Costa Rica: About Property Leases

In Costa Rica there are different types of leases. Among the most common are leases of constructed properties and leases of properties without any buildings. In the first case, they are regulated in accordance with the Law of Urban and Suburban Leases, and in the second case by the rules of the Civil Code. In this article, we refer to leases of constructed properties, and answer the most common questions related to these:

¿Can Lease Agreements by signed for less than a 3-year time period?

No, as a general rule the lease law establishes that the minimum term of the lease agreements is 3 years, since its established in favor of the Lessee. As an example, if the contract states that the term is one year, and the Lessee does not want to leave after the year has passed, he may stay up to 3 years. It is an inalienable right.

¿By what term can the extensions be agreed?

The term of 3 years is for the initial term of the contract, being that the parties can agree the extension term, either for another 3 years, or for one more year, por example. However, it is not legal to indicate in the contract that the tenant resigns his extension right in advance.

Is it true that you cannot make increases in housing rents? What happens for other types of rentals?

At this point we must make a distinction, in the case of house rentals in which the price has been agreed in dollars, increases cannot be made; however, in the rents paid in Colones the percentage of the increase is determined by law: they can be done in a percentage equal to or less than the cumulative inflation rate of the twelve months prior to the expiration of each year of the contract. Inflation is calculated according to the official consumer price index of the National Institute of Statistics and Census. In any event that inflation exceeds 10%, the Ministry of Housing may authorize an increase greater than said 10%.

For commercial premises and offices, the above distinction does not apply, and the parties can freely agree increases in the price, whether in dollars, Colones or other currencies.

How many days are there to pay the rent?

By law, the lessee has seven calendar days to make the payment of the rent counted from the date of payment indicated in the contract, this adds up to eight days to pay the rent.

What happens if the tenant does not pay the rent?

Once the eight days indicated above have elapsed, the owner can immediately initiate the respective eviction process. Even when the lessee pays after the indicated period, lessor maintains the right to eviction, except for low-income housing cases in which the late payment enervates the judicial process, so the eviction despite the late payment is not applicable.

Who is responsible for the repairs of the leased properties?

As a general rule, the lessor is responsible for the repairs that are necessary to keep the property in good condition, except in those cases in which the repairs must be made due to the negligence, fault or abandon of the property by the lessee or by harmful works that the lessee has made without authorization of the lessor. However, the parties can agree who should make the repairs related to the use of property or the course of time. Being, this way, and to avoid conflicts, the healthiest thing is to state in the contract that the repairs for the use of the property and/or the course of time correspond to the lessee (for example: internal painting, cleaning of septic tanks and others).

What guarantees can the Lessor request from the Lessee?

The law does not establish it, so you can ask for both personal and real guarantees. The most common is the so-called guarantee deposit consisting in practice of a month’s rent amount. These guarantees fulfill the function of responding for the payment for damages in the property and/or of the obligations assumed in the contract by the lessee. As a good practice it is important to indicate in the contract that the deposit does not respond for the payment of the rent, to avoid that the lessee is tempted in stop paying the last month of rent at the end of the contract, which would leave the owner without a deposit of guarantee to cover possible damages and/or the payment of public services not paid by the lessee. Another type of guarantee are the bank guarantees, but these ones are less common in the market for this type of contract as they have a financial cost for lessees.

Can the Tenant terminate the contract at any time? Yes, the lessee can end it at any time by giving a three-month prior notice. At this point it is important to mention that many lessees´ have the false belief that the law says it is only a month; however, according to the law the notice needs to be up to three months in advance. In case the Lessee does not give the notice with the anticipation term mentioned, the lessor may proceed to collect the rent for those months. Can the lessor impose penalties for early eviction of the tenant? As indicated in the previous question, the law grants the lessor the possibility of agreeing in the contract that the lessee that wants to end the agreements must give a three-month prior notice. However; some Lessors establish penalties in the contracts for early eviction that are greater than this period of three months (six months, one year or staggered according to the term of the contract), which in our opinion is only justifiable in the case of commercial leases if the lessor has made specific investments related to special requirements made by the lessee to lease the premises; otherwise, it seems to us that the penalties could be justifiably questioned in a judicial process. Can the lessor terminate the contract at any time? If the lessee is up to date on his obligations, the lessor cannot terminate it at any time, but must respect the contract term. Notwithstanding the above, the lessor can notify the lessee at any time about the non-renewal of the contract at the end of the current term.

Can the lessee sublease the property?

No, except for if the parties agreed on the contact that this is possible.

Can the lessee assign the contract? What happens if the owner of a commercial store sells his business?The general rule is that the lessee cannot assign the contract, unless expressly authorized by the lessor. The exception to the above is given for commercial leases in the case of the sale of the business, in which case the contract can be assigned by the lessee without the lessor’s authorization. In this case, the new owner of the commercial business must present to the lessor, the copy of the sale of the business ("Sale of the Commercial Establishment or Bulk Sale Deed").

Partner Juan Manuel Cordero E.
Consortium Legal – Costa Rica