The Evolution of Leasing Law in Costa Rica
During the early twentieth century, Costa Rica leasing law heavily favored tenants over landlords. The laws still provide favor to tenant rights; however, modern legislation has reduced the gap between tenant and landlord rights.
Original Costa Rica Leasing Legislation
Ley # 6: Ley de Subsistencias e Inquilinato (1939) was the first law which governed leasing in Costa Rica and was designed to protect tenant rights during a time of global economic uncertainty with war waging throughout the world. The law allowed tenants to possess a “derecho de llave” or “key right” which was a right for compensation used for commercial properties in which the tenant could claim indemnification for loss of this intangible right which was gained by the tenants occupation and activity in the property. In addition, many tenants would sell this “key right” to new tenants in cases where they operated a business. The owner would be in a difficult position if he/she needed to terminate the contract in order to sell the property, rebuild it, or remodel. In some cases, “key rights” were sold for large sums of money.
An Attempt for New Legislation
Legislation governing leasing rights remained the same for many years until in the late ‘80s when legislators began to respond to the need to update the rights of all parties involved. In 1988, legislators attempted to update leasing laws and passed Ley No 7101 Ley de Inquilinato which was deemed to be unconstitutional by the Sala IV (Costa Rica’s Supreme Court) in 1990. The Constitutional Court based its decision on several issues including the form of passage by the National Assembly and language in several articles of the law. Local leasing laws returned to the original law and legislators went back to the drawing board proposing a successful new law in 1995 which is the current law of the land governing leasing.
Current Legislation
In 1995, the National Assembly successfully passed Ley No. 7527 “Ley General de Arrendamientos Urbanos y Suburbanos” which nullified all previous laws relating to real estate leasing in Costa Rica. The law had a swift effect on tenant and landlord rights eliminating the “key right” and lengthy or indefinite rental agreements previously in effect. Courts were flooded with evictions as landlords scrambled in an attempt claim more control of their investment properties. Ley No. 7527 made provisions for transition from the regulations under previous legislation to the new regulations of the current law including;
In-Definite and No-Term Agreements: Lease agreements with no established term or an indefinite term were subject to a 4 year term. Lease agreements which carried terms longer than 4 years were entitled to add a month for every year of the lease beyond 4 years up to a maximum of 12 additional months.
Terms Less than 3 Years: Agreements which carried a term less than 3 years were extended to 3 years. If the tenant leased the property for more than 3 years, the tenant was entitled to extend the lease one month for every year of the lease beyond 3 years up to a maximum of 12 additional months.
Terms of 3 Years or More: Leases with a pending term of 3 years or more were entitled to add a month for every year of the lease beyond 3 years up to a maximum of 12 additional months.
New Lease Effective Date: All adjustments in the lease term were effective on the date of enactment of the law.
Property Improvements: The law provided and exception for tenants and landlords who formed agreements based on improvements to the property. If justified, the lease agreement was permitted to extend for a maximum of 10 years allowing a return on investment by either party.
Rent Price Increases: The law also provided exception for landlord and tenant agreement on the rate of rent increases provided that the agreement of both parties expressly agreed to such increases.
Conditions of the Property: The landlord and tenants of the properties were given one year to meet their obligations under the new law for conservation of the property.
The evolution of renting property in Costa Rica has certainly seen some dramatic changes. Stay tuned to our blog for more articles on living and doing business in Costa Rica.
This article was written and researched using the laws mentioned above as provided by The Office of the Attorney General (Procuraduría General de la Republica) provides a comprehensive directory of all regulations, decrees, codes, & laws with the full text at the following web address: http://www.pgr.go.cr/Scij/ . The author, publisher, agents, or representatives take no responsibility for any errors in the interpretation and dissemination of any legislation discussed in this article.