Purchasing or renting property in Costa Rica can be confusing for foreigners. One of the most confusing and least understood legal concepts is the applicability and enforceability of the homeowner association (HOA) by-laws. Specifically, there are different circumstances for each of these two entities: condominium entity and residencial.
Condominium or Residencial? Know the Difference
In many respects, a residential development may appear and behave in a similar manner to that of a condominium entity.
In Costa Rica, “condominium” refers to a specifically created legal entity that is registered as such, under the Condominium Law, in the National Registry. Registration therein includes a set of bylaws known as a reglamento. A legal administrator of the condominium is appointed for a specified term to administer the condominium in accordance with the reglamento provisions. That specific legal right to do so is given under the Condominium Law, as modified at general meetings of the condominium property owners as members of the HOA, legally convened from time to time.
A condominium may be in the form of individual apartments in multi-storey buildings, townhouses, or independent home building lots. Each of the individual property units is registered in the National Registry, with its own sub-property designation in the condominium, known as a finca filial. It is the finca filial that a party purchases or rents from the existing registered owner or developer.
At the time of purchasing, as a term of the property transfer deed, the party agrees to specific binding terms of the reglamento. These embody in the HOA administrator the delegated right of an owner’s enforcement regarding the use and enjoyment of the property and common areas of the condominium, in accordance with the registered bylaws. Under the Condominium Law, HOA fees related to the upkeep of the common areas and penalties contained in the bylaws are enforceable for non-compliance as against a property owner. In an extreme case, the HOA administrator has the authority to foreclose on a property when the owner has neglected over time to pay any assessed fines or HOA fees.
Confusion more commonly arises when would-be property purchasers are acquiring an interest in property developments consisting of individual lots, registered as such in the National Registry but not part of a registered condominium entity. These developments are known as a residencial.
In many respects, a residencial development may appear and function in a similar manner to that of a condominium entity. In-fact, to the untrained eye, it appears to be a condominium. Residencials are in the form of gated communities, with common areas designed for the individual property owners’ use and enjoyment. In most cases, such developments will also have a set of bylaws, administered by an HOA, usually having oversight by a board of directors appointed by the property owners.
What makes residencials different is that bylaw compliance by property owners is purely voluntary in nature. In fact, enforcement of such bylaws in Costa Rica is unconstitutional. It is contrary to the inalienable rights of individually registered property owners granted by the Costa Rica Constitution.
Accordingly, purchasers of property located in a residencial — as opposed to a registered condominium development — should be aware that owners cannot be forced to pay HOA assessments for the maintenance of areas that would otherwise be part of the common areas — for example, interior access roads or green zones. The same goes for any fines levied by the HOA.
In such circumstances, some property owners may be faced with paying more than their fair share for such common area items to make up for shortfalls in maintenance costs arising from non-paying delinquent property owners.
In my opinion, both the condominium and residencial forms of property interest holdings generally work quite well.
It’s in the interests of property owners who use and enjoy any parts of a development that are considered common areas to contribute to their upkeep, be it on a required or voluntary basis under the bylaws.
Other aspects regulated by the bylaws may be more difficult to administer in the residencial scenario.