Should I be concerned about the government of Costa Rica expropriating my property as a foreign investor?

by Quatro Legal Real Estate Team | Jan. 3, 2024 | Article, Real Estate

Many clients and investors interested in buying property in Costa Rica ask about the threat of expropriation by the Costa Rican government. Most have heard about or know someone involved in an expropriation case, even though they are not as common. Their concern is whether their real estate investment could be jeopardized by an expropriation procedure, making Costa Rica an unsafe place to invest.

Costa Rica has a stable climate for investment, and this extends to buying property or investing in development projects or business venture. That said, it is important for buyers of real estate to take into consideration that Costa Rica, like many other nations in the world, has the right to take private property from individuals when complying with legal due process. This process is called expropriation. In a nutshell, an expropriation is the legal process used by the Government to take properties for a public use, such as a building infrastructure like hospitals, schools, roads, or projects that value or satisfy a public need that must be identified, discussed, and approved by Congress. Therefore, while in principle, any property maybe expropriated, not every property will be under a grave or serious risk of it and actions can be undertaken to minimize exposure.

From a foreign buyer perspective, citizenship will not be a factor that will increase or decrease the risk for expropriation. In other words, Costa Ricans and Expats have the same chances of being subject to an expropriation procedure as the law considers them equal. The Constitution of Costa Rica stipulates that no private property can be expropriated from a Costa Rican citizen or foreign national without prior payment and proof of declared public interest; therefore, any private property is subject to this treatment.

The expropriation process is subject to a set of steps or requirements that will briefly be touched here for the purpose of education:

Declaration of public interest: A property or properties in question must be declared as of public interest this declaration can be made by the executive branch or congress and implies a set of studies and technicalities to support it.

Initiation of expropriation legal procedure: The Government through the state attorney office must file an expropriation lawsuit which is guided by our Expropriations Law. The lawsuit should detail a reference to the declaration of public interest, the property or properties involved in the process, the value of the property based on an assessment among other matters for the lawsuit to be accepted by the Court.

Challenge of the expropriation procedure: The respondents will be given time to oppose the expropriation including challenging the assessment of the value done by the Costa Rican State.

Payment of compensation: Once the proceedings have unfolded and both sides have presented their arguments including evidence pertaining the actual value of the property through materials such as: appraisals, market studies, zoning valuations, property tax declarations, etc. The Judged will resolved the value to be paid to the property owner as compensation for the value and loss of their property.

Possession in favor of the Costa Rican State: Upon payment of the expropriation price, the Costa Rican state shall be put in possession by the Court of the property or properties in dispute.

Due diligence is essential to determine the existence of specific public interests over certain areas or land and may provide information for investors to avoid purchasing in these areas. Many lands involved in expropriations in the past have been areas necessary to create national parks, indigenous reserves, agricultural projects, or public infrastructure. Good due diligence could have revealed the risk of expropriation. Make sure to include this research in your due diligence prior to making an investment.

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