Demystifying Common Terms Used In Real Estate in Costa Rica
There are many terms that are unique to Costa Rica and this is especially true when it comes to real estate. If you are interested in the possibility of purchasing real estate in Costa Rica, it is helpful to know the correct terminology to succeed in this process. While it’s always good to be familiar with the terms and the process, what’s most important is to work with a qualified professional realtor who is familiar with the terms and the process as a whole and will make sure you are protected and best served. However, to help you get started in pura vida real estate, below are some of the most common and important terms that will benefit you to know if you are thinking about becoming a Costa Rica real estate investor.
Folio Real (Title Number)
This is a unique number that is assigned to a property in the National Public Registry. It is used to identify the property and to distinguish it from other properties. This number consists of three parts that designate: 1) the province the property is located in; 2) the number given to the property; and 3) how many owners the property has.
National Public Registry
This organization operates within Costa Rica’s Ministry of Justice. All land records are kept within this one organization, which is responsible for recording all documents related to real estate transactions and everything associated with these transactions (corporations that own the property, powers of attorney, etc). Anyone can search the National Public Registry’s database for real estate via the folio real number.
Concession Land (Maritime Zone)
Concession land cannot be purchased and can only be leased for a set length of time. A leasing party must be composed of at least 51% Costa Rican nationals, meaning that foreigners cannot have majority interest in concession properties. Beachfront property in the zona maritima (land within 200m of the high-tide line) and national park land are the most common types of concession land.
In Costa Rica’s real estate system, this refers to a real estate listing that is managed by a specific agent chosen to represent a property. This agent then takes responsibility for the marketing of the property, showing the property to their clients and those of other agents who want to see the property, overseeing the due diligence process and closing process to ensure that their client’s interests are well represented. Exclusive listings are the closest version of an MLS that we have in Costa Rica. The listing realtor sends their exclusive listings (including description, pictures, etc) to other realtors who will then add the listing to their websites. All showing go through the exclusive listing realtor.
This is a sale transaction between a buyer’s agent and a seller’s agent from two different offices.
Offer to Purchase (Letter of Intent)
This is the initial offer that is written when a potential buyer wants to begin the negotiation process to purchase a property. This offer is prepared by the buyer’s realtor and sent to the seller’s realtor. It may be rewritten many times by both parties as they come to a compromise over the purchase.
Sales and Purchase Agreement (SPA)
This is a binding contract that is prepared by a lawyer, typically the buyer’s lawyer after the real estate agent has the accepted offer (letter of intent) document signed by both parties.
When a buyer signs a sales and purchase agreement with the seller of a property, that property is now designated ‘under contract.’ In Canada, this step is known as being ‘conditionally sold’ and in the US, it is referred to as ‘sale pending.’ During this period, due diligence is conducted.
Due diligence is the process of researching the physical and legal status of the property that is now under contract. The buyer is confirming that the property is what the seller says it is, that it has no legal complications, and that it can be used for what they have planned.
If you are buying a building or a piece of land where you want to do some sort of construction, it will be necessary to make sure that the property will be able to get the permits necessary for the project in mind. This could require everything from a site survey to a preliminary environmental impact study. Hiring a site surveyor would be a part of this process.
Note to buyers: be sure to ask for references when choosing your lawyer because they can make this process simple or complicated.
Plano Catastral (Survey Plan)
A plano catastral translates to a survey map. This document can be obtained from the Cadastral Office, which holds all of Costa Rica’s property surveys. In order to acquire a property, a survey must be recorded at the National Public Registry. When dealing with property segregations, a municipality authorization is also required on the survey. The official drawing of the property is validated through an approval process by the Public Registry as well as by the municipality in which the property is located.
Uso de Suelo (Zoning Plan)
The zoning plan is a land use certificate that is necessary to obtain a permit for construction, infrastructure or just to know the legal uses of a property at the current time (property uses are subject to change over time). An uso de suelo is requested from the municipality that the property is located. To request this certificate, you will need the folio real and the plano catastral.
You should request to see this document before you purchase any property. This document sets out the guidelines for what is legally allowed to be built on the property and will include such information as height restrictions, percentage of land that can be built on, types of buildings that can be built, etc. Make sure that the information contained in your uso del suelo concurs with the idea you have in mind for the property.
Estudio de Suelo (Soil Test)
A test performed by a private engineering company that takes soil samples from the property and analyzes the characteristics of the land. This is typically performed during the due diligence period in a real estate transaction so that the buyer can be confident in the properties of the subsoil and the geological environment. This data is important for the design of foundations and to determine the environmental impact of a project, thus preventing geological risks.
Water Rights (Legal Water)
Water rights (carta de agua or concession de agua) in Costa Rica is a very important matter when making a real estate purchase. It is important to ensure that a property has legal access to water. Without water rights, a property owner cannot obtain construction permits of any kind. A property seller can transfer the rights to water to a buyer at the time they transfer the property title.
Escritura de Traspaso (Transfer Deed)
A transfer deed contains all stipulations regarding the transfer of real estate, including basic information about the buyer, seller, property, and any special terms of sale, such as easements or mortgages. An attorney who is also a notary public must prepare this document and the deed must be recorded in a notary book and at the National Public Registry.
Once the deed has been prepared and signed at the close, it is the attorney’s responsibility to record the deed immediately at the Public Registry for its annotation. From this moment, the property is protected against any third party interest. After the Public Registry verifies the deed is structurally correct, the second phase of registration begins and the property is recorded in the name of the new owner.
A notary public in Costa Rica refers to an attorney licensed by law to perform legal acts. All transactions performed by a notary are recorded in their notary book. Most attorneys in Costa Rica are also notary publics. A notary’s primary duty is to provide legitimacy to a transaction, providing legal advice and representation throughout the process.
Power of Attorney
A power of attorney document authorizes a person to act on behalf of another to perform specific actions, such as the purchase of a property. This legal tool is especially useful for clients who wish to close on a property without returning to Costa Rica. There are different power of attorney options that can be helpful in the sales process and a qualified notary public will best advise you on which option will work for your individual scenario.
Escrow (Agent or Company)
Most foreign buyers in Costa Rica understand escrow service to include not only the managing of funds for a property purchase but all of the administrative work required to execute a closing. In Costa Rica, the escrow agent performs many of the same duties. The primary function is the financial service to prevent manipulation or mishandling of funds prior to closing. The escrow agent is a neutral third party with responsibility for issuing checks and executing payments. This system gives confidence to all interested parties (e.g. attorneys, brokers, sellers, buyers) that funds are protected during the buying process and that all funds will be disbursed appropriately to all parties at closing.