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How Not to Tie Up Your Rental For a 3-Year Term

by Garland M Baker on April 11, 2005

Legal technique gives landlords a boost

One does not have to be a bad guy

Owning property in Costa Rica comes with many decisions. One is whether to rent or not to rent when one is away for long periods.

Rental laws are very clear. Any contract automatically gives a renter a three-year rental term. No contract, no matter how well written, can change the law. The renters law, Ley de Inquilinato, specifically protects renters regarding term as well as in many other areas. Rent is synonymous with lease involving real property. There is no difference under the law.

The fact that the rental term cannot be changed is a problem for many people. Most property owners prefer to take advantage of rental income when planning a lengthy trip. However, owners do not necessarily want to stay away three years at a time.

Commercial real estate owners are in the same proverbial boat when renting such property. There are many reasons a three-year rental period can be a hardship. One example is if there is a lucrative potential sale possible.

In addition, any buyer of property must respect any rental contract in place at the time of purchase. Most buyers are not aware of this fact. This is true even if the property is obtained in a foreclosure.

Is it legally possible to get around this law regarding rental term should one really need to do so?

Yes, there is a creative solution to the problem.

Some ways that do NOT work are: 1) not signing a contract or 2) using a trusting handshake. Any type of rental receipt, including ones written on bubble gum wrappers, are considered sufficient evidence that a rental contract exists. As for a trusting handshake, well a man’s (or woman’s) word just is not as good as it used to be.

Here is the secret: Transferring the usufruct right to another person or company for a desirable shorter term and then let that person or entity make the rental agreement.

Now if one wants to flit off to Australia for one or two years and rent the house in Costa Rica to help pay the expenses, it can be done. A commercial real estate owner can rent a property for a shorter period, so if a buyer comes on the scene, the sale would not be lost because the new buyer has to wait three years to get rid of a tenant.

What is usufruct?

Usufruct is a legal term from the Roman Empire (in Latin, usufructus), meaning “using the fruit.” It is the legal right to use or profit from another’s property.

Costa Rica’s Civil Code allows the owner of a usufruct of property the right to rent it, but any rental or lease agreement is only valid for whatever the term of the usufruct. This is true no matter what a rental contract states.

Article 23 of the Renters Law specifically regulates this fact. Here is the text of the law translated into English:

The holder of a usufruct can rent a property, all or in part, in accordance with the conditions and term of the holder’s usufruct right.

The last lines of Article 23 state:

A rental contract to the contrary is void.

For this creative rental scenario to work, it is mandatory that the usufruct right is registered at the National Registry. To do so is not expensive and easy to accomplish using a professional who understands the process.

This all may sound complicated and not worth the effort, but in fact it is not rocket science or brain surgery and is truly easy to achieve.

The only real trick is finding an adequate legal professional who really understands the law and the benefits.

Benefits can include significant tax advantages where rent payments can be captured in companies losing money to reduce tax debt. This additional element reduces one’s options even more when looking for a competent professional. In Costa Rica, accountants usually know little to nothing about law, and lawyers know roughly the same about accounting.

In summary, there are creative, legal and tax effective ways to limit rental terms in Costa Rica using usufruct rights of ownership, so a tenant has to leave when the owner wants him or her to leave. It is not necessary to be a “bad guy” when renting property here, just a smart one.

{ 1 comment… read it below or add one }

Roger Pilon July 19, 2005 at 6:25 pm

I have been in Costa Rica for the last 14 years of my life!

Well!

This is one of the best tip I ever heard about rentals! Just this article is worth one thousand ” Thanks You “

Roger

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