I am ready to purchase real estate: what legal documents are involved in buying real estate in Costa Rica?
by Quatro Legal Real Estate Team | Jan 3, 2024 | Article, Real Estate
If you are buying or selling property in Costa Rica, you will likely see the following documents in the course of your real estate transaction (you might not use them all—it will depend on your real estate lawyer’s expertise and the type of transaction):
Letter of Intent or Offer. The LOI, offer or term sheet is a simple document outlining an agreement proposal between two or more parties prior to finalizing the transaction or agreement. It is usually not binding, unless agreed otherwise, and it serves to clarify the key points of a transaction. The LOI is the most common and first document produced, especially by real estate agents or brokerage firms, to initiate the communication pertaining a future transaction between the buyer and seller prior to the real estate attorneys getting involved and finalizing the terms of the purchase.
Option to Purchase and Sale Agreement. The OPSA, PSA or SPA is a contract whereby the Optionor/Seller and the Optionee/Buyer agree to sell or buy one or more assets if specific terms and conditions are met within a specified period. A complete and well drafted OPSA sets the foundation for a secure and smooth transaction. The SPA as we normally call it, is one of the most important documents to buy and sell properties as it describes in full all the terms and conditions that must be met to complete the transaction. It is a document that does not need to long or complicated, but it does need to be complete and clear.
Escrow Agreement. A contract defining the terms and conditions under which one party deposits an asset of any kind (normally cash) with an independent third party, known as an “Escrow Agent”, who, in turn, and subject to specific terms and conditions, delivers it to the other party. An escrow agreement involves an additional cost but is worth it and is normally a condition of the OPSA, PSA or SPA. We always advise clients to close using an escrow service, because it is normally easier to give money away than to get it back; therefore, the escrow agent will serve the role of a depository who will only release or transfer funds upon compliance of transaction conditions.
Due Diligence Summary or Report. Due Diligence is a process whereby the buyer—through a real estate legal firm or attorney—and for a specific period prior to making the final decision to close on a property, systematically researches and verifies the legitimacy and accuracy of the title, as well as the contingencies that could cloud it. The due diligence report is a written document containing the information uncovered, as well as a summary of the key points needed to make an informed decision. This is a smart investment, not an expense.
Purchase and Sale Deed. This is a legal document prepared and authorized by a public notary whereby the seller agrees to sell irrevocably to the buyer one or more assets under specific terms and conditions. For the purchase of real estate in Costa Rica, the purchase and sale deed must be incorporated in the public notary’s protocol and registered with the Public Registry of Costa Rica for it to be binding and enforceable against third parties. The purchase and sale deed is the main document to close a deal and it should reflect all final terms agreed on during all initial stages of the transaction.
Remember buying and selling properties in Costa Rica is a formal process with many moving parts; therefore, you need to be fully counseled and represented by a savy and experienced real estate attorney. Ask your attorney about his or her experience in the market, number of years as practitioners, volume and types of transactions as practice makes perfect.
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