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Buying property and constructing buildings or a home can be an
intimidating process, even when you are at home in your own culture and
knowing what to expect and plan for. In a foreign country, the same
processes can be downright frightening. In a new setting, you need to
learn what the usual way to go about things is and also who is legally and
ethically responsible for what-in other words you should invest some time
in learning how things work and how to protect your investment.
Fortunately, in Costa Rica there is a defined process through which an
intelligent buyer and builder should proceed. In addition, there is a
licensing body for Architects and Engineers, which also sets standards
for fees should you decide to build. But let's start at the beginning.
I want to purchase property in Costa Rica. What is required?
So you've found, either through a real estate agent or your own
searches, a piece of property that is perfect for you. Once you have
negotiated a sales price and the seller has accepted your offer, then the
legal procedures for transferring ownership of title begin.
How is title transferred?
In Costa Rica, property is transferred from seller to buyer by executing a
property transfer deed (escritura) before a Notary Public. Unlike common
law countries, such as the United States and Canada, where the role of
the Notary Public 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 he or she 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 centralized property registration office known as the Public Registry
(Registro Nacional). All documents are centralized at this location. As
such, all deeds executed in the provinces of Costa Rica must be filed in
the Public Registry. The local custom is that the buyer may select his or
her Notary/Attorney to draft the property transfer deed if the buyer is
paying cash for the property. If the a portion of the purchase price is
financed by the seller, 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.
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 nay 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.
How can I ensure that I have clear title to the property?
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.
How about closing costs?
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 transfer taxes and registration fees, Notary Legal fee, and
mortgage costs, if any.
[A] Government Transfer Tax and Registration Fees
(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.
(2) 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)
[B] Notary Fees. The Notary that drafted the contract for sale, carries out
the real estate closing and records the property title transfer is entitled by
law to a fee which is based upon a percentage of the value of the
transaction. The original decree established a fee which was 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 was modified in
August of 2005 (Decreto Ejecutivo Nº 32493-J) and now provides as
follows:
Up to 10 million Colones 2% of the value of the transaction
On the Excess of 10 million Colones to 15 million Colones 1.5%
On the Excess of 15 million Colones to 30 million Colones 1.25%
On the Excess of 30 million Colones 1%
Pursuant to the law these fees are the minimum that may be charged by
the Notary Public. Depending on the circumstances and if the client
agrees they may charge more than the amounts set forth above.
To find out the current exchange rate between the Costa Rican Colon
and the US Dollar follow this link to the Central Bank of Costa Rica site.
[C] Mortgage costs. It is customary for the person who is receiving
financing to pay the costs of drafting and registering the mortgage
instrument. A mortgage can be created simultaneously at the time of sale
by adding a mortgage clause in the transfer deed. Or, a separate
mortgage instrument can be drafted. A mortgage document pays
registration fees and documentary stamps. The Notary Public will also
charge for drafting and recording the mortgage instrument and that fee is
applied according to the same schedule as indicated above.
The buyer should be aware that Costa Rican real estate transactions
commonly operate on a two-tiered system. Since many Costa Rican
properties still have a relatively low property tax appraisal base in relation
to market value, it has become a local practice to run property sales
through at the registered value, which may be substantially less than the
actual sales price of the property. In such a case, all transfer taxes and
fees discussed above would apply to the registered value as opposed to
its sales price, with the exception of the notary fee. Buyers should consult
with their Attorney about the potential risks involved in undertaking this
practice.
Registration of the transfer deed.
Once all the fees have been paid, it is the obligation of the Notary Public
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 Public
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
properly registered.
Beach Front Property.
In most cases, 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 meters are deemed
public zones (Zona Publica) and nobody may posses or control that area.
In 2005 some Municipal governments in the Province of Guanacaste
began demolishing constructions which were illegally built within the 50
meter public zone. On the remaining 150 meters, refered to as the
Restricted Zone (Zona Restringida), the government through the local
Municipal government will lease by way of concessions the land to private
individuals or corporate entities. Before conferring the concession the law
mandates that the beach area have the high tide markers in place
(Mojones) and a Zonning Plan Approved (Plan Regulador). The Maritime
Zone Law provides restrictions as to foreign ownership or possession of
beach front property so a more in depth and careful study is always
required when considering an investment in beach front property in
Costa Rica.
I want to build. What do I do?
In order to build in Costa Rica, you will likely face a bureaucratic maze of
governmental regulations. The law requires that any application for a
construction permit be presented by a licensed architect or engineer
(Article 83, Law of Constructions, Article II.2 Construction Regulations). It
is therefore advisable to contact a reputable, licensed architect or civil
engineer to guide you through the construction process.
What do architects and engineers charge?
All architects and engineers in Costa Rica must be licensed by the Costa
Rican Association of Engineers and Architects (Colegio Federado de
Ingenieros y Ingenieros y Arquitectos-CFIA). This governing body
establishes the fee schedule that can be charged by its members. Most
fees are based upon a percentage of the value of the construction
project. According to the regulations of the CFIA (Reglamento para la
Contratación de Servicios de Consultoría en Ingeniería y Arquitectura),
the involvement of a licensed architect/engineer in a construction project
is separated into two phases. Phase 1 is construction plans and permits
and Phase 2 is control and execution.
Phase 1. Construction plans and permits. This phase is further
subdivided into several distinct professional services that can be
provided to the client by the architect/engineer. The percentages cited
below are those that the CFIA has established as minimum chargeable
fees.
Preliminary studies (estudios preliminaries): 0.5 percent. These studies
may or may not be required, depending on the scope of the project.
Preproject design (anteproyecto): 1.0 to 1.5 percent. Generally, during
this stage, the architect/engineer will meet with the client in order to
discuss the client's construction requirements. With this information, the
architect/engineer will prepare drafts of the proposed construction project
for review by the client. These drafts should include site planning and
preliminary work drawings. When you contract for this service be sure
you agree with your architect/engineer before hand on what he or she is
going to provide for you.
Construction plans and technical specifications (planos de construcción y
especificaciones técnicas): 4.0 percent. This is one of the most important
steps in the overall construction project since execution of the project will
depend upon the quality and accuracy of your construction plans. Once
you and your architect/engineer have agreed on the layout and design of
the project, she or he will begin drafting the plans. In Costa Rica, a
complete set of plans should include a site plan, distribution plan,
elevation and transversal and longitude perspectives, roof design and
drainage, design of footings and support beams, structural plans,
electrical design, mechanical and sanitary system design, as well as a
plan that details all of the interior finishings of the construction.
Budgeting (presupuesto): 0.5 percent for global budgeting; 1.0 percent
for itemized budgeting. Here the architect/engineer prepares a materials
list based upon your construction plans and prepares a construction
budget for you.
Phase 2. Control and execution. This stage involves the actual
construction and project supervision. The regulations authorize three
kinds of supervisory tasks, each of which requires a larger time
investment from the architect/engineer. Inspection (Inspección): 3
percent of total construction value. Here your architect/engineer will visit
the construction site at least once a week and will inspect it to ensure that
the plan specifications are being followed by the general contractor. They
will also verify the quality of the materials being used and review invoices
being presented by the general contractor.
Supervision (Dirección técnica): 5 percent. This requires more direct
involvement by the architect/engineer in the day-to-day operation of the
project.
Administration (Administración): 12 percent. Here, the architect/engineer
takes complete responsibility for the execution and completion of the
project.
The option you choose will depend upon the type of project involved, the
reliability of your builder/general contractor, and the amount of time you
are willing to dedicate to the construction project. All told, phases 1 and 2
can range from 9 percent to 18 percent of the estimated value of the
construction project, depending on the amount of services required. As
such, it is common practice to negotiate fees with the architect/engineer.
Most, of course, will be eager for your business and, depending on the
scope of the project will be willing to work out an agreement tailored to
your particular needs. Otherwise, have your Attorney do the negotiating
for you to ensure that you will get the best agreement possible.
Before you sign any contract, be sure that you understand the fee
structure and know exactly what is and is not included in the fee.
Likewise, clearly define the responsibilities that your architect/engineer is
going to assume. Do the same thing with your general contractor and any
subcontractors.
Construction permits.
Before you purchase a lot with the intent of building on it, you should
conduct some preliminary studies on the property to ensure that there
won't be a problem obtaining a building permit. First, determine if the lot
has basic services such as water, electricity, telephone, and drainage.
Second, make sure there are no restrictions placed on the lot that could
result in the denial of a construction permit. It will not be enough to check
the Public Registry. You should also check the Ministry of Public Works
(Ministerio de Obras Públicas y Transporte) for future road construction
projects; the Ministry of Health (Ministerio de Salud); the National Institute
of Housing and Urban Development (Instituto Nacional de Vivienda y
Urbanismo) and the municipality where the property is located
(municipalidad). And finally, be aware of any environmental regulation
that may effect your construction project, such as national wildlife refuges
and areas deemed protected by the forestry Law.
Requests for construction permits are filed with the Permit Reception
Office (Oficina Receptora de Permisos de Construcción), which is a
centralized office that houses government representatives from MOPT
(Ministerio de Obras Públicas y Transportes-roads), INVU (Instituto
Nacional de Vivienda y Urbanismo- housing), ICE (Instituto Costarricense
de Electricidad-telephone), AYA (Instituto Costarricense de Acueductos y
Alcantarillados-water), SNE (Servicio Nacional de Electricidad-electricity),
CFIA (Colegio Federado de Ingenieros y Arquitectos), and the Ministry of
Health (Ministerio de Salud).
For a single family home that measures more than 70 m2 (735.2 ft.2), the
applicant must provide the following documentation: four copies of the
construction plans, four copies of the property cadastre plot plan (Plano
catastrado), four copies of the permit checklist (hoja de comisión), two
copies of your property deed (escritura), one copy of the consulting
contract with your architect/engineer (contrato de consultoria), an
approval from the water company (AYA) regarding availability of water,
and one copy of your electrical design plan approved by SNE.
Condominium projects, commercial construction, and urbanization
projects all carry additional requirements for obtaining construction
permits.
In addition to these requirements, you will need to request a building
permit from the municipality in which the property is located. By law it is
the municipality that is delegated the responsibility to ensure that all
constructions comply with building regulations (Article 1, Construction
Law). You can, therefore, expect periodic visits to your construction site
by the municipal building inspector, who must certify that the construction
is proceeding according to code.
Whether you purchase an existing property or decide to build you dream
home, be well informed about the procedures involved so that you
ensure your investment will be a profitable one.
Copyright 2007 By Roger A. Petersen
No Copying or Reproduction Allowed without written authorization from the copyright holder.
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