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How to acquire a property through a corporation

When tourists come to Costa Rica, a lot of them are simple marveled by the beautiful natural views and they decide to by a property with the intension to live their future with their family.

This phenomenon has increased considerably within the last years and it is concreted in the purchase of thousands of properties abroad the coastline and the Central Valley.

However, tourists have, usually, a lot of difficulties when they decide to go back to their original homes. Though, an alternative to these persons is to buy a property using a corporation.

Today, is quite common that properties like houses, condos, offices, belong to corporations. Is because that, when a person acquires the total stock (shares) of the corporation, practically becomes the owner of the property. The only step to take is having the shares endorsed into his/her name, and change the Board of Directors of the corporation. This way of closing is widely used in Costa Rica, to sell or to buy Real Estate, with great advantages, especially for foreigners.

Advantages. Within these advantages, Francisco Molinero, lawyer and Notary Public of LandCo, a company offering real estate legal services, detailed the reasons why the foreigners prefer to buy a property using this method:

1. First of all, it is extremely difficult for those who reside outside the country to buy a property from the legal point of view because of the complicated procedures they have to face and or in order to find a trustable person who can represent them. Their best option will be have any appointment with a Costa Rican Consulate in order to triangulate the procedure, but this is not quite easy always since not all Consulates have the Notary Public capacity.

2. Secondly, a lot of foreigners do not like to have their names published in public records, like the Public Registry. Buying the shares of a corporation will guarantee its condition of anonymous, because the property is registered in the name of the corporation and not the real buyer.

3. A legal method, usually used by a lot of investors, is to register the properties into a corporation name to avoid the consequences of possible sues, judicial procedures, etc, against them, because, in almost all these kind of procedures, the goods registered into third party corporations are not affected.

4. Open a bank account in Costa Rica could be extremely difficult for a foreigner. However, with the acquisition of a corporation, this procedure becomes very easy, since the banks will only request the change of the Board of Directors of the corporation plus other minor requirements.

5. The acquisition of cellular lines is also an advantage using a corporation as the applicant.

6. By these means, a lot of foreigners save a lot of time, money and avoid translating themselves each time a transaction is needed.

Because all these advantages, a lot of buyers, including Costa Ricans, buy properties through a corporation.

Recommendations. However, the benefits of buy a property through a corporation takes some another issues to bear in mind, quoted Molinero.

"Either the client and the consulting lawyer, must perform a due diligence over the corporation in order to verify there are no procedures against it, no debts with public or private financial institutions, that the corporation is up to date with the property taxes and the Yearly Income Tax".

The lawyer said also, that it is needed to verify that the corporation does not own any other property or goods related to it, since this could carry out further judicial problems to the new shareholder.

Lastly, acquiring a property by this method does not avoid the new shareholder to make the Tax Revenue Declaration to be made at the end of each fiscal year, point to be considered by any Costa Rican or foreigner buying properties in Costa Rica with this option.

From La Nación, June 18, 2005, Metro Cuadrado.

Update of the value of the lands in Costa Rica

The update of the value of the lands in Costa Rica is scheduled to initiate next November, confirmed Marietta Montero, Director of the "Órgano de Normalización Técnica del Ministerio de Hacienda" (Technical Normalization Entity, Ministry Of Treasure).

A Canadian company will be the one in charge of this particular job. However, Montero said that she can not give any company name yet because there are still pending some procedures to be accomplished at the "Contraloría General de la República" (State Control Office).

The value of the constructions is updated each two years, the last one was on 2005; though, only 25% out of the total, Montero quoted.

According to a study regarding the foreign investment in Real Estate in Costa Rica, published by the Central Bank last June, 2006, the real value of the terrains has not been updated since 1997.

The actualization program seeks the improvement of the legal security over the ownership of properties, according to the Vice-Ministry of Treasure, Jenny Phillips.

Implications. The update in the value of the properties will be helpful for: determine the value of the properties, the value of the transfer tax and the value of the property taxes, plus, as a reference for appraisals executed by the Government or private institutions.

With this information, Phillips quoted; we will be able to create value platforms.

These platforms will clearly indicate the specific value of a property according to the conditions of the area in which it is located.

Such information will be translated to the local Municipalities, so the property taxes to be paid by the owners are updated according to these values.

The contributors, said Phillips, have the right to declare the value they want; however, the Municipalities will have the right to make their own appraisal and then charge according to such appraisal.

The property tax is 0.25% for each million colones.

The Government sent a project to the Congress so the properties with a value exceeding the one hundred million colones, pay an additional 0.25%.

The transfer tax, instead, is charged each time a property is transferred by any reason, either the properties are recorded or not at the Public Registry. This transfer tax is paid equally by the seller and the buyer.

The base of this tax is the higher amount between the value declared at the transfer deed and the one recorded at the Public Registry.

Taken From La Nación, September 18, 2006, page 31.

Important differences in concepts.

The Offer to Purchase versus the Option to Purchase and Sale Agreement. So many clients (and brokers sometimes) usually make the mistake to think a simple offer to purchase is the same as an Option to Purchase and Sale Agreement.

The Offer.

The offer to purchase is more like an intentions letter, usually drafted by the broker in which a potential buyer makes an offer to the seller and the seller accepts making a small payment, always around five hundred to one thousand dollars, of course it all depends on the value of the property. This is a simple document, one page, without formalities. It is only to secure the first negotiations in a real estate transaction for five or more days.

This document, while executed in good faith, it will become hardly valid and/or enforceable, especially if it is written in a very simple way (to small, no signatures authenticated, etc).

Though it is a good way to secure a deal for some days, it is always recommendable for the parties to enter in what it is usually called the Option to Purchase and Sale Agreement.

The Option to Purchase & Sale Agreement (OP&SA)

This document is executed by the buyer's attorney and it is deemed to be valid and legally enforceable for the parties with the formalities that are necessary in case of troubles in the future.

It has to have at least the following clauses:

Legal description of the appearing parties.
Legal description of preliminary concepts.
Legal description of the property.
Payment schedule and reimbursement schedule.
Escrow Agreement clause (only if applicable).
Title inspection period (only if applicable)
Title Due diligence period.
Closing Date indication.
Notifications.
Date of signature.

It is important to mention, that this document has to be executed in two copies, exactly the same for evidentiary purposes, one for the seller and one for the buyer, both copied duly authenticated by a notary public.

The OP&SA has to actually describe from A to Z the complete scheme of the deal, so in the future, no misinterpretations are made by anybody, seller or buyer, or their attorneys!

While is almost impossible to foresee all troubles, it is better to keep the parties well known about the deal so everything goes smooth at the closing table.

And do not forget the GOLD RULE: DO NOT SIGN ANYTHING UNTIL YOU ARE ADVISED BY YOUR OWN LAWYER. Do not let the rush impulse you to make decisions, specially in Real Estate.

Have a nice closing!