Condo Creations Provide More Complexities

Watch out for this guy

A whole lot of money is being made by those selling condos up and down the coast of Costa Rica.

There are as many weird deals. Some condominium projects are skirting the law. This explosion is due to the “Ley Reguladora de Propiedad en Condominio” or condominium law, published in La Gaceta on Nov. 25, 1999. Apartment buildings, commercial places like malls, office buildings, and — unbelievably — even cemeteries use the condo law to divide up property.

Here is how it works:

When a property is divided up under the condominium law, the mother property becomes the “finca matriz.” Finca means farm in Spanish. Most properties, even small lots and houses are referred to as a farm in Costa Rica. The word matriz is a feminine noun in Spanish meaning, womb, original, or master. It is used to refer to the finca as the mother.

Each individual property inside the mother becomes a “finca filial.” Filial means the same thing in Spanish as it does in English: of or relating to a son or daughter, or bearing or assuming the relation of a child or offspring to a parent.

When a property goes condo, each “finca filial” gets registered at the National Registry separately, with a unique number. In other words, you get a real piece of property with real property ownership rights.

The basic requirements to use the law are as follows:

A.) A legal document needs to be prepared with the general description of each floor, apartment, or condo with its intended use, along with the same kind of explanation for common areas. This document is submitted to the Registro Nacional or national registry for approval.

B.) The document needs to outline the total value of the condominium, including the proportional value of each property component (condo).

C.) The project developer needs to adhere to all the generally accepted licensing requirements and obtain all the required building permits.

D.) Plat plans referred to as “catastros” need to be prepared and submitted for approval by the catrastro department of the national registry.

E.) General guidelines, referred to as the Reglamento de Administración y Condominio or condominium and administration rules for the owners, need to be drawn up and submitted with all the above items.

F.) The request to divide up the land is made in a deed, signed in front of a notary public.

The general guidelines are very important. This document is where the framework of how each person or family who buys a unit needs to act in order to offer everyone a quiet, peaceful place to live.

When buying into a development, it is important to know the rules because they may include restrictions on having children, pets, and parties, along with maintenance and up-keep mandates.

When someone does not follow the rules, they can get a written warning letter initially, but can end up being downright evicted. Yes, even an owner can get thrown out of his own place.

The rules or guidelines are managed by a general assembly. This body is the ultimate authority in the condo. Every owner is a member of the general assembly.

This group works like a mini-democracy, and through voting, original rules and regulations can be amended or changed. Costa Rican law requires three legal books. They are called “Actas de Asamblea” or Assembly Minutes, “Actas de Junta Directiva” or Board of Director Minutes, and “Caja” or Cash, used for organization accounting.

Now, here is where it gets tricky or interesting, depending on one’s point of view. Beach property inside the maritime zone in Costa Rica can not be owned.

However, developers are building condos on the land called concession land. The holder of a legal concession over the maritime zone can build a project and go condo under the condominium law.

It is a relatively safe investment if the project has all the correct permits from the local municipality, the tourism ministry (ICT), the National Housing Institute (INVU), and the Health Ministry.

Even though the land is leased or “in-concession,” owners of each condo share in the licensing agreement obtained by the developer, with the Costa Rican government as a sub-leasee.

However, this is a complex issue. All concessions are required to be held 50 percent by Costa Ricans, and the rule of thumb is 51 percent. This means majority ownership, or controlling interest must be held by one or more Costa Rican citizens. Having this ownership or control in the hands of one person or a small group could be dangerous to the whole because it could contribute to a takeover or unwanted sellout. Something like what happens on Wall Street everyday.

This particular scenario has created a new real estate type in Costa Rica, called a condo hotel where the venture operates most of the time as a hotel and part of the time as a condo. It is somewhat similar to time-share rentals. The law requires this kind of an operation to work 70 percent of the time as a hotel and 30 percent of the time as a condo.

Now, the best for last.

What happens when a project just does not qualify as condominiums. Well, some developers are still physically dividing properties into lots and selling a 99-year rental contract over the space. One can build on this area. Or the same developer offers to build to suit buyers’ needs. This scheme does not exist here legally, but real estate people sell property based on it everyday.

More importantly, local law and jurisprudence holds any contract over 10 years as abusive. In this kind of scenario, one never holds title to anything, just a trumped-up rental contract. Let us say the real owner of the property goes bankrupt or dies and the property ends up in probate. What happens?

Good question. No legal case to date has tested this case in court.

A mortgage or title insurance cannot be obtained because the land is never owned.

Another flaky deal is where one just gets stock or shares representing a piece of a property, again, with no legal ownership of property.

Purchasers need to be careful when buying a condo. They need to know the structure used which created the project. They need to read the rules and regulations before moving in with their 10 dogs. And they need to be sure they are buying true legal title to property and not someone’s way of circumventing the law.