Costa Rica Real Estate Magazine

Due Diligence Process in a Real Estate Purchase By Lic. Randall Sánchez – www.sanchezlex.com – 506 2771-3501 & 2743-8501

check if any important situations have happened in regards to the title during the last ten years. It is important to indicate that the review is based on the records of the title inscription as they are shown by the Property Registry. ii)- A review of the inscription of the current existing survey of the property. Normally, the title inscription of the property will indicate a survey number for the property. The review of the inscription of said survey will help in verifying that in effect such survey is properly registered and corresponds to the respective property. This review is based on the records of the survey inscription as they are shown by the Cadastral Survey Registry (Catastro Nacional). iii)- A review of real estate and municipal taxes for the property. This review is made with the corresponding Municipality of the jurisdiction where the property is located and it allows to review if real taxes and any other taxes applicable to the property by the Municipality are paid and up to date or, in the opposite case, to know what is the amount owed, as well as to know if compliance obligations related to these taxes have been fulfilled. iv)- A review of Luxury Residence Tax (Solidarity Tax) situation. At the present time, Costa Rica applies a tax to Luxury Residences (properties with residential use improvements with a value higher than a value determined by the Tax Administration for purposes of this tax). Therefore, if the property you are buying includes residential use

The Due Diligence Process in a real estate purchase transaction consists of a series of studies, reviews and analysis related to the property being purchased and the Seller, made during the Due Diligence Period or Term agreed to by the parties, normally through the Purchaser’s legal counsel and in part through his/her realtor in the transaction to provide him/ her with as much information and documentation as possible for his/ her assessment in the making of a purchase decision and to determine if the terms and conditions for purchase agreed upon by the parties can be met or not. The scope and level of detail of such a process will depend on the assessment and investment parameters that the Purchaser may decide to use for the specific transaction. While the specific items to be contemplated for each case will depend on the specific characteristics of the transaction, in this article we would like to make an illustrative (non-exhaustive) for informative purposes review of some typical aspects that may be contemplated in a due diligence process. For purposes of this article we have classified these items into two main categories: Legal Due Diligence and Technical Due Diligence. The number of items that are to be reviewed during the due diligence will depend on the needs and demand of the Purchaser, but, for illustration purposes, we could say that there are typically three groups of items: a)- basic items,

which are the minimal items to be confirmed in order to ensure that the acquisition of the property (as far as to make sure that you will get ownership of the property) can successfully happen; b)- desirable items, which are items that would be desirable in order to make sure that you get a clear understanding of regulations that may be applying to the property you are acquiring and that the property will be suitable for its intended use; and c)- additional items, which are items that would be ideal to have performed during the due diligence period. Depending on the point of view and intent of the Purchaser some items could be considered part of a category different than the one where they have been included as our classification is merely for illustrational purposes. Legal Due Diligence. a)- Basic items: i)- A review in the Property Registry of the title inscription of the property, and of the title’s history for at least 10 years back in time. This review allows us to achieve several goals such as confirming who the registered owner of the property is, finding out if the property holds any mortgages or other sort of pledges, verifying if the property is subject to any attachments (such as leases, easements, etc.), reviewing if the property is subject to any liens and embargoes and being able to

48 COSTA RICA REAL ESTATE MAGAZINE