenario, the Right of Possession acquired by the purchaser, is only as good as no other party with a better Right of Possession to the property exists. In other words if the seller of the Right of Possession to the property did not have the legal rights to the exclusion of all other third parties, you as the purchaser, can lose your Right of Possession, with little, or no practical recourse.
Likewise, Concession properties located in the Maritime Zone (Beachfront), also present their own set of problems. Concession rights to beachfront properties, all owned by the Costa Rica Government, are usually granted on a “lease-basis” to a private, or commercial holder, for a period of twenty years and are presumably renewable (no guaranty). The local Municipality administers the Concession Agreement. Foreigners must have legal Costa Rica Residency for a period of five years in order to hold a Concession property in their name. Accordingly, a Trust Agreement must be entered into to facilitate the holding of the Concession with a majority Costa Rican interest specified, until this Residency requirement is met.
The bigger problem arises in Estate Planning, because even if the current foreign Concession holder meets the Residency requirement, the heir must also meet this requirement at the time of the inheritance taking place, or a new Trust Agreement has to be entered into to facilitate the same.
An interesting difference in property purchase transactions in Costa Rica, is that unlike property purchases in the U.S. and Canada where the purchaser pays all Closing Costs, the Closing Costs are quite often split equally between a seller and a purchaser. This is a negotiable item as part of the over-all property purchase transaction and may not be applicable in certain property purchase transactions of a “fire-sale” nature.
As the Real Estate industry is not regulated in Costa Rica, nor is there any MLS, it is very important to choose a Realtor with local knowledge in the area where you are looking to purchase a property and to carefully check their credentials; reliable references are a must.
Likewise, it is equally important to select a competent Real Estate Attorney and Notary to handle the purchase transaction and represent your interests as the purchaser. Property Title Insurance is not available, nor do Title Companies exist in Costa Rica. You must rely upon your Attorney and Notary to carry-out the necessary legal due diligence for your property purchase transaction.
An Attorney/Notary having a Government registered and regulated Escrow Account is important, to safe-guard both the purchase deposit monies prior to Closing and the balance of the purchase monies for the Closing. The Attorney should be retained from the out-set of the property negotiations and no deposit, or purchase monies should be paid from escrow to a seller prior to the Closing.
Deposit monies may become a “guaranty of performance’ by the purchaser and non-refundable, following an agreed upon period of due diligence to be performed by the purchaser, but with such funds continuing to be held in escrow until the Closing date and the Property Transfer Deed has been executed by both the seller and the purchaser.
This Article is by no means meant to be a listing of all of the considerations that a property purchaser in Costa Rica should have, but it does provide a practical framework from which to approach such a transaction.