LOI / Part of the Purchasing process in Costa Rica
OFFER TO PURCHASE PROCESS.
Congratulations! You finally have found the property of your dreams. The view, the house, the acreage and whatever else toots your horn. If you are working with a Realtor, then you most likely have signed an Offer to Purchase with the terms and conditions of the purchase. This OTP typically includes Seller and Buyer information, property ID number (“matrícula”), survey number (“plano”), size and brief description. In this OTP or LOI, there are some aspects that need to be agreed on at this point and they are mainly:
- Correct identification of the Property. (property ID number and survey number)
- Form of payment (cash, financing).
- Initial deposit during the due diligence term (typically it is 10% of purchase price held in Escrow for 30 to 45 calendar days).
- Closing costs. Who pays for them? This can be negotiated between the parties. If there is no negotiation in the OTP or it is to be determined, then typically the closing costs are paid half by each party.
- If an Escrow Company is going to be used (recommended), it is important to include in the OTP “The Escrow company to be elected will be a SUGEF-registered Escrow and will be current with all regulations at all times during the transaction.” This means that the Escrow company must be legit, active and neutral to the Parties.
- The amount and terms of the sales commission between the agent(s) and the Seller as well as who pays for the brokerage services should be specified here. Sometimes the commission is split or paid solely by Seller or Buyer. Typically, however, Seller pays for the commission.
- Sales tax over the commission. This is something that was implemented into real estate contracts somewhat recently; however, most Realtors now operate where Seller pays, in addition to the percentage of commission, an additional 13% sales tax over the commission. This point should be negotiated and included in the OTP document as well.
- Amenities and Services. The OTP does not have to get too detailed about the services provided, but should mention them. For example: “Water is provided by the local ASADA (water association) and the meter number will be included in the Contract phase”. If the property is in Condominium, then all of the Condo amenities could be listed.
- If the property includes structures; then it is important to include in the OTP phase, a brief description of the house and structures, as well as if they are delivered to Buyer “as is” or if repairs are agreed on.
- It is important to state the due diligence term (time for Buyers to review the property and structures). Normally the due diligence term is 30 to 45 calendar days from the signing of the Promissory Purchase and Sale Agreement (SPA). However, depending on the complexity or needs of the parties, the term can be more or less.
- Basic supporting documentation should be delivered to Buyer from Seller within the first stage of the due diligence term for Buyer and Buyer representative to have sufficient time to review the documents. The standard documents vary depending on the property, but the survey, “uso de suelo” (this is a document showing the zoned use of the property according to the local Municipality) and proof of being current with the tax office, are standard in all transactions. Other studies such as Soil studies, home inspections, water tests, verification of survey, new survey, setback studies, developmental studies and others are also common depending on the transaction.
- After the due diligence term is considered satisfactory by Buyer, then a time is allowed for the final balance to be sent to Escrow. This can be anywhere from 5 to 10 days after confirmation to proceed with the purchase.
- If there is defect on the property or the Buyer decides to terminate the deal in the due diligence term, then the deposit is returned to Buyer, minus any Escrow fees accrued. This is also negotiable depending on what the Parties prefer. Sometimes, Buyer is given a “completely refundable due diligence term” (soft deposit) and sometimes it is only refundable if there is a proven defect with the property, title, survey or structures on property.
- A time period from the signing of the OTP until an SPA should be signed, should also be specified on the OTP. Since the OTP is not the actual Option to Purchase and is rather a “letter of intent”, if one party intentionally drags their feet on reviewing the following contract, then there is no limit to when this offer could expire (after both parties accept.)
- Therefore, we suggest that this clause could be included: “This Offer to purchase is valid from ____ to _____ . From this last date, the SPA should be reviewed, accepted and mutually signed by the Parties, no later than ___________________. The Buyer’s chosen attorney will create the draft of the SPA for Seller’s review and send the first draft to the Seller no later than___________. If the Buyer’s attorney does not produce a draft by such date, by no fault of either Party, then Buyer will notify Seller of the situation by E-mail and Seller will allow an additional (5) days for Buyer to hire another attorney and send the draft.”
- It should be made clear in the OTP that it is not a Sales and Purchase Agreement, but a letter of intent to enter into future transactions.
- If one party does not speak the other’s language, a translation clause should be included.
- All pages should be initialed and signatures, date and place should also be included in the document.
- The document could be notarized if the Parties choose to do so, but it is not necessary.
This document, once signed by both Parties, (either together or in counterparts) is then sent to Buyer and Seller’s attorney, requesting Buyer’s attorney to begin the SPA. Normally the Realtor will include: Additional information for the Parties, copy of the survey, and any other vital information for the attorney to create the document.
Written by: Licda/Msc Kristi Penland, Founder, Uvita Law Firm.
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