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Expat landlords need to know the rules of the game

by Garland M Baker on April 7, 2008

Expats in Costa Rica who rent to others need to know the law and the important exceptions. Property owners also need to know that the law is not the same for all kinds of property. Many expats prefer not to rent to Costa Ricans because they fear the local rental law due to their lack of knowledge or language ability.

On the coast, expats rent very short term — daily, weekly, and occasionally monthly — to vacationers coming to the country. Usually, they collect their rental fees in their home country or online over the Internet. Some do not declare the money they collect here nor elsewhere. This scenario is a nice source of income for many and for those who do not report the income, tax-free money — at least tax-free until they are caught.

Some expats who live here temporarily rent their homes to others when they travel for extended periods. Usually, they use a rental agent who takes care of the monthly bills and finds short-term renters for a commission. Today, that commission averages about 20 percent off the gross rental revenue. Many of the expats who fall in this group do not report the income they receive either.

Usually, the people who fall in these two categories do not mess around with contracts. Article 7 of the rental law excludes the short-term vacation rentals from the usual rules. Rental laws do apply to the second scenario, even though people rent short-term — less than three years — to other foreigners all the time and just trust the renters will honor agreements. However, it is important to note, a renter in this case can call foul and stay the legally mandated three years with the full support of the law.

Many foreigners build rental units for the exclusive purpose of renting to other foreigners and in rare cases to local people. They are concerned someone will get into their property and not leave. Here are the facts:

The “Banco Hipotecario de la Vivienda, the “housing mortgage bank,” each year determines the threshold for de interés social, so-called “social interest” property. This year the amount is 24,610,000 colons. At today’s ever decreasing exchange rate of 492 colons to a U.S. dollar this translates to a little over $50,000. Yes, any dwelling worth $50,000 or less is social interest property, and the law treats this kind of property differently than homes worth more than $50,000. Land value is included.

Here is a list of tenant rights for a house declared of social interest: 1.) A renter cannot be forced to pay any more than one month’s deposit and the deposit cannot be higher than one month’s rent. 2.) A tenant can always stop an eviction process by depositing the amount owed in court. 3.) When a rental contract ends, a property owner cannot force out a tenant unless the property owner or the property owner’s immediate family is going to move into the dwelling or the property owner intends to demolish the construction to build a new home worth at least five times more than the exisiting construction.

In the case where a tenant is evicted unjustly — for example a property owner lies about who moved into the home or does not build another one — a tenant can get the property back and get one year of rent as damages.

In the case of an eviction and the renter cannot pay, the person can always play sick or come up with other flakey excuses to postpone eviction. One older woman, some years back, delayed her eviction for several years.

Property of social interest only applies to houses, condominiums or apartments. The term does not apply to businesses or offices.

Renting property considered of social interest to anyone is full of pitfalls. And that is why many expats decline to rent to Costa Ricans. Article 74 of the rental law is another interesting exception, and one that really works for expats looking for an additional income. The article exempts up to two apartments or office units built on a property owner’s lot that share a common entrance or a common area from the normal three-year rental contract term. A property owner only needs to give a 30-day notice to a renter to leave. Social interest property does not apply in this case.

There are other exceptions to the rental law, all covered by Article 7 where the mandatory three-year rental term does not apply: short term rentals in tourist areas, temporary spaces rented for events, parking and vehicle storage areas, areas rented for outdoor advertising, dwellings rented to guards or people watching a property, and houses lent to someone where there is no remuneration.

There are two types of eviction processes in Costa Rica: a judicial process, meaning a case in court, and an administrative process.

In every judicial process, there are certain documents required to continue the case. The most important of which is an appraisal of the property by an engineer or architect to determine if the property is social interest property. If it is not, an eviction can move along quickly. In Costa Rica, this means it may take less than a year.

Sometimes a tenant can use the owner’s own estimate of value that has been filed with the municipality to have the property considered of social interest. Owners frequently low-ball values in order to reduce their municipal taxes. A fake statement of value filed when property is purchased also can come back and bite the owner.

Administrative processes apply to renters covered by one of the exceptions. For example, a tenant does not want to move out of an apartment considered Article 74 exception as explained above or even a hotel room. In this case, one must file a complaint at the security ministry in San José, and a department of this ministry decides if the police should toss out the renters.

When renting, it is important to know to whom one is renting. Despite the fears of renting to Costa Ricans, many times foreigners can be the worst renters because some of them are crooks elsewhere. Expats should check references and credit before renting to anyone.

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