Property Rights and Foreign Investment in Costa
by Marie C. Wold - Revised
January 1998 by Steve Olson and Jose M. Quiros US EMBASSY
Costa Rica previously granted generous incentives to foreign nationals
wishing to become residents. The lure of its beautiful coasts and the
warmth of the people, together with numerous scams, has unfortunately led
many Americans to make unwise and ill-investigated real estate
investments. The following is a brief synopsis designed to provide a
prospective investor with the necessary information for a more thorough
investigation of property rights in Costa Rica.
When purchasing property in Costa Rica, proper registration of the
property, and not the deed itself, is of the utmost importance (Carballo,
1995). Simply because an individual may have a seemingly "legal" title to
a property in his/her name, does not necessarily mean that he/she is the
legal owner. Like anywhere else in the world, there are scam artists who
attempt (sometimes successfully) to sell the same property numerous times.
It is therefore necessary to conduct a thorough investigation of a
prospective piece of property as outlined below.
Costa Rica has a Civil Law system rather than a Common Law system. The
practical differentiation between the two systems is that Civil Law is
much more rigid than Common Law, making the procedure frequently more
important than the substance. Such a distinction is of utmost concem when
purchasing property, for the letter of the law must be followed precisely
when registering property in order to obtain the full legal title
(Carballo, 1993). All property is registered at a central depository
called the Registro Puiblico, and
it is there that one should begin the title search for a parcel of land.
The title must be checked for any liens or encumbrances, of which there
are often scores. Alvaro Carballo, a Costa Rican real estate attorney, has
compiled a comprehensive check list of items that should be verified
before a purchase. This list is published in his book, Purchasing Real
Estate in Costa Rica: A Guidebook
(Carballo, 1993). If the initial background check is flawed and a problem
later arises, one could unwittingly lose possession of property thought to
be legally owned. Title guaranty services are now available through
Stewart Title Guaranty Company, based in San Jose. Stewart Title
advertises escrow and title guaranty services to protect the consumer
throughout the process of acquiring land, and to indemnify him/her for
losses that may be incurred. Stewart Title is a 105-year-old U.S. company
based in Houston, Texas, with over 3,500 offices in the U.S. and
The trick to buying property in Costa Rica is to reconcile the actual
property with the two documents that legally define a property. The first
is the escritura, which is the title document that describes how
the property is recorded in the Registro in words; the second is
the catastro map, which is the plat map of the property that is on
file. The problem with defining a property arises from the fact that the
escrititra may not correspond with either the catastro or a
physical survey of the property. Such a discrepancy is due to the fact
that when a transfer of property takes place, the transaction may not have
been recorded on the catastro, since a change in one does not
automatically require a change in the other (McMerty, 1995). It should
also not be assumed that the catastro map accurately depicts the
property itself. It is therefore necessary that an independent
topographical study be conducted in order to verify the property
boundaries. Any discrepancies within the two legal documents and the land
itself must be resolved before purchasing. Such investigations may be a
bit daunting, not to mention confusing, for the foreign investor. Due to
the intricacies of resolving such issues, retired Brigadier General
McMerty and Alvaro Carballo founded PropData, a companv that offers
property title investigations, legal support and financial information.
PropData is to date the only known company of its kind of Costa Rica
A reputable, diligent attorney should take care of the technical
procedures involved with a title transfer, but such attentiveness must not
be taken for granted. Prospective buyers should beware. They must monitor
and understand what is being done, as well as what is not being done. It
is therefore worth mentioning the documentation needed for the
copy of the tax receipt (impuesto territorial) proving that all taxes
and registration fees are paid as of the date of purchase (Puleo, 1995)
certificate (constancia municipal) issued by the municipal authority of the Municipality
where the property is located (Carballo, 1993)
Sufficient funds to pay all necessary taxes and
registration fees, including notary fees. Usually one half is paid by
the seller and one half is paid by the purchaser (Carballo, 1993)
that all prior mortgages, liens and judgments have been lifted (Puleo,
A notary must be present at the closing. In Costa Rica, notaries are
attomeys accepted by the Supreme Court.
Many single-home investors will be faced with the choice of whether to
buy a preexisting structure or a plot of land on which to build a house.
While there are a myriad of minor impediments that must be scrupulously
attended to, most of which are outside the scope of this paper, a few
points are worth mentioning as they may alter a buyer's decision. The law
requires that all applications for construction permits be presented by an
architect licensed by the Costa Rican Association of Engineers and
Architects. Utilizing a certified architect can be extremely costly as
well as cumbersome (Puleo, 1995). Furthermore, construction companies in
Costa Rica are not bonded, thereby greatly increasing an investor's risk.
Before building a house one would be well advised to speak to numerous
individuals who have previously built in order to gain an understanding of
the reality of the construction process, such as constant delays,
necessary personal supervision, and cost overruns.
Hazards of Property
There are three major hazards of property ownership in Costa Rica: the
uncertainties of the Zona Marítimo Terrestre, the unavoidable
reality of squatters and the possibility of expropriation. More space will
be dedicated to the Zona Marítimo Terrestre, as it is by far the
most convoluted and misunderstood hazard of property ownership.
Costa Rica is famed throughout the world for its beautiful, untainted
beaches. It is therefore no surprise that beachfront property is actively
sought by American developers, retirees and those looking for vacation
homes. The significant caveat regarding beachfront development is that it
is rarely the bargain it appears.
The principal problem is that no private ownership of beachfront
property is allowed. The Costa Rican government owns the first 200 meters
of the beach front area, known as the Zona Marítimo Terrestre, or
the Maritime Zone, and it is governed by the Ley sobre la Zona Marítimo
Terrestre (hereafter referred to as 'ZM'). The first 50 meters are
public beaches on which absolutely no construction may take place or any
concession be granted. The remaining 150 meters may be developed via
special "concessions" that are granted by a governing Municipality (ZM
Art. 35). In order for any construction to take place on this 150 meters
the area must be part of a Plan Regulador, or a special zoning
district created by the Instituto Costarricense de Turismo (ICT).
It shoud be noted that some privately owned beachfront property
does exist, due to the fact it was registered prior to the 1977 Maritime
Zone law, which has a grandfather provision providing for such ownership
(ZM Art. 6).
Before actually attempting to obtain a concession for developing rights
in the Zona Maritimo Terrestre, a foreign investor must first be in
compliance with Article 31 and 47 of the Ley Sobre la Zona Maritimo
Terrestre (Carballo, 28 June 1995 interview). Article 31 specifies
that at least fifty percent of the development capital must be Costa Rican
(ZM Art. 31). In addition, foreign investors must have resided in Costa
Rica for at least five years (ZM Art. 47).
Such discrimination concerning foreign ownership could possibly be
questioned on a constitutional basis in the Sala Constituicional,
or the Constitutional Court. Article 19 of the Costa Rican Constitution
(CRC) explicitly states that foreigners have the same individual and
social rights as Costa Ricans (CRC Art. 19). Howeverer, Article 19 does
contain ambiguity with the inclusion of the clause, "with the exceptions
and limitations that the Constitution and its laws establish," thereby
creating the window for Article 31 of the Ley de Zona MarítimoTerrestre which allows discrimination against foreign investment
(CRC Art. 19 and ZM Art. 31).
Inevitably there are methods employed by those who seek to circumvent
the restrictions of foreign ownership as established by Article 31
(Carballo, 27 June 1995 interview). A common procedure entails
establishing a Costa Rican as the "legal" owner of a parcel of land by
recording his/her name on the necessary documentation. Frequently the name
of the attorney or one of his/her staff is used as the local owner on the
concession. Needless to say such measures have a certain amount of
inherent risk. For example, in July 1995, the Municipality of Golfito
threatened to pull the concession rights of many foreign investors on the
grounds of Article 57, which states that "no person together with his/her
spouse and minor children will be able to have more than one concession"
(ZM Art. 57). The fact that many foreign owners use the same lawyers, and
hence have the same names as the legal owners of their concessions, is now
creating a major problem in the Golfito region. Such non-compliance with
the law may result in the nullification of concessions without
The first step for a foreign firm or individual interested in
developing the 150 meters of the Zona MarítimoTerrestre is
to contact the Municipality that has jurisdiction over the desired coastal
areas (ICT, 7 July 1995 interview). It is absolutely imperative that the
area proposed for development be covered by a Plan Regulador
created by the ICT and that its zoning requirements be compatible with the
proposed development project. Beware of so-called "rights of occupation"
granted by Municipalities. Such rights are only tentative and must
ultimately succumb to the zoning requirements of a Plan Regulador
when, or if, it is created by the ICT, making "rights of occupation" too
volatile and susceptible to corruption to be recommended for
If the ICT has already created a Plan Regulador in an
area, the developer must abide by the arrangements of the Plan or
risk losing the concession. If a Plan Regulador does not exist, a
firm wishing to develop the area must write a proposal for the
implementation of such a Plan. The proposal is in essence an
environmental impact statement that must include detailed information
about possible damage to the environment, proposed rights of way and other
necessary infrastructure developments. By law, the Municipalities are
unable to grant concessions in the Zona Marítimo without the
aforementioned development plan (ZM Art. 38) and without the consent of
the ICT (ZM Art. 37).
Foreign investors wishing to develop tourist areas in the Zona
Marítimo may seek tax incentives from the ICT. The granting of such
incentives are govemed by law No. 6990 of 30 July 1985 which was amended
by law No. 3293 of April 1992. Regulations for tourist areas are governed
by Decree No. 9387 of 8 January 1979 (ICT 7 July, 1995 interview). Keep in
mind that the ICT has the sole faculty to declare tourist zones and such
zones are published in the Diario Oficial (La
Gaceta) (ZM Art. 27).
An understanding of the law and its inherent ambiguities is absolutely
necessary before purchasing concessionaire rights. Obviously, one should
not heed hearsay or follow the advice of friends and neighbors. Such
behavior could result not only in the loss of the concession but also that
of improvements, such as a house, on the property without compensation
from the Municipality. The following are some principal points of the law
that must be adhered to:
Concessions cannot be granted to:
Foreigners who have not been residents for five
Companies with bearer shares
Foreign companies based abroad
A company set up in Costa Rica exclusively for
company with more than fifty percent foreign capital (ZM Art. 47)
Concessions can be forfeited for the following reasons:
Failure to apply for an extension of a concession
in a timely manner
The forfeiture of rights by the interested parties
The death or legal absence of the concession holder
with no heir
Not abiding by the established obligations of
of the concession (ZM Art. 52)
The ICT can cancel a concession for:
payment of the yearly canon or royalty
Breach of contract (e.g. use of the land for
purposes other than those expressly stated by ICT)
Violation of the ordinances of the law that grants
Impediment of the use of the public right of way
causes that this law establishes (ZM Art. 53)
The reality of purchasing a concession in the Zona Marítimo is
that ambiguities exist within the written law, so that as regulations are
created and amended, rights to property may also change. The lesson
garnered from concession holders is that there are no guarantees and there
is no foolproof way around the law. Additionally, even if a concession is
granted, there are no guarantees that the concessions will be renewed or
that the price of the concession or the yearly canon will be within
reason. The fact remains that one is not purchasing property but is simply
"leasing" it with absolutely no title. Therefore, one must be willing to
accept the risk inherent in any such endeavor. In fact, official
correspondence of 10 May 1995, from the Attomey General's office to the
Municipality of Golfito, explicitly states that these concessions are
temporary and precarious (Bulgareilli, 1995).
The greatest potential danger for land ownership in absentia and at
times even when the landowner resides on the property is the problem of
squatters. Before investing in large expanses of land or even a cottage,
or a quinta in the countryside, knowledge of the legal procedures
along with due diligence is necessary to maintain one's property rights.
Written into the Civil Code (hereafter referred to as 'CC') are numerous
passages that deal with the rights of possession that are reminiscent of
the earlier days of agricultural reforrn. Such clauses tend to favor the
small, poor land-holder by upholding de facto "squatters rights" (CC
Titulo II, Capítulo II).
Technically, squatters can only attempt to gain legal rights to a
non-maritime property by peacefully occupying non-cultivated, unimproved
agranian land over an extended period of time. The difficulty of
maintaining one's rights over those of the squatters is due to the
nebulous nature of the law and what legally passes as "non-cultivated" or
"unimproved" land. It can be equally difficult to establish the duration
of the squatter occupation, which is a crucial piece of evidence in the
eviction process. It is imperative to understand that, according to the
law, in case of doubt, "good faith" is presumed on the side of the
squatters (CC Art. 284).
There are legal steps that can be taken to rid one's land of squatters.
Procedurally, the eviction process is divided into three phases. The first
phase is the eviction of squatters during the first three months of
occupation. Such early discovery is key, as during this period one need
not go to court. Theoretically, one need only alert the local police, who
are then obliged to evict the squatters. The catch is that it can be
extremely difficult to get the police to carry out their duty, and if one
is not in the country, actual eviction is very difficult to verify. Even
though eviction within the first three months is a rather straightforward
procedure, at least in principle, early recognition can prove to be
difficult if one is not residing on the property.
The second phase is after the initial three months of occupation but
before one year. If squatters are "allowed" to squat on property for this
duration of time, one must go to the courts and start the process of
"administrative eviction" (Harris, 1995). The third phase is continued
occupation for more than one year. According to the law, squatters have
then achieved a "legal assumption," and the owners must go through an
ordinary lawsuit process. Such a process has been described by attomey
Robert Wells as "kind of like a root canal" (Harris, 1995). In order for
the court to grant the property rights to squatters, they must prove that
they have been on the land "uninterrupted," "non-challenged" and
"peacefully" for ten years.
Although there are no foolproof, preventive measures for eliminating
the problem of squatters on land owned in absentia, there are a few
somewhat helpful steps that can be taken. Firstly, the propety should not
appear abandoned and signs should be posted with the owner's name. The
most important, albeit expensive, precaution is to hire a caretaker for
the property. Great pains should be taken to secure a reliable caretaker,
as well as another individual who can monitor the caretaker; it is not
unconunon for a caretaker to squat on the land that he is paid to protect.
The easiest way to avoid such a problem is to register the caretaker as an
employee, which entails paying minimum wage and social security. One
should also demand signed receipts from the caretaker as proof of
A word of caution regarding squatters: the notion that squatters are
simple campesinos is unfortunately not always correct. There have
been numerous reports of armed, dangerous and organized squatters --
predominantly in the southern regions of Golfito and Pavones, and one such
group killed an American landowner in 1997. There have been other reports
of a armed squatters using intimidation and violence with caretakers and
landowners in order to gain control of the land. Obviously, extreme
caution should be exercised when purchasing land in Costa Rica to avoid
areas with known organized squatters. The bottom line with purchasing land
for future development or as a summer getaway is that, while it may be
less expensive than other developed resort areas, it may not be the
bargain it appears, as caretaker and attomey costs may accumulate very
An unavoidable hazard in the past has been governmental expropriation
of land, predominantly for the purposes of establishing or enlarging
national parks or indigenous reserves. While this is perhaps not the
greatest hazard associated with land ownership in Costa Rica, it has been
a very well-publicized and expensive danger due to the fact that the
government does not have a history of fair and quick reparations for the
Prior to 1995, no single law governed expropriation matters in Costa
Rica. The dispersed nature of the law, along with general judicial and
executive branch inefficiency, has contributed to the protracted nature of
many expropriation disputes, some of which have gone on for more than a
decade without resolution.
The prospects for future expropriation cases may be more favorable, for
on 8 June 1995, the Nueva Ley de Expropriation (New Expropriation
Law, hereafter referred to as NLE) No. 7495, was signed into law. The
stated purpose of the legislation is to replace with a single law the
several laws that allow the expropriation of private property by any state
institution. The new law seems aimed primarily at ensuring that
expropriations take place only after full and adequate payment is made,
regardless of the nationality of the holder of such property. Also, while
an earlier bill was aimed at making expropriation easier, the new law
imposes obligations and restraints on the state and its institutions
(Quiros, 1995). A few of the more important provisions of the new law are:
(1) the return of the property within ten years if it is not used for the
purpose for which it was intended (NLE Art. 16); (2) onlv one month is
granted to the tax office to do an appraisal of the property to be
expropriated (NLE Art. 21); (3) payment in cash is required unless
otherwise agreed upon (NLE Art. 47); (4) only six months are allowed to
fully complete registration of the property (NLE Art. 20); and (5) local
and international arbitration are contemplated (NLE Art. 27). The
possibility of international arbitration could permit cases to be brought
before the International Center for the Settlement of Investment Disputes
(ICSID). (Quiros, 1995).
In sum, it appears that if expropriation of land is to occur in the
future, the owner may be in a better position than in the past to receive
a prompt and equitable settlement. It must be stressed, however, that the
new law has yet to be tested and it remains to be seen whether it will
prove to be a dramatic improvement over the prior laws.
Blanco, Arturo. Interview of 6 July 1995.
Brennan, Peter. "What to Expect when Investing in Miniscule Costa Rica
Market," The Tico Times, 17 March 1995.
Bulgarelli, Victor. Letter to Consejo Municipal de Golfito, 10 May
Carballo, Alvaro. "The Golden Rules of Buying Real Estate," The Tico
Times, 17 March 1995.
Carballo, Alvaro. Purchasing Real Estate in Costa Rica. Mundo
Gráfico, San José, Costa Rica, 1993.
Carballo, Alvaro. Interview of 28 June 1995.
Constitucion Politica de la Republica de Costa Rica 7 November
Código Civil de Costa Rica
Fundacion Internacional de Derecho Agrario Comparado, La
Propiedad, San Jose: Editorial Juricentro, 1983).
Harris, Brian. "How to Avoid Landowners' Worst Nightmare: Squatter
Invasion," The Tico Times, 17 March 1995.
Instituto Costarricense de Turismo (ICT), Interview of 7 July
La Asamblea Legislativa de la Republica de Costa Rica, Decreta:
Expropriaciones, No. 7595, 8 July 1995.
Lawrence International Publication. Official Guide to Living and
Investing in Costa Rica, 1995.
Ley Sobre la zona marítimo terrestre y su reglamento. 1st ed.,
San Jose, Costa Rica, IJSA, 1991.
McMerty, John. "The Realities of Real Estate Transactions," Costa
Rican Business Journal, Issue 1, 1995.
McMerty, John. Interview of 11 July 1995.
McMerty, John. "The Realities of Real Estate Transactions, Part II,"
Costa Rican Business Journal, Issue 2, 1995.
Phelps, William. "Business Risks, Opportunities in Costa Rica," The
Tico Times, 17 March 1995.
Puleo, Christine. "Step by step through the Real Estate Process: What
you need to do, Pay," The Tico Times, 17 March 1995.