What Should I Look For When Buying Or Selling Property In Costa Rica? Understanding The Importance Of Real Estate Due Diligence

Investing in real estate in Costa Rica is more than choosing a property and negotiating the terms and conditions to close on the title. Many investors ignore one of the most important steps when buying real estate: doing due diligence on the land, house, concession, or project being purchased. Under civil law, the concept of “due diligence” stands for “reasonable care”, which means gathering as much information as possible about a property to make a smart, safe, and fully informed decision.

Real Estate 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 information, documentation and data come in many shapes and formats and mostly in Spanish which does not make it easy to comprehend; therefore, normally, the information uncovered is presented in a written report or brief containing a summary of all the key points needed to make an informed decision.

Below is a list of some of the key points that a real estate due diligence report may contain and/or analyze:

• Analysis of the property’s title as certified by the Public Registry of Costa Rica (PRCR).
• Review of the property’s survey, area and its increase or decrease in value over time.
• Review of the title transfer chain as recorded in the PRCR.
• Property site inspection to determine current status, such as boundaries and occupancy. For this a surveyor shall be required.
• Research of property tax status as recorded by the local municipality or Tax Agencies in the case of solidarity luxury tax.
• Research with SINAC (National System of Conservation Areas) to determine whether the property is located in a national park and/or a protected area.
• Certification of soil use by the local municipality to determine the property’s legally permitted uses. This requirement is especially important to build, develop land and/or start a business.
• Existence of public services and utilities, such as water, electricity, internet, and telephone lines.
• Assessment of title restrictions, such as easements, reserves, liens, encumbrances, and environmental issues.
• Availability of construction permits and blueprints.
• Review of homeowners’ association by-laws, meetings, budgets, special assessments, and owner/property good standing.
• Research of pending legal and administrative proceedings against the property.
• Certification of good standing of the companies involved in the transaction.
• Review of the corporate tax status of the companies involved in the transaction.
• Review of co-ownership, joint tenancy, usufruct, possession and other third-party rights.
• Certification of good standing with the Social Security Administration of the companies or parties involved in the transaction.
• Payment of all property taxes, luxury taxes and capital gains taxes.

Be sure to ask your real estate lawyer about the real estate due diligence service and request a summary or report of the findings. Invest in this information!

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