Buying Property in Costa Rica: Before You Pay a Deposit

1. Before a property deposit becomes non-refundable

Q: A foreign buyer finds a home they like and is asked to pay a deposit. What should happen next, and which checks should be completed before money becomes non-refundable?

Terry Steele:

My first recommendation is simple: the legal structure should be in place before the buyer’s money becomes exposed.

A foreign buyer should involve experienced Costa Rican real estate counsel before signing a purchase and sale agreement that makes a deposit non-refundable or otherwise limits the buyer’s rights. This is especially important for U.S. and Canadian buyers because a Costa Rican transaction does not necessarily work the way a purchase does in the United States or Canada.

The person helping sell the property is not necessarily the professional whose job is to protect the buyer.

Terry Steele

I am particularly cautious when a buyer is told things like, “You need to wire the deposit today,” “This is the standard contract,” “Everyone signs it this way,” or “The lawyer can review it later.” Those statements may ultimately have reasonable explanations, but they are not substitutes for documentation.

For many transactions, I prefer a 30-day contractual due diligence period even though a straightforward legal review can often be completed within about seven to ten days once the required documents are available. The extra time provides a buffer if we are waiting for municipal information, water documentation, condominium records, corporate records, surveys, engineering reports or responses from the seller.

Before the deposit becomes non-refundable, counsel should normally investigate title, ownership, liens, annotations, easements, legal access, water, land use, corporate ownership, condominium issues, taxes, occupancy, tenants, caretakers, labor and CCSS exposure, the physical condition of the property, and exactly what is included in the sale.

I also generally prefer a properly documented U.S.-based escrow arrangement where the buyer’s funds are held at an FDIC-insured U.S. bank, subject to the actual account structure and applicable deposit-insurance rules.

The key question is not simply whether a deposit has been paid. It is whether the buyer still has a clear contractual right to terminate and recover the deposit if due diligence reveals a material problem.

2. Title, ownership and what is actually included

Q: How do you verify that the seller can transfer what is being offered? Please explain the practical significance of title, ownership, liens or annotations, and when corporate ownership or condominium documents need a closer look.

Terry Steele:

We normally begin with the Costa Rican National Registry.

We confirm the registered owner and review recorded mortgages, liens, judicial annotations, easements and other restrictions. We also examine the cadastral information and compare it with what the buyer believes is being purchased.

I sometimes tell buyers there can effectively be four versions of a property: the property the buyer was shown, the property inside the fence, the property shown on the cadastral plan, and the property legally registered in the National Registry.

Ideally, all four are the same. Sometimes they are not.

A driveway, garden, retaining wall, parking area, pool, access road or piece of land that appears to belong to the property should not simply be assumed to be legally included.

The current ownership structure also matters. Is the property owned personally, by an S.R.L., by an S.A., or by another entity?

If a company owns the property, we investigate the company as well as the real estate. There is also a major difference between purchasing real estate from a company and purchasing the shares or quotas of the company that owns the real estate. Buying the company may also mean acquiring its history and potential liabilities.

Condominiums require another level of review. I want to understand the regulations, dues, arrears, special assessments, assembly decisions, rental restrictions, parking and storage rights, common-area rights and any disputes that could materially affect the buyer.

Coastal property deserves special attention as well. What is marketed as beachfront property may involve a concession regime rather than conventional titled ownership. The buyer should establish exactly what legal right is being transferred before treating it like an ordinary registered-property purchase.

3. Legal access, water and the right to use the property

Q: How can a buyer establish that a property has both legal and practical access, an acceptable water supply, and permission for the use they have in mind? What evidence matters beyond a seller’s or agent’s assurances?

Terry Steele:

These are three areas where documentation matters more than assurance.

A road that physically reaches the property is not necessarily legal access. If access depends on an easement, we verify its existence, registration, location and terms. “Everyone has always used this road” is not the same thing as having an enforceable legal right to use it.

The same applies to water. Seeing water come out of a faucet during a showing does not, by itself, answer the legal or development questions. Depending on location, the provider may be AyA, an ASADA, ESPH, a municipality or another authorized provider. The documentation should support the buyer’s intended use, especially for vacant land, new construction, subdivisions or projects that will increase water demand.

The buyer’s intended use is critical. There is a big difference between buying a house to live in and buying a property with plans to add four apartments, operate short-term rentals or build additional structures.

Costa Rican municipalities issue the Certificado de Uso de Suelo, which addresses whether the existing or proposed use complies with applicable land-use rules. A property can have valid title and still be unsuitable for what the buyer wants to do with it.

I also strongly recommend an appropriate independent inspection by a qualified professional incorporated and habilitated with Costa Rica’s CFIA when the condition of the improvements is material to the transaction.

I have seen buyers discover major problems with roofs, walls and other structural components shortly after closing. At that point, the buyer may be facing substantial repairs, expert reports and potentially lengthy litigation.

That applies to new construction and condominiums too. New does not mean defect-free.

A developer’s warranty is not a substitute for an inspection. Finding a defect before closing gives the buyer leverage. Finding it after closing may give the buyer a lawsuit.

Terry Steele

4. Purchase agreements, due diligence and escrow

Q: How should the purchase agreement, due-diligence contingencies and escrow arrangements work together? What should a buyer understand about deposit release, deadlines and the ability to withdraw if a material problem is found?

Terry Steele:

I view the purchase agreement, due diligence and escrow as one coordinated risk-management system.

The purchase agreement defines the parties’ rights. The due diligence provisions protect the buyer while the investigation is underway. The escrow instructions control the money.

Those three pieces should work together.

The agreement should clearly address the property being purchased, the price, the deposit, where the deposit is held, when funds can be released, the due diligence period, seller document-delivery obligations, the closing deadline, buyer and seller obligations, conditions to closing, cure rights, termination rights and the procedure for returning the escrow deposit.

It should also clearly identify what is included in the sale.

That is a surprisingly common source of disputes.

Words like “furnished,” “turnkey” or “as shown” can be dangerously vague. If the buyer expects the sale to include furniture, appliances, window treatments, decorative wall coverings, light fixtures, televisions, air-conditioning units, water pumps, pressure tanks, generators, pool equipment or other personal property, those items should be identified in writing.

For furnished transactions, I prefer a detailed inventory attached to the agreement, with photographs where appropriate.

If an item matters to the buyer, put it in writing.

I also recommend a final walkthrough shortly before closing to confirm that the property is in the agreed condition, that the included items remain, that no significant new damage has occurred, and that agreed repairs or seller obligations have been completed.

One of the worst positions for a buyer is an ambiguous PSA combined with a deposit that has already been released to the seller.

The goal is not to make the contract unnecessarily complicated. It is to make the consequences clear before there is a problem.

5. When a property purchase needs to pause

Q: Could you walk us through one anonymized transaction where your findings led a buyer to pause, renegotiate or walk away? What looked fine initially, what did the investigation reveal, and what changed?

Terry Steele:

Without identifying the parties, I have had transactions where the property initially appeared completely straightforward.

The buyer liked the property. There was visible access. Utilities were functioning. The improvements appeared normal. The seller was ready to proceed.

Nothing during the showing obviously suggested the transaction needed to stop.

Once the legal and practical investigation began, however, questions arose concerning matters such as infrastructure and access that required additional documentation.

At that point, our advice was not necessarily, “Do not buy this property.”

It was, “Do not allow the transaction to become irreversible until we have the answer.”

That distinction is important.

Due diligence does not always produce only two answers: buy or walk away.

Frequently there is a third answer: pause.

The seller may need to produce more documentation. A title, access or permit issue may need to be clarified. An engineer may need to inspect something. The parties may need to amend the agreement. The closing date may need to be moved. The price or other commercial terms may need to be renegotiated.

The purpose of due diligence is not to find reasons to kill a transaction. It is to discover important facts while the buyer still has choices.

Terry Steele

A problem discovered during due diligence is usually a business decision. The same problem discovered after closing can become litigation.

6. Choosing independent counsel and checking inherited obligations

Q: What five questions should a buyer ask when engaging independent Costa Rican counsel? Please include how to clarify whom the lawyer represents and how to spot a potential conflict of interest.

Terry Steele:

Who exactly do you represent?

The buyer should receive a clear answer. A foreign buyer should also understand the difference between the notary’s role and independent buyer’s counsel.

Under Article 35 of Costa Rica’s Notarial Code, a notary acting as a public faith officer must act impartially and objectively toward the people participating in the instrument. Independent buyer’s counsel has a different role. That lawyer should be looking specifically at the transaction from the buyer’s perspective.

What exactly is included in your due diligence?

A title search and due diligence are not the same thing. Ask whether the review includes title, ownership, cadastral information, access, liens, corporate ownership, municipal matters, land use, water, condominium issues, tenants, caretakers, CCSS issues, seller authority and the buyer’s intended use.

Will you review and negotiate the PSA before my deposit becomes non-refundable?

Timing matters. The attorney is far more useful while the buyer still has leverage.

Are you or your firm receiving compensation from another participant in the transaction?

That could include the seller, developer, broker, lender, escrow provider or another participant. A business relationship does not automatically create an improper conflict, but the buyer should understand who is being paid by whom.

What could prevent me from using this property the way I intend?

That question forces the investigation beyond title.

Existing tenants, caretakers and employees

For occupied properties, I would add two more practical concerns.

A purchaser should not assume that buying the property gives the new owner an immediate right to remove an existing tenant. Costa Rica’s rental law generally establishes a minimum three-year lease term for urban and suburban leases, and the statutory notice and renewal rules matter.

If the buyer expects vacant possession, that should be an express closing condition.

Caretakers and employees also need to be reviewed. A caretaker, gardener, domestic worker or maintenance person may create employment and CCSS issues depending on the facts. Before closing, I want to know who employs the person, how long they have worked there, how they are paid, whether they have been reported to CCSS where required, and whether salary, vacation, aguinaldo, social-security contributions, severance or other obligations need to be addressed.

The buyer should not discover after closing that someone who has been taking care of the property for years believes the new owner has simply become the new employer.

Assumptions worth questioning

My overall advice to foreign buyers is this:

• Do not confuse a clean Registry search with complete due diligence.
• Do not confuse the person selling the property with the professional protecting you.
• Do not confuse physical access with legal access.
• Do not confuse running water with documented water availability.
• Do not assume a new building is defect-free.
• Do not assume “furnished” means everything you saw during the showing.
• Do not assume existing tenants or caretakers disappear because ownership changes.
• And do not assume a Costa Rican real estate purchase works exactly like a purchase in the United States or Canada.

For me, the central questions are:

• Am I buying what I think I am buying?
• Can I legally and practically use it the way I intend?
• What liabilities or relationships am I taking on?
• And if something material does not check out, does my contract still allow me to get my money back?

Those questions should be answered before the buyer becomes irreversibly committed.

Official resources for further research

Terry supplied the following starting points. The documents needed for a purchase depend on its location, ownership structure and intended use.

• Registro Nacional: registered property and corporate information.
• Costa Rican legal information system (SCIJ): legislation, including the Notarial Code and urban and suburban rental law.
• Instituto Nacional de Vivienda y Urbanismo (INVU): planning and urban-development resources.
• Colegio Federado de Ingenieros y de Arquitectos (CFIA): information about engineering and architecture professionals.
• Caja Costarricense de Seguro Social (CCSS): social-security and employer information.

Additional editorial resource: For the U.S. escrow discussion, the FDIC explains pass-through deposit-insurance requirements. Insurance depends on the account structure and applicable rules; using an insured bank does not by itself establish coverage for every buyer’s full deposit.