Mediation and arbitration clauses save headaches

By: Garland M. Baker B. 

Exclusive to A.M. Costa Rica

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Q. What is the difference between a good priest and Peter at the Pearly Gates?   

A. One is a mediator and the other is an arbitrator. 

Most people do not know they can pick their arbitrator in Costa Rica if they know what they are doing.

A mediator is a person who can assist two or more persons to come to an agreement, but has no decision power one way or the other if they do not.

An arbitrator moderates disputes, but in the end can decide as to who wins and who loses.

Law 7727 of Dec. 9, 1997 is titled the “Ley Sobre Resolución Alterna de Conflictos y Promoción de la Paz Social,” or law of alternative resolution of conflicts and promotion of social peace. It is a significant and under-utilized set of rules to resolve conflicts and avoid the judicial system.  

Good advice for living and doing any kind of business in Costa Rica is to stay out of the courts.  The judicial system in this country is slow and inefficient.

Income tax filing deadline is Friday in Costa Rica

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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It is tax time again. Tax returns for individuals and companies are due on Friday. Yes, this Friday.

Every company is required to register with the taxman.  This registration happens when one gets a set of legal books approved at the tax authority, Tributación Directa.  The form to do so changed this year from one without a number to Form 406.  The old form had no number and was clumsy looking.  It can still be used until Friday, but starting Monday to register a company to get legal books authorized, one must use the new form.

There are several important deadlines for taxpayers in Costa Rica.  The most critical ones for expats are Dec. 15 when Form 101 for income taxes is due and March 31 when Form 110 for education and cultural taxes is due.

To be a contributor to the tax system, one identifies him or herself on Form 140.

Registering to get legal books approved is not the same as identifying oneself as a taxpayer.  However, getting legal books approved adds a company or individual to the computer system.

Many expats do not file Form 140 because they do not feel they are involved in financial activities as defined   by the tax code.  Others do not know about Form 140, and others just feel that if they do not file it, the tax collector will not catch them.

Title insurance here can cause misunderstandings

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Is title insurance legal in Costa Rica?

An Instituto Nacional de Seguros ruling Sept. 29 says that title insurance was not legal in this country, but that now it is and has been since July 1997.  However, insurance officials say the legality could change in the future.

The decree from the legal department of the insurance monopoly explains title insurance is not insurance, but a guarantee or a bond.  This finding is a flip-flop of the insurance monopoly's last ruling in 1976 that said title insurance is an insurance and that no company in Costa Rica can sell it except for the monopoly known as INS.

The national insurance company became a monopoly with law No. 12 of Oct. 30, 1924.  Only INS can sell insurance.

INS further stated that title insurance is an Anglo-Saxon creation and is not necessary in Latin America or Costa Rica because Roman law governs Latin countries.  According to INS, the Registro Nacional and licensed public notaries make property transactions safer than in the Anglo world like the United States.

Registro Nacional turns its back on obvious frauds

By: Garland M. Baker B.

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The Registro Nacional confirmed its policy last month of turning its back on fraud.  The government institution stated in its publication “Materia Registral” that fraud is the exclusive responsibility of the courts and not of the Registro Nacional. The ruling came from the administrative directorate of the organization.

Property records at the Registro Nacional are under daily attack by fraudsters.  The director, Roger Hidalgo Zúñiga, is under suspension while a thorough study of strange property transactions takes place.

However, the organization does not feel legal matters, like transferring property fraudulently, are its problem.

Some real estate tricks used here are at least fishy

By: Garland M. Baker B. 
Exclusive to A.M. Costa Rica

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There is very little regulation on real estate transactions in Costa Rica:   No real estate disclosure act or similar rules exist. No licensing is required for real estate agencies or brokers.

There are two real estate broker associations in Costa Rica, but the organization have limited power.  The Website for one association has no code of ethics or standards of practice listed.

This all means that real estate operators can use countless techniques that may be at least questionable if not unethical or dishonest.

Here are some examples:

Sala IV will take another look at massive power grid

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Twenty-four hours a day, people are exposed to an array of electromagnetic fields. Inside the home TVs, stereos, VCRs, computers, almost everything electric, most machines, and lights bathe everyone with waves, and the list goes on and on.  

Outside radar, communication dishes, TV transmitters, cellular phones, high-tension power lines and even the electromagnetic fields generated by vehicles generate additional waves.

Unless one lives in some remote corner of the planet, there is no escape. Simply put, growing exposure to electromagnetic energy fields is a concern, and some see it as a serious threat to health.

No one really knows for sure the long term effects of this exposure. There are two basic kinds of harmful fields: the electromagnetic and voltaic.  

The speedy, magic way to create a public road

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Why take the long way around when you can get three witnesses to say a driveway is a public road, and voilà, like magic, it becomes public?   

Then, bulldozers do an impressive job of tearing down private entranceways.

This is what happened a week ago to one U.S. citizen from Chicago.  Four years ago, the man fell in love with Costa Rica, as many foreigners do, and bought a farm in Cartago.  The title to the property was squeaky clean and had no annotation of easements or any other restrictions.

He invested thousands of dollars to build two houses and a huge trout fish lake.  He also rebuilt all the internal roads inside the farm area.

Locals used to take shortcuts through the property to get to other tracts because the alternate public road was longer and in bad shape.

Normally, people can get an easement through another person's property when one property is boxed in and has no access.  The term used in Costa Rica for this type of property is fundo enclavado.  It means a landlocked property in English.

Article 395 of the Costa Rican Civil Code states the owner of a landlocked property is entitled to request the courts to award an easement for a right of way.  This is similar to the United States, where parcels without access to a public way may have an easement of access over adjacent land, if crossing that land is necessary to reach the landlocked parcel.

A property owner forced by the courts to give an easement to another is entitled to compensation for the access and any damages caused to bordering property.  In some cases, where land is expensive, an easement can cost a bundle.

There is one exception to this rule.  If a person subdivides off a landlocked property and sells it to another, an implied easement goes with the deal at no extra charge.  

There are many kinds of easements.  Requesting the courts to award an easement because it makes access more convenient is also possible, but it could have a price tag.

Wait! Why go about getting an easement the legal way, and paying for it, when there is a speedy way of accomplishing the same objective?

This is what happened to the expat.    

One day, strangers started walking more frequently through his property.  The U.S. citizen decided to keep the gates closed and locked at all times.

This made the people using the access mad.

Instead of filing for easement rights, they filed a petition in front of the local municipality to apply obscure articles of the public road's law.

This law, created in 1972, in its articles 32 and 33, states that an access that has been used by the public for more than one year must remain open to the public until a property owner can get a judicial decree stating otherwise.  Any legal fight in Costa Rican can take years.  In this case, the entrance to this owner's home will remain public. And that is why a municipal bulldozer showed up Monday and demolished the man's ornate entrance gate.

To apply the law, all one has to do is request an audience with officials of the municipality governing the area and bring three witnesses to declare that different people used the access for a year. 

That is all. Presto, a public road is born. In Costa Rica, getting three witnesses is a pretty easy thing to do. Everyone has friends.

The expat, through his lawyer, is filing a Sala IV case against the law and the local municipality.   The case attacks the articles of the public road law as arbitrary, confiscatory and clearly in violation of due process of law.

The moral to this true story is that property owners should keep gates to properties locked and not let strangers transit freely. Otherwise, the bulldozers may appear unexpectedly at the front door. 

Article first published in A.M. Costa Rica on October 2, 2006. 

Environment ministry about to show its muscles

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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The environmental ministry is about to specify where construction can go within the borders of beach concessions.

Even though an individual or a firm may already have an approved concession, the ministry is ready to rule out construction in forest land, land with steep slopes and wetlands.

And the ministry may initiate destruction of structures that have already been built on land that is now being declared off limits. In some concession areas, 60 to 70 percent of the land is being safeguarded by the environmental ministry.

What is involved is a reevaluation of the rules that govern the maritime zone, the 200 meters above mean high tide. Anything built illegally — from small structures to hotels — can be in the way of the law.

Legal battles can postpone the inevitable, but not delay fate forever. The Mar y Sombra restaurant bit the dust in August after a lengthy, futile legal battle due to its location in the maritime zone, although that was a municipal case.

SURPRISE! They're selling your property!

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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A fantastic scam unfolded in the past two weeks. Events surprised the buyer as well as the owner of a unique beach view property.  

Quick thinking and a nearly unknown legal maneuver locked and saved the property before the Registro Nacional closed Friday, even though the institution again refused to take immediate administrative action in a suspected property fraud case.

The purchasers did not know they were buying something the true owner had no intention of selling.  The intermediaries involved would have received millions in the transaction.  Where the money would have gone is anyone’s guess. Scammers are scheming, crafty, aggressive and malicious people.

Rural land titles can be result of homesteading

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Everyone who comes to Costa Rica has a story to tell.  Some are escaping from their home country because they are criminals or do not fit in.

Many are sick and tired of the “world gone nuts” and hope to find solace here.

Others are explorers looking for the treasure in a good land purchase.

Crossing the border into Costa Rica in the late 60s or early 70s was truly a breathtaking experience. 

Old timers with over 30 years living in the country remember the days when Costa Rica was truly a paradise.

Back then, it was very rare indeed to see the police with guns. They carried only a screwdriver and pliers.  They used the tools to confiscate the license plates of drivers in violation of the law.  Security guards were also an uncommon sight, nothing like today, where they are everywhere.

A clever clause can dodge the probate mess

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Now there is a new way to duck messy probate in Costa Rica.

Thanks to an avid reader with a ton of patience, a limited liability company called an S.R.L. in Costa Rica, is now even a better vehicle for holding assets and succession planning.  Most professional people do not know this secret.   

Limited Liability companies are great for holding properties and managing businesses, but if there is only one manager and the manger is taken by death, a long legal struggle can take place.

If there are multiple managers, the liability company runs the risk of internal confusion and sometimes theft.

Hidden 'owners' wait to trap unwary buyers

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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As property values increase, more and more people fall victim to El Ley de Informaciones Posesorias No. 139 of June 14, 1941.   

The principal behind the law is Roman, the acquisition of ownership by possession.  Problems arise when foreigners who have bought a property find, others claiming the same land.

Some foreigners caught up in legal battles over these types of disputes have just picked up and left the country exhausted, walking away from substantial investments.

El Ley de Informaciones Posesorias translates into English as the “Law of Possession of Information.”  It means acquiring untitled and unregistered land through proof of occupancy over the years. 

Big changes taking place in maritime rules

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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There are some surprises in motion in the maritime zone.  Few people are aware of them today.  Foreign ownership restrictions are being challenged.  And the environmental ministry appears to be preventing development because it rules that some land is too steep.

So, an investment into planning parcels for concession may be money wasted.  

Called in Spanish the zona maritima terrestre in Costa Rica, the area contains two parts.  The first 50 meters inland measured from high tide is public land.  Except for some exclusions, where the land is titled or part of a special government program like the Papagayo Project in Guanacaste, all Costa Ricans own the public land.  

Behind the 50 meters is 150 more meters also considered public. But it is land that can be controlled by private parties via a concession.  Municipalities and the Instituto Costarricnese de Turismo, or Costa Rica’s tourism board, manage the grant, theoretically for of the public.  

Events up north put chill on real estate here

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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The five-year real estate sales boom is winding down fast in the United States.  Costa Rica’s real estate market is slowing too.  Skyrocketing property values may be a thing of the past there and here.

Many speculators in the United States are now walking away from their deposits or trying to wiggle out of their contracts and losing substantial money in the process.  Others are stuck with their investments because they did not see the reversal coming.

As home equities soared up north, many owners borrowed heavily against their holding there to buy property in Costa Rica.  Usually, this is the case in fast-moving markets.  People get overconfident and borrow, margin, or otherwise overextend themselves to chase increasing values.

Buyers of property up and down the Pacific coast here found a feeding frenzy during the last few years.  Most of them were unaware that frenzies typically signal a top and that they should watch out and not dive into the coming quagmire.

Registro Nacional nears meltdown over fraud

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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The supposedly secure property records at the Registro Nacional are under daily attack.  Computers make up what amounts to a virtual vault, securely holding titles to trillions of dollars of Costa Rican properties.  Paperwork and other computers are the attackers commanded by crooks stealing the assets of others.

The thieves are smart and know how to beat the honest out of assets in a fell swoop.  They use the weaknesses of the registro to their advantage.  The over-burdened organization’s computers collapse under pressure almost daily.  There are those who work there willing to risk their career for a fast buck. 

In the past few weeks, registro officials sloughed off obvious fraudulent activity as unimportant when a suspicious case was presented at the institution. All because the officials said to the filer, “We have too many of these fraud cases to work on.”  

Three ways exist to pass on assets at death

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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According to Consumer Reports, 66 percent of those living in the United States do not have a valid will.  Imagine how many expats do not have one in Costa Rica. 

Laws governing last wills and testaments are different in this country, and most people never get around to making a valid document.

Famous people like Abraham Lincoln, Andrew Johnson, Ulysses S. Grant, Howard Hughes, Martin Luther King, Jr., and Pablo Picasso all died without a will.

Will is a general term, while testament applies to the disposition of personal property.  A will is a legal declaration that regulates the rights of others over property and family after death.

While death is the last thing on most peoples minds, having a valid will in Costa Rica is important or assets could end up in probate or stolen.    Probate here is a frustrating experience.  Marauders prey on the disorganized to steal property.

There are three legal ways to make a will in Costa Rica, and a secret tip:

Have the rats and vultures got a deal for you!

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Vultures and rats are stalking the innocent home sellers to make a quick buck.

The game is the use of Article 1049 of the Costa Rican Civil Code and property flipping.  The rules are everything goes and the best trickster wins.

Article 1049 is only one sentence long, and it states La venta es perfecta entre las partes desde que convienen en cosa y precio.  In English, the string of words translates to “The sale is fixed between parties upon agreement of thing and price.”  The sentence means that it is possible to cheat a naive seller out of a property because of their lack of knowledge of the law.

There are many variations of property flipping. The U.S. Federal Bureau of Investigation, Criminal Investigative Division, keeps an extensive database to control this fraudulent activity because many victims are federally insured banking institutions.

“Flipping” is a predatory practice where someone always gets hurt, and it involves artificially inflating the value of a property.  One of the versions in Costa Rica plays like this:

Buying a used car here can be a nightmare

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Readers requested this article. Some helped write it, sending in accounts of their experiences trying to buy a used car in Costa Rica.  Most recount the endeavor as a terror.  One couple has almost given up and prefer the bus to dealing with used car salespeople.  They may import their old vehicle from the States, paying more in the process because they know the car and do not want any more surprises.

The biggest problem is the twisted tongues of some sellers.   Little that some state about a used car comes close to the truth, especially the mileage.

A perceptive potential buyer ordered the 30-day unlimited reports package from Carfax.com for $24.99.  Carfax.com is a trusted provider of vehicle history information.  Using the unique 17-character vehicle identification number (VIN) found on vehicle dashboards and title documents, the firm can instantly generate a detailed vehicle history report on any used car or light truck in the United States and Canada.  Another such service is Autocheck.com.  The services and costs are very similar in price.

Then the buyers hit the streets to buy a small car.

Unbelievable, almost every car checked had the mileage turned back.  Others had been in a major accident, a fire, or flood.  The National Automobile Dealers Association estimates that Hurricane Katrina alone may have damaged as many as 400,000 cars.

Investors have a choice in company structure

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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There are six different types of companies in Costa Rica.  Most people are only familiar with one or two, the most common types like sociedad anónimas and S.R.L.s.  In these times of changing tax regulations, everyone, business people as well as individuals, should know the differences between the company structures available under the commercial law.

The most common company structure in Costa Rica is a sociedad anónima, which is equal to a standard corporation in the United States and other parts of the world.

What is a corporation?  By definition, a corporation is a legal entity engaged in a business activity.   A corporation has its rights, privileges, and liabilities distinct from those of the individuals who own or manage them.  A corporation can acquire assets, enter into contracts, sue or be sued, pay taxes and take tax deductions in its name. Corporations issue shares of stock to individuals who supply ownership capital.  A corporation is a desirable organization for a business entity for many reasons, including tax savings, asset, and lawsuit protection.  The law considers a corporation to be a separate legal person. 

Sociedad anónimas, referred to as S.A.s, have a constitution or corporate charter, four directors, a president, secretary, treasurer, and a fiscal, stock certificates representing stockholder ownership and six legal books.

The help you need to sort out the credit bums

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Foreigners and expats here have a tool to check out potential employees, contractors, domestics, and even real estate brokers and other business associates.

And they really need these tools.

As an example, 75 percent of the applicants to a recent clerical job opening in Costa Rica had serious credit problems.  Employers need to know this information because many believe that individuals up to their eyeballs in debt are more likely to steal on the job.

The tool is the six credit reporting agencies in Costa Rica.

Over the past 14 years, Costa Rican companies have used the information found in these databases to make credit decisions, much like in the United States.  However, here, only bad credit is reported, unlike the United States where good credit is calculated into a FICO score.  FICO is a mathematical model created by the Experian credit bureau as a tool for lenders to use in evaluating the risk associated with lending money.

Foreigners will have to list assets to avoid tax

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Instructions on how to kill the goose that lays golden eggs.   

Step 1: Restrict the inflow of capital by taxing it 10 percent upon arrival in Costa Rica.   

Step 2: Make bringing money into Costa Rica as difficult as possible.   

Step 3: Tax the money heavily once it is here.

Article 7, Section 4 of the proposed fiscal plan assumes all passive income comes from capital of Costa Rican origin unless proven otherwise to the tax people. The burden of proof is on the taxpayer.

Passive income is income from activities in which the taxpayer does not materially participate, as in all rental activities, investment income like interest, dividends, and capital gains, and other forms of income like royalties and alimony, etc.

Under the new tax plan, all passive income will be taxed at 10 percent.

Foreigners moving to Costa Rica for the first time will have a grace period of one year to “patriate” or provide a detailed list of their assets outside of Costa Rica.  

Citizen lives will be transparent under tax law

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Transparency and Justice are teaming up and, using the synergy of information technologies and law, will surely prevail in collecting more taxes from everyone.

Transparency sits alongside Accountability, implying an openness and willingness to accept public scrutiny, decreasing the capacity for deception, as in hiding money from the tax people. Typically, transparency is used when discussing oversight of public officials. Now it is the individual citizen whose holdings and life is transparent. The concept has been referred to as the Transparency Phantom in a previous article.

In practice, Transparency means a free exchange of information, access to facilities, and cooperative arrangements to provide ready observation and verification of all kinds of information, especially personal financial information.

 

The new fiscal plan of Costa Rica, if passed on second reading, will create a new authority, The National Council of Transparency and Accountability. The new office, an organ of the legislature, will have functional and administrative independence from the rest of government.

This year Easter will be an extra long holiday

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Semana Santa, Easter week, is just around the corner, and it is longer this year.

Law 8442 reformed the Labor Code, Law 2, Article 148, last year, moving several holidays from their calendar day to the following Monday.  The holidays include April 11, July 25, Aug. 15, and Oct. 12.  This year, April 11 falls on Tuesday of Semana Santa week. Based on the law, the day will be celebrated Monday, April 17, thereby extending the holiday.

Customarily, San José closes down for the Easter holiday, and almost everyone heads for the beach.  This year, most people will be able to leave after work on Friday, April 7, and can holiday until Tuesday, April 18.

Yes, Monday, April 10, Tuesday, April 11, and Wednesday, April 12, are theoretically work days, but savvy Ticos make their plans early, requesting vacation time, so they can take off the whole week.  Most governmental institutions, including the courts and the Registro Nacional close for Semana Santa.

Employees do not have all the breaks, however. The legal workweek here are 48 hours or, usually, six days.

Option is the best way to tie up that property

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Finding a good deal on real estate can be harder to do these days in Costa Rica, with land prices sharply increasing.

Once found, lock it up with an option contract, and register it with the Registro Nacional.  This step puts a legal lien on the property, so the seller cannot weasel out of the deal if another buyer with more money shows up. Double-dealing occurs every day in a fast-moving real estate market.

There are other good reasons to option a property before buying it, especially if there are structures on it like a house.  Home inspecting engineers now are available here to check out buildings.  Inspections to disclose defects in a property that could materially affect its safety, livability, or resale value can save money eventually.

Most topographical surveys of real estate in Costa Rica are outdated. Verifying a property’s boundary line is important.  There are so many land disputes these days, not verifying the boundaries is poor judgment for a buyer.

It's just another Mickey Mouse rumor

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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A false rumor that the Walt Disney Co. plans to construct a major resort on the Pacific coast is getting new life, thanks to telephone solicitors for real estate deals.

A study by a local consultant shows no evidence that Jacó or Quepos will join ranks with the likes of Los Angeles, Calif., Orlando, Fla., Paris, France, Tokyo, Japan, or Hong Kong, the five population centers where Disney has theme parks and resorts.

The rumor has been so persistent that a local real estate firm contracted the consultant, Garland M. Baker, to investigate. The company later agreed to make the report public.  

People who have invested or are considering investing in Costa Rican land say that the Disney theme has worked its way into the sales pitches of telephone salesman in the United States. One man who bought even property said he was told that the Disney announcement would appear in the Jan. 6 issue of USA Today. He has been watching that newspaper since.

When laws collide, projects can be big losers

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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When laws collide, the fallout can hurt the little guy — or in this case, keep the little guy from getting full title to his new condo.

A simple pyramid can explain the legal system in Costa Rica.  Sources are the Constitution, legislated laws, presidential and executive decrees along with the rules and regulations that give instructions on how to apply law.

The order of importance of law is from top to bottom.  The Constitution is the supreme law, specific laws carry more weight than presidential decrees, and rules are just regulations on applying a law in different situations.

Costa Rican law is always under the watchful eye of the world.  Treaties with other nations can change law in the country, but only after an evolutionary process where individuals have to fight for specific rights in an international court.  

Some laws and rules are confusing, and others clash.  One example important to coastal developers is the “Reglamento a la Ley Reguladora de la Propiedad en Condominio,” or the regulation to the law of condominium property.

Employers have options to stem cellular abuse

By: Garland M. Baker B.

Exclusive to A.M. Costa Rica

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Give an inch, and they’ll take a mile.   

Offer a hand, and lose an arm.   

These management axioms also have to do with cellular telephones.  Cell phone abuse is rampant among employees.  

Even someone who still does not have a cell phone is not immune from the increased numbers of them. In a movie, a restaurant, a church, or a meeting, people are using the technology and being a disturbance.   

In the workplace, some employees will not take a job if they do not get a cell phone.  Yes, the instruments can be very productive tools.  They save time. They also contribute to lost productivity and employees avoiding making their own decisions because they can always call someone else and ask what to do.

There is nothing more frustrating than trying to have a business meeting with an employee and the wife calls, or the kids call, or Mami calls.  In Costa Rica, one always needs to talk to Mami, it is part of the culture.