The regulation of rental agreements in Costa Rica falls under the General Law of Urban and Suburban Rentals, which outlines the conditions governing the relationship between parties and grants tenants certain irrevocable rights. Various topics often lead to questions surrounding lease agreements, focusing on contract duration, rental pricing, security deposits and repairs
Contract Duration
In order to safeguard tenants, the Law mandates a minimum rental contract duration of three years. If the parties fail to specify a rental term or if they specify a period that is shorter than the three year term, the clause will be deemed void, and the three-year time frame will be upheld. However, parties are allowed to mutually agree upon a longer term if desired.
Rental Pricing
While landlords have the discretion to determine the price for the use of their property, the Law regulates rental increases. Two restrictions apply depending on the currency in which the contract is established. For housing leases denominated in foreign currency,such as US dollars, the price remains constant throughout the contract term, without the right to a rental increase. For contracts set in Costa Rican colones, annual increases can be applied based on the accumulated inflation rate of the previous 12 months preceding the adjustment date.
If the inflation rate is equal to or less than 10%, the landlord can raise the rent by an equivalent percentage, calculated using the Consumer Price Index from the National Institute of Statistics and Census (INEC). However, if the accumulated inflation exceeds 10%, the Ministry of Housing and Urban Settlements (MIVAH) determines the additional percentage, ensuring it is neither below 10% nor surpasses the annual inflation rate
In the case of commercial properties, regardless of the currency denomination, both parties have complete freedom to establish the initial price and annual increments. Currently, annual increases for commercial spaces typically range between two percent and five percent
Security Deposit
Article 59 of the Tenancy Law indicates that security deposits accompanying a contract serve as a guarantee for rent payments and other contractual and legal obligations unless explicitly agreed otherwise. Regarding the deposit amount, the involved parties can agree upon the deposit amount, as no regulation prohibits it. Typically, the equivalent of one month’s rent is paid as a deposit. Hence, it is essential for both parties to outline the purpose and disbursement of the security deposit in the lease contract. Additionally, the contract should outline the process for returning the deposit to the tenant. This is generally the area where we hear most of the complaints. Tenants complain that the Landlord would not return their deposit. As such make sure you have a clearly defined agreement on how and when your deposit will be returned.
Repairs
When leasing real estate, the lessor is obligated to ensure the lessee’s use and enjoyment of the property in good condition. Over time, wear and tear may necessitate repairs for maintenance. The Law mandates that the lessor is responsible for necessary repairs – those deemed indispensable – to preserve the property’s good condition. Rent cannot be increased for such repairs, unless the damage is attributable to the lessee. If the lessee promptly notifies the lessor of urgent repairs and the lessor fails to address the repairs within ten business days, the lessee is authorized to carry out the repairs and deduct the cost from the rent. Alternatively, the lessee may terminate the contract and seek compensation for any damages incurred. Different rules apply to repairs deemed unnecessary for property maintenance or improvements intended to enhance the property’s aesthetics. Such improvements require lessor approval and, unless otherwise agreed, remain with the property without the lessor incurring any cost.
