The Costa Rican Legislature is currently evaluating a proposed law which would completely overhaul and regulate Real Estate Transactions in Costa Rica. The law, “Regulation of Real Estate Contracts and Real Estate Agents” is quite ambitious in its goal and if passed would create significant changes in the way real estate transactions are carried out in the future.
According to the proposed law the purpose is to provide confidence in the real estate marked and increase the legal security in the transfer of real property. To do so the intent of the law is to regulate Real Estate Agents and the requirements and obligations of those agents. And, regulate the types of contracts and participants in the transfer of real estate in Costa Rica.
In Costa Rica it has often be said that “everybody is a realtor”. The reason for this has been the lack of regulation and the ease with which one can put on a realtor hat and begin pitching real estate. The problem with this in the past has been that many of those out there calling themselves realtors do not have a clue of what they are doing. Under the proposed law only licensed realtors would be able to call themselves real estate agents. In order to be a real estate agent the law requires that:
1. The agent must be a member of a Real Estate Association which is recognized and registered.
2. The agent must be a Costa Rica citizen or a Foreigner with legal residency in Costa Rica and a work permit authorizing them to work in Costa Rica.
3. The agent must be registered with the Financial Intelligence Unit of the Costa Rican Institute of Drug Control. This is the agency charged with investigating Money Laundering activities.
4. The agent must be registered with the Costa Rican Department of Revenue. This is to ensure compliance with Costa Rican tax laws.
5. The agent must be bonded. The amount of the bond and procedure would be determined after the law is passed.
The law also introduces protections and legal procedures which would facilitate the real estate agent to collect their real estate commissions. Any dispute regarding the commission agreement must first go to binding arbitration.
With those added protections also comes further responsibility for the Real Estate Agent. Any Real Estate Agent that acts with “bad faith”, negligence, carelessness or recklessness which causes harm to their client or to a third party shall be liable for the damages caused. If any of the actions are of a criminal nature of course the agent would also be subject to criminal action. If the real estate agent works for a Real Estate company then the company will be jointly liable with the agent as well.
In addition to regulating Real Estate Agents the law also intends to regulate the real estate transaction process as well. It does so by modifying certain provisions of the Costa Rican Civil Code regarding the Real Estate Option and Real Estate Purchase Agreement and the ability to record those agreements on title to the property pending the actual transfer of title. The law also recognizes the concept of Escrow and sets for the regulations for the management and administration of funds held in Escrow including the requirement that Escrow agents be bonded in the future.
Costa Rica experienced and expansive real estate boom in the past couple of years. The country was not prepared for the development and transactions which flowed during those boom years. The reaction to the chaos caused by the lack of planning and regulation is the proposal of laws such as this one. If passed by the legislature the law would become effective and everybody involved in the real estate transactions process will have to adapt and comply if they want to stay in the field.