The Importance of Due Diligence in Real Estate
Conducting Due Diligence Before Acquiring Real Estate, Whether It Is an Existing Property or Land for Development, Helps Identify Potential Legal, Technical, or Financial Issues, Ensuring That the Buyer Makes Informed Decisions and Minimizes Associated Risks to Guarantee a Secure Investment.
Our Services:
- Title Due Diligence
- Property Due Diligence
- Cadastral and Topographical Due Diligence
- Public Services Due Diligence
- Environmental Due Diligence
- Municipal Due Diligence: Taxes and Land Use
- Condominium Due Diligence
- Key Steps in Buying Property in Costa Rica
Are You Looking to Buy or Sell a Property? Schedule a Free Consultation with Our Specialists and receive personalized assistance to address all your real estate law-related questions.
Property Registry Review
This service is essential to ensure that the property complies with all registration requirements for a safe transfer of ownership. At this stage, we focus on analyzing and verifying the legal validity of the property’s registration with the National Registry, ensuring that no irregularities exist that could compromise the transaction.
1. Is the Registered Owner an Individual or a Corporation?
The National Registry certifies whether the property is registered in the name of a Natural Person or a Corporation, and provides key details regarding ownership.
If the Registered Owner is a Natural Person:
In addition to verifying ownership, we include the following additional checks:
- Identity and Legal Capacity:
- We confirm that the owner has full legal capacity to carry out the sale.
- We validate that the owner’s identification number matches the one recorded in the National Registry.
- We verify whether the registered owner is a Costa Rican citizen or foreigner and review any additional requirements based on their immigration status.
- Personal Restrictions:
- We check for any liens, lawsuits, or other legal restrictions that may limit their ability to sell the property.
- Marital Status and Property Regime:
- If married, we determine if the property is subject to the community property regime, requiring spousal consent for the sale.
- In the case of separate property, we confirm this condition.
- Additional Declarations:
- We request a sworn statement from the seller ensuring the property is free from unregistered encumbrances, occupants, or legal disputes not visible in public records.
If the Registered Owner is a Corporation:
We conduct a thorough analysis to ensure the corporation has the legal capacity to carry out the transfer:
- Review of Corporate Bylaws:
- We confirm that the bylaws allow the transfer of real estate and check if there are specific conditions required for authorizing the transfer.
- Verification of Legal Representation:
- We identify the members of the Board of Directors, Managers (Agents) authorized to represent the corporation, determining whether they can sign individually or require joint authorization from other representatives.
- If representation is exercised through a power of attorney, we verify that it is duly registered with the National Registry and valid to avoid potential fraud.
- Identification of Shareholders:
- We review the Shareholder Register to confirm the current shareholders and whether they hold the necessary majority to approve the sale.
- Review of Board of Directors’ Minutes: Confirm that decisions regarding the sale are duly recorded and comply with the procedures established in the bylaws.
2. Why is it Important to Know the Property’s “Transactional History”?
The analysis of the property’s history includes a detailed review of past recorded transactions to identify irregularities such as:
- Recent or rapid changes in ownership that may indicate potential fraud.
- Sales conducted through special powers that are not properly registered or show inconsistencies.
- Frequent variations in the registration of rights, encumbrances, or annotations on the property.
This analysis aims to detect atypical behaviors related to real estate fraud.
3. Does the Owner Have Full Rights Over the Property?
We verify that the registered owner holds full property rights, including:
- Absence of undisclosed co-ownerships.
- No third-party possession rights.
- Absence of usufructs, easements, or other limitations that could affect the full use and enjoyment of the property.
Property Due Diligence
Upon completing the property registry due diligence, our team will focus on the specific characteristics of the property, conducting a detailed analysis of the information recorded in the National Registry to identify any potential restrictions or conditions that may affect its use or value.
1. Does the Property Have Encumbrances?
An encumbrance refers to any legal claim, charge, or right that affects the property, restricting its ability to be freely transferred or sold. Identifying encumbrances is critical to ensure a secure and clean transaction.
Common Types of Encumbrances in Costa Rica:
- Mortgages: Legal claims against the property to secure a financial obligation. In the event of default, the creditor may foreclose on the property.
- Liens: Court-imposed restrictions that prevent the sale or transfer of the property until a legal dispute is resolved.
- Court Orders: Recorded judgments or legal proceedings that can affect the ownership or title of the property.
- Usufructs: Rights granted to an individual or entity to use and benefit from the property, while the ownership remains with another party.
- Real Estate Leases: Lease agreements that may limit the owner’s ability to dispose of or sell the property during the term of the lease agreement.
Identifying these encumbrances is crucial to assess the legal standing of the property and ensure that it is free from any liabilities that could affect its value or transferability.
2. Does the Property Have Easements?
An easement is a legal right that allows a person or entity to use a portion of the property for a specific purpose, even if they are not the owner of the land. It is essential to identify any existing easements, as they may impose limitations on the property’s use.
Common Types of Easements in Costa Rica:
- Right of Way Easement: A right granted to allow passage through one property to access another property that may be landlocked or lacks direct access to a public road.
- Water Rights Easement: A right to convey water through a property for the benefit of another, such as for agricultural or residential use.
- Utility Easements: Rights granted for the installation, maintenance, or repair of utility services (such as electricity or telecommunications) over a property.
- Conservation Easement: A right established to protect natural resources, ecosystems, or specific areas of environmental interest on the property.
Understanding the existence and scope of any easements is essential as they can impact the development and use of the property.
3. Are There Existing Lease Agreements on the Property?
In Costa Rica, if a property for sale has an active lease agreement, the new property owner is legally required to honor the terms of the lease until its expiration.
Key Considerations:
- Lease Term: It is important to determine the remaining term of the lease to assess the long-term use of the property.
- Lease Terms and Conditions: Review the terms of the lease agreement, including rental amounts, obligations of both the landlord and tenant, and potential for automatic lease renewals.
- Tenant Rights: Costa Rican law provides protections for tenants, and understanding the implications of assuming a property with an active lease is crucial in determining the buyer’s rights and obligations.
Cadastral and Topographical Due Diligence
This process aims to ensure that the property physically matches the information recorded in the National Registry and the cadastral map.
1. Verification of Boundaries and Coordinates:
How can you be sure that the land you were shown is exactly the land you’re going to purchase? Unfortunately, there are cases where a client is led to buy a piece of land in a similar location, but not the one that was initially presented. This could result in purchasing a property with less favorable characteristics or different conditions than expected.
To prevent such situations, the public notary and the professional surveyor work together to verify that the dimensions, boundaries, and location of the land correspond exactly with the official records and the description initially provided.
2. Boundary Disputes:
We analyze whether the property encroaches upon or is encroached by neighboring lands, which could lead to disputes over property boundaries.
3. Access and Geographic Location:
We confirm whether the property has direct access to a public road and whether its location matches the official records.
4. Cadastral Status Review:
We ensure that the cadastral map is duly registered and accurately reflects the physical characteristics of the property.
Infrastructure and Utility Connection
- Potable Water:
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- AyA: Request for certification from the Costa Rican Institute of Aqueducts and Sewers (Instituto Costarricense de Acueductos y Alcantarillados).
- ASADA: Verification with the corresponding Water Management Association in rural areas.
- Well: Confirmation of a valid water concession issued by the Ministry of Environment and Energy (Ministerio de Ambiente y Energía, MINAE).
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- Electricity | Telecommunications:
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- Request for certifications from the Costa Rican Electricity Institute (ICE) or the local distributor company.
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- Solid Waste Collection:
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- Verification of service coverage through inquiries to the corresponding municipality.
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Key Considerations Based on Property Type:
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- Land: For land, it is essential to obtain certifications confirming the availability of water and electricity, as they are necessary requirements for obtaining construction permits.
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- Built Properties: For properties with existing buildings, we verify that essential services are operational and that connections are legal. This is critical, as buildings without access to basic services are considered illegal and may be subject to municipal demolition orders.
Environmental Due Diligence
- Protected Areas:
- Confirm whether the property is located within a national park, wildlife refuge, or conservation area supervised by the National System of Conservation Areas SINAC.
- Identify specific restrictions that may prohibit construction or activities within the property.
- Environmental Viability Management:
- Determine if the construction project requires an Environmental Viability certification issued by the National Environmental Technical Secretariat SETENA, which includes an environmental impact analysis.
- Manage the preparation and submission of the necessary environmental studies to obtain the corresponding approval.
- Water Resources Review:
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- Verify the existence of springs, rivers, or other water sources within the property.
- Confirm that the use of these sources is supported by concessions issued by the Ministry of Environment and Energy MINAE and that there are no restrictions limiting their use for the project.
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- Forest Coverage and Logging Permits:
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- Review whether the property includes forested areas protected under the Forestry Law.
- Manage permits if intervention, logging, or tree removal is required for the development of the project.
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- Wetland Identification:
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- Determine if the property includes protected wetlands, as these are strictly regulated and may limit or prohibit development in those areas.
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Municipal Due Diligence: Taxes and Land Use
1. Is the Property’s Real Estate Tax Payment Up to Date?
As real estate attorneys, we conduct a thorough verification of the property’s **Real Estate Tax** status. This tax applies to both undeveloped land and built properties, and any outstanding debt will be transferred to the new owner.
To ensure the property is in good standing with this tax obligation, we take the following actions:
- Request for Municipal Certification: We manage the request for an official certification from the corresponding municipality confirming the absence of tax liabilities.
- Analysis of Potential Penalties: We verify whether there are any penalties or fines related to previous non-compliance with tax payments.
- Review of Payment History: We validate the payment history recorded by the municipality to confirm that no inconsistencies exist that could affect the transaction.
These actions ensure that you will not inherit unexpected tax liabilities, allowing the property purchase to proceed without risks related to municipal debts.
2. Does the Zoning Allow for the Development I Plan to Undertake on the Property?
We verify that the **Land Use** of the property is compatible with the project you plan to develop. This certification, issued by the corresponding municipality, details not only the activities allowed on the land (such as residential, commercial, agricultural, or mixed uses), but also critical technical aspects for development, such as the maximum buildable area, permitted height, number of floors, the number of residences allowed, and specific authorized activities.
To ensure that the planned project complies with local regulations, we take the following actions:
- Management of Land Use Certification: We request the official certification from the municipality, which includes all the technical specifications and applicable regulations for the property.
- Review of Technical Parameters: We analyze the limitations established in the certification:
- Maximum Buildable Area.
- Permitted Height and Number of Floors.
- Residential Density (Number of Permitted Residences).
- Authorized Activities (Residential, Commercial, Mixed, etc.).
- Project Compatibility Assessment: We compare the terms of the certification with the design and scope of your project to confirm that it complies with municipal regulations.
Condominium Due Diligence:
Due diligence for properties within a condominium focuses on verifying the condominium’s regulations to identify usage restrictions, ensuring the property is free from condominium-related debts, reviewing the condominium’s registry status, and evaluating whether there are any legal or financial disputes related to the condominium’s administration.
- Review of Condominium Rules and Regulations:
- We analyze the condominium rules to identify usage restrictions, such as structural modifications, permitted activities, community regulations, and rules for rentals or commercial activities.
- Verification of Property Debts:
- We request certifications to confirm whether the property is up to date with both regular and special maintenance fees.
- We check that no outstanding debts exist that the buyer would be responsible for upon acquiring the property.
- Review of Fees and Financial Obligations:
- We confirm the amount of the current maintenance fees and verify whether any approved projects could lead to special assessments.
- We review the condominium’s financial statements, if available, to assess its financial sustainability.
- Legal and Registry Verification of the Condominium:
- We verify that the condominium is duly registered with the National Registry and that common areas and condominium rights are legally established.
- We review the property title to confirm that no irregularities or legal limitations exist.
- Investigation of Legal Disputes or Conflicts:
- We consult the condominium’s legal status to identify any pending lawsuits, disputes between owners, or issues with third parties that could affect the stability of the condominium regime.
Key Steps in Purchasing Property in Costa Rica
- Due Diligence: We conduct a series of legal, registry, and administrative inquiries to ensure that the property complies with all legal requirements (Learn more).
- Opening and Coordination with Escrow: We facilitate the opening of an escrow account with an authorized entity for the secure handling of the funds necessary for the transaction.
- Drafting the Option to Purchase Agreement (If Applicable): We draft an option to purchase agreement, in case the parties need to establish preliminary conditions or secure the negotiation while the steps prior to the purchase agreement are completed.
- Drafting the Public Deed of Sale: As public notaries, we prepare the public deed, an essential document that formalizes the transfer of the property, detailing all agreed-upon conditions and ensuring legal compliance.
- Signing the Public Deed of Sale: As authorized public notaries in Costa Rica, we handle the formalization of the legal act through the signing of the corresponding public deed. Our team verifies the identity of the parties, the validity of the granted powers of attorney, and compliance with legal provisions.
- Submission and Registration in the National Registry: We present the deed before the National Registry and ensure that the property is properly and definitively registered in the buyer’s name. Additionally, we ensure compliance with all legal and administrative requirements established.
- Property Certification: We deliver the registry certification that certifies the buyer as the legitimate owner of the property, completing the process with full legal security.
AristaLegal Real Estate Services
At Arista Legal, we offer a wide range of specialized real estate services, tailored to meet the needs of our clients in Costa Rica:
