What is the Legal Closing Process for a Property Purchase Transaction in Costa Rica?
Costa Rica uses the Roman civil legal system, which is the legal system used by the majority of countries in continental western Europe and Latin America. It is a more formal and document-oriented legal system than the English common law legal system, which is used in the majority of the U.S. and Canada and countries that are members of the British Commonwealth.
Most foreigners searching for a property to purchase in Costa Rica will do so in person, in many cases returning to their home country before the closing date for the purchase transaction. If the purchasers do not intend to return to Costa Rica for the closing, it is important that they attend before a Costa Rica notary public before returning to their home country, to grant a power of attorney to a party in Costa Rica who will be able to attend the closing, on the purchaser’s behalf. To accomplish this process by the purchaser from their home country, while possible, will be a very complicated and time-consuming undertaking.
Purchasing a Property by Way of a Property Title Transfer
The most common purchasing process utilized to acquire the title to a property in Costa Rica is by way of a property title transfer from the registered owner and seller of a property, established by way of a search of the property registration particulars recorded in the National Registry.
In this scenario, the registered owner and seller of the property may be a person(s) or a Costa Rica company. In either case, a Costa Rica notary public must prepare a property title transfer deed, as follows, to:
Set out the current registered owner and the purchaser’s particulars
Describe the property whose title is to be transferred, by reference to the registration particulars recorded in the National Registry
Specify the purchase price of the property and the method of payment
Indicate any continuing conditions or restrictions associated with the use and enjoyment of the property by the purchaser
Include a declaration by the purchaser of the source of the purchase monies utilized in the property purchase transaction
The registered owner and seller must also make various declarations confirming the state of the property title as is registered and as represented, with any monetary debts associated with the property, such as municipal property taxes, being paid in full up to the closing date.
The property transfer deed will also make provision for the discharge of any financial encumbrances, such as a mortgage, registered on the property title in favor of a creditor of the property owner and seller, utilizing a portion of the property sale proceeds.
At the closing date, as has been agreed to by the seller and the purchaser in the purchase and sale agreement, the personal purchaser and seller, or their personal representatives attending by way of a power of attorney, will appear together before the notary public to execute the property title transfer deed.
Following the closing process and payment of the purchase monies and closing costs — usually from an escrow company account set up for the purpose — the notary public is responsible for submitting a notarized extract of the property title transfer deed to the National Registry, along with payment of the property transfer tax and registry fees associated with the transfer process.
The registration process in the National Registry usually takes between one and two weeks to complete, following which the Registry will issue a property title extract indicating the purchaser(s) names as the registered owner(s) of the subject property. This Registry document is available to be obtained online by the notary public attending the closing. This document issued by the National Registry is the only document issued in Costa Rica to denote ownership of any given property.
Purchasing a Property by Way of a Transfer of Company Shares
In many cases, the registered property title of a property to be purchased will be registered in the National Registry to a Costa Rica company. This provides the option to the purchaser of purchasing the shares of the registered company, rather than transferring the property ownership by way of a property title transfer deed as previously described.
The property ownership may also be effected by the purchaser incorporating a Costa Rica company, to which a seller may transfer their property title interest to be registered to the company as the registered owner. Although these corporate options exist for a property acquisition, the annual costs of the required annual documentary filings for a Costa Rica company, make property ownership in this form impractical, as is discussed in my blog article.
In this corporate scenario, the registration particulars of the property in the National Registry do not change, with the current company registered owner continuing to be so, following the completion of the closing process.
The company share transfer process takes place in the company books, usually held by the notary public who acts for the seller. The transfer of the shares is effected by way of a notation, known as an “asiento”, inscribed in the company share register, describing the share transfer and providing the particulars of the purchaser. This notation is signed by the current owner and seller of the company shareholdings in favor of the purchaser(s), who likewise signs the notation accepting the share transfer. An unregistered share transfer deed is also usually prepared by the notary in their public deed book, for signing by the seller and the purchaser. A notification of the ownership of the company shares will also be filed with the Beneficial Shareholders’ Registry, located in the Costa Rica Central Bank.
In this company share transfer process, the only matter required to be presented in the National Registry is the change of the names and personal particulars of the persons on the company Board of Directors, who will have the power to act for the company in the future, in the place and stead of the personal seller, or nominee that existed prior to the closing date.
This change of company directorship must also be entered in the company General Assembly of Shareholders Book in the form of a resolution, known as an “acta”, setting out the names and the particulars of the persons to assume the directorship of the company. This resolution will be signed by the company shareholders and a notarized extract of the resolution presented in the National Registry for registration of the new company directorship. A documentary certification of the current directorship of a company can be obtained online from the National Registry. This document is known as a “personeria.”
To arrive at the closing date of a property purchase transaction in Costa Rica, it is essential to have employed the services of an experienced real estate attorney, to ensure a successful outcome.