The short term rental phenomenon has impacted the legal landscape in Costa Rica and how owners use and operate their properties. The Government and the local municipalities continue to enact laws and  regulate the rental market and make sure they profit through taxes, permits and licences over a sector that for many years has operated outside of the taxation system and in informality.  

For several months we have been investigating and inquiring on how this change of mindset and regulations have been implemented by the Municipality of Santa Cruz with the intent to be able to advice our clients and obviously, pinpoint if the gaps in the regulations that we had detected long time ago, have been addressed by the Municipality of Santa Cruz. 

After much research, patience, and back forth with the Municipality of Santa Cruz, finally we were able to obtain clarification on the status of the current regulations, the changes that were enacted in 2024, and the requirements all owners of rental properties must be aware off and implement, if they want to operate their rental properties in full compliance with the law. 

If you want to know more about Short Term Rentals, regulations, and best practices, our website has a number of blogs addressing this subject. 

What did the old regulations establish about business licenses for rentals? 

Business licenses in the Municipality of Santa Cruz are regulated by the “Reglamento para Licencias Municipales del Canton de Santa Cruz”. In English, “Regulation for Municipal Licenses for the County of Santa Cruz”, hereinafter the “Regulation”. 

From a historic perspective, it is important to note that Municipal Licenses have been regulated for decades in the Municipal Code. Also, by application of the Municipal Code, municipalities have the compentency to issue their own regulations within the scope of the law, and enforce them within their territorial jurisdiction. Therefore, when the Municipality of Santa Cruz  enacted the “Regulation” many years ago, it was not intended to supervise, oversee and control in any way, shape, or form, short term rentals. Keep in mind, the short term rental regulation “Law for the Regularization of Non-Traditional Lodging and its Intermediation through Digital Platforms and its Regulations” was enacted in 2019 and many municipalities have been scrambling since to pass the regulation to applyc the the aforementioned act. 

The text of the Regulations until June 2024, specifically article 21, read as follows: 

“Article 21.- Commercial licenses for profit-making activities in residential homes shall not be granted, except when the commercial premises are entirely separate from the residence, with no internal communication between them.”

As it can be read from the text, it was prohibited to grant a business license to residential homes with one exception which was that the commercial premises, meaning the area where the commercial activity was to be performed, in this case the rental activity, was entirely separated from the residence with no internal communication between them. As you can probably deduct, many apartment buildings and single family homes did not comply with this condition to receive a business license for rentals as the residential area and the commercial area where one and the same. Therefore, the Municipality of Santa Cruz was not actively enforcing the provision and the penalties that non-compliance could have implied to property owners.  

Nevertheless, even though the regulations were clear, many advisors, such as accountants and lawyers, had their clients request and obtain a traditional business licenses, for properties that did not comply with these regulations. Additionally, the Municipality was granting traditional business licenses to residential properties for the purpose of operating the rental that did not comply with the content of the Regulation. Our firm in writing adviced the Municipality of Santa Cruz of the unlawful practice they were incurring in. Apparently, from the Municipalty’s point of view, as long as owners applied and pay for the business license, the Municipality of Santa Cruz was happy to take their money and grant it. 

Based on the above, if you were adviced to obtain a license and your property is a traditional apartment, condominium or single family home that did not meet the criteria, you were misadvised, you were paying taxes that were not required and your license was issued in opposition and contracdiction to the Regulation. 

What does the new regulations on business licenses for rentals say? 

The Municipal Council of the Municipality of Santa Cruz in session No. 12-2024 celebrated on June 25th 2024, based on an internal memo from April 2024 from the legal department, acknowledging the contradiction that existed on the regulations and the necessity to comply with the existing law, decided to redraft the article to the text below:

“Article 21.- Commercial licenses for profit-making activities in residential homes may only be granted in the following cases: a) When the commercial section is entirely separate from the residence, with no internal communication. b) When the activity involves non-traditional lodging, in accordance with Law No. 9742 and its corresponding regulations.”

As it can be read from the text, the structure of the norm changed. Now, it states that residential homes can be granted a business license, if the commercial premise is entirely separated from the residence with no internal communication between them. Also, it added that a business license can be granted under the scope of the “Short Term Rental Law”. This clarification allows the Municpality of Santa Cruz to unequivocably request all property owners that perform the rental economic activity to apply for a business license. 

This change in the Regulation is another step forward by the Government and the Municipalities to regulate activities, increase tax collection and address the concerns of the hospitality and hotel sectors that have for several years questioned the disparities between their operational requirements and those for short-term rentals.

If you have any questions or would like to discuss your case further, please don’t hesitate to get in touch. We’re here to assist you!

Gonzalo Rojas
Phone: (506) 2103-7294
Email: grb@quatro.legal

Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to constitute legal advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change. For the most accurate and up-to-date information, please contact our office directly. Some images may be AI generated.