How Does the Residential Renting Process Work In Costa Rica?
Renting a residential property in Costa Rica is governed, primarily, by the provisions of the Tenancy Law (Ley General de Arrendamientos Urbanos y Suburbanos). Rental contracts are considered as being long-term rental contracts. The only exception to this is a vacation rental contract for a property located in a designated touristic area of the country; it is registered as such with the National Tourism Institute (www.ict.go.cr) and has a term of between one and 30 days.
In the case of a vacation rental contract, the literal interpretation of the contract applies and not the provisions of the Tenancy Law. However, in the majority of cases, there are significant differences in what happens in the marketplace between a landlord and a tenant, and what the law dictates, especially in a case where a foreigner is a renter.
The marketplace version of residential renting
In the majority of circumstances, landlords will have a prepared rental contract for a property, which at most, will follow a few of the Tenancy Law provisions. Most renters are not familiar with the Tenancy Law provisions and accordingly, accept the rental contract provisions on a literal basis. As long as all of the parties to the rental contract are in agreement with the contract provisions as written, and adhere to these provisions during the contract’s term with no dispute arising, there is no harm done. This is by far the most common scenario found in the marketplace with respect to residential rental contracts.
The legal version of residential renting
Article 3 of the Tenancy Law specifically provides that any provision of a rental contract that contravenes a provision of the Law is null and void, and unenforceable. This becomes a significant factor when disputes arise between a landlord and tenant that requires court adjudication to settle. When such disputes are presented to the court, the court will strictly apply the Tenancy Law provisions.
Some of the basic Tenancy Law provisions include the following:
- The rental contract term is for a minimum of three years, regardless of the term agreed to by the parties in the contract.
- A tenant may terminate the contract term without penalty by providing three months prior notice to the landlord. This term of notice may be varied by the parties in the rental contract and the court will respect the notice variation agreed to in that regard.
- There is no rent payment increase permitted during the contract term if the rent is paid in U.S. dollars.
- A tenant may only be evicted during the contract term for non-payment of the rent or by causing excessive damage to the property.
- The security deposit may not exceed the amount of one month’s rent payment.
Residential rental property investors beware
The application of the provisions of the Tenancy Law becomes particularly important when a property owner wishes to sell the investment property that is rented. If the rental contract for an existing tenant contravenes the provisions of the Tenancy Law for the minimum rental term, tenants may choose to exercise their legal right to remain for the balance of any legal rental term. This, of course, would have the effect of limiting the ability to sell the property to either another property investor, or to a purchaser willing to wait for vacant possession of the property at the end of the tenant’s legal rental term. In such a circumstance, any purchaser requiring vacant possession at closing would be looking elsewhere.
Another little known provision of the Tenancy Law is that if the landlord does not notify the tenant at least three months before the end of the legal contract term that they do not intend to renew the rental contract, it will automatically renew under the law. This will be for a further rental term of three years, on the same terms and conditions, including the same rent payment amount if paid in U.S. dollars.
The Costa Rica Tenancy Law is not well understood by either landlords or tenants. Rental contracts prepared by landlords are — particularly in the case of foreign renters — based to a great extent on the renter’s ignorance of what the Tenancy Law provides. Foreign renters are regularly taken advantage of by landlords in these circumstances.
My advice to all renters is that they seek independent legal counsel prior to entering into any residential rental contract, especially when the contract is proffered by the landlord.
See this article in the magazine (click photo)