Most Important Aspects of Leasing Contracts in Costa Rica

by | Jul 27, 2021 | Articles, Business Division, GLC Abogados

This article covers the most relevant issues related to leasing contracts, and it is structured in a question format to facilitate its reading.

What is the minimum term of a lease?

In order to protect the tenant, the Law establishes that the minimum term of a rental contract, regardless of whether it is residential or commercial, is three years. If the parties do not indicate a term or set a shorter term than the one indicated above, that clause will be void and the three-year term must be respected, although the parties may agree to a longer-term.

Are the parties free to set the lease price and its annual increases?

The lessor has the freedom to set the price for the use of the property he owns at his discretion, however, the Law does regulate what is related to increases. In this regard, two restrictions are imposed according to the currency in which the contract is agreed, since, if the residential lease is stipulated in foreign currency, it will maintain its price for the entire term of the contract without the right to readjustments, while, for those leases agreed in colones, the increases can be applied annually, taking as a reference the accumulated inflation rate of the 12 months prior to the date of application of the aforementioned increase. In the case of leases of commercial premises, regardless of the currency in which they have been agreed, the parties have total freedom to set both the price and their annual increases.

How many days does the tenant have to pay the rent?

By law, the tenant has seven calendar days to pay the rent from the date of payment indicated in the contract, therefore he has 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 lessor can immediately initiate the respective eviction process. Even when the lessee paid after the indicated term, the lessor maintains the right to eviction, except for cases of social housing in which late payment enervates the judicial process, that is, eviction despite late payment does not proceed.

What is the security deposit and what does it cover?

Although the Law does not contain a specific definition of it, Article 59 indicates that the guarantees that are included in the contract answer for the payment of rents and other obligations established in the contract and the law, unless there is an express agreement to the contrary. It is essential that the parties regulate in the lease, what will be the purpose of this security deposit if it will have to be adjusted with each rent increase, and in how much time will it be returned in case it is not necessary.

Regarding the amount to be paid for the security deposit, Article 92 establishes that the tenant of a social housing (house with a value of ¢65 801 000 / approximately USD$107 000) cannot be obliged to provide a guarantee for an amount greater than one monthly rent, and any obligation to the contrary is void. In the leases of houses that are not of a social nature and of commercial premises, the contracting parties are free to agree on the amount of the guarantee deposit, since there is no rule that prevents it, and in this sense, the usual thing is to pay the equivalent of one month’s rent for this concept.

Which party is responsible for making the repairs?

The property that is rented must be in good condition since the use and enjoyment of that property must be guaranteed. It is normal that with the use and the passage of time the property deteriorates, and it is necessary to carry out repairs to give it maintenance. In this sense, the Law indicates that the lessor is obliged to carry out all those repairs that are necessary -understood as those indispensable- to keep the property in good condition, without the right to increase the rent for it, unless the damages have been caused by the tenant. If the lessee communicates to the lessor the need to carry out repairs urgently, and the latter does not carry them out within a period of 10 business days after the notification, the tenant is empowered to carry them out and withhold the cost from the amount of the rent, or, invoke the termination of the contract with the consequent compensation for the damages that have been caused.

Different is the case of repairs that are not necessary to maintain the property, or improvements that the tenant wants to incorporate into the property, to make it look better, which must be authorized by the tenant, and unless otherwise agreed, they will remain in favor of the property without obligation of the lessor to pay any price for them. However, the foregoing, the parties can agree who should make the repairs related to the use of property or the passage of time. This being the case, and to avoid conflicts, the healthiest thing to do is to detail in the contract what type of repairs due to the use and/or the passage of time correspond to the tenant (for example internal painting, septic tank cleaning, and others).

Can the tenant terminate the contract at any time?

Yes, the tenant can terminate it at any time by giving a three-month notice in advance, unless otherwise agreed, which has been interpreted that this period can be shortened, but not extended, as it would be an illicit enrichment. In the event that the tenant does not give the notice three months in advance, the lessor could proceed to collect the rent for those months.

Can the lessor terminate the contract at any time?

If the tenant is up to date with his obligations, the owner cannot terminate it at any time but must respect the current term. However, the above, the tenant can notify the tenant at any time about the non-renewal of the contract at the end of the term in force, except in the case of social housing.

Can the tenant sublease the property?

No, unless the contract expressly allows it.

Are residential leases taxed with VAT?

Residential leases that exceed a monthly 1.5 of a base salary (¢ 693 000 / approximately USD $ 1,110) are taxed with the VAT subject to 13%. The lessor must collect it from the tenant, declare it and pay it to the treasury through the ATV online platform of the General Directorate of Taxation.

 

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