Custom document protects buyer and seller
Finding a good deal on real estate can be harder to do these days in Costa Rica with land prices sharply increasing.
Once found, lock it up with an option contract, and register it with the Registro Nacional. This step puts a legal lien on the property so the seller cannot weasel out of the deal if another buyer with more money shows up. Double dealing occurs everyday in a fast-moving real estate market.
There are other good reasons to option a property before buying it, especially if there are structures on it like a house. Home inspecting engineers are now available here to check out buildings. Inspections to disclose defects in a property that could materially affect its safety, livability, or resale value can save money in the long run.
Most topographical surveys of real estate in Costa Rica are outdated. Verifying a property’s boundary line is important. There are so many land disputes these days, not verifying the boundaries is poor judgment on the part of a buyer.
Options protect buyers as well as sellers from surprises and deal welshers. They are better than a priority reserve because they can last longer than 30 days. Options can have any term necessary.
Articles 1007, 1022, and 1053 through 1058 of Costa Rica’s Civil Code governs purchase options which are also called reciprocal promises to buy and sell. The option contract establishes the terms and obligations of the parties during the option period as well as sets out the selling price, the payment method, and terms for the day of the closing. Options are useful for selling other assets, but usually pertain to real estate transactions.
Buyers obligations include putting up a good faith deposit and arriving at the final closing with final payment meeting the terms set out in the option contract. A third party should hold that deposit in escrow until closing. The third party can be anyone, but it is a good idea to use a Costa Rican notary.
Seller obligations provide the buyer with any and all information necessary for the buyer to check out the property, including access for inspectors and surveyors. Sellers also need to provide buyers with paid-up tax receipts, certifications proving the property is free of liens and other encumbrances as well as proof no others, like squatters or heirs, have rights to the property.
Buyers and sellers should agree in the option contract as to what happens if the property does not check out as promised, or is more than promised. The latter happens, too. More land is sometimes found than negotiated in the sale.
The standard penalty if a buyer reneges on the deal is losing his earnest money. If the seller backs out, the buyer should receive an amount equal to the earnest money from the seller. Option contracts can outline much stricter penalty clauses.
Most people do not know that article 1055 of the Civil Code gives parties only one month to file a lawsuit after the option term in a deal gone sour unless the option agreement outlines other conditions.
There are three ways to negotiate a purchase option:
- The Annotated Option. This is the most secure method to make an option. Parties agree in front of a notary and sign a transcription of the agreement in the notary’s book. Filing the document at the national registry puts a lien against the property for all to see and is accessible via the Internet from anywhere in the world.
- The Private Document Option. In this case, the parties agree to terms in an agreement written down on anything. The only way to protect ones rights under this kind of contract is by going through a civil court process that will probably outlive the people involved.
- Option Between Absent Parties. When people are located in different locations, Articles 1008, 1009, 1012 and 1013 of the Civil Code delineates the criteria to formalize agreements and contracts including options between parties. Terms are set out in a document written, again, on anything, but in this case, anything that can be FAXed. Coconut husks or napkins do not work too well.Signed and FAXed between buyer and seller, the document becomes a valid legal instrument in Costa Rica. An important note here is the document must be FAXed; scanning a document and e-mailing it is not the same in Costa Rica. The courts believe anything scanned is alterable. This type of agreement is only enforceable in a long legal battle as with option two above.
The wise individual does not buy anything in Costa Rica without checking it out first. Good sense dictates not taking anyone’s word about anything: All aspects should be verified before a buyer puts down real money, as in the final payment on a house in Costa Rica.
The beauty of an option contract is they are flexible instruments that can protect both buyers and sellers in a deal.