Buying a dream home on the Central Pacific coast of Costa Rica is an exciting journey. However, navigating the legal landscape of a foreign country requires extreme attention to detail. Recently, our team experienced an incredibly rare and unfortunate situation: a property seller backed out just four days before closing.
While financially and emotionally taxing for everyone involved, this experience highlighted a critical legal loophole in many standard Costa Rican real estate contracts. Here is what happened, the legal trap that allowed it, and exactly how we are changing our contracts to protect our buyers moving forward.
The 11th-Hour Collapse
We recently listed a beautiful property on behalf of a seller (“Person 1”). Within just 10 days of hitting the market, we secured a fully qualified buyer. After the normal back-and-forth between attorneys, the Purchase and Sale Agreement (PSA) was signed, and closing was set for 50 days later.
Everything proceeded perfectly. The buyers transferred their escrow funds, their attorney meticulously checked the title, inspections were completed, and we took a full inventory of the included furnishings. The due diligence period was successfully approved, and the buyers even booked their flights to Costa Rica for the closing.
Then, everything unraveled.
The property was owned by a Costa Rican corporation (sociedad), split 50/50 between Person 1 and a partner (“Person 2”). While Person 2 initially agreed to the sale, he unexpectedly sold a different asset during our escrow period. Flush with new cash, he suddenly decided he no longer wanted to sell this property and planned to buy out Person 1 instead. Just four days before closing, he refused to sign the final authorization.
The Legal Trap: What is “Article 32 ter”?
In Costa Rica, when a property owned by a corporation is sold, the sellers are legally required to execute a document governed by Article 32 ter of the Commercial Code.
This document is a formal shareholder assembly resolution proving that the majority of the corporation’s owners actually agree to liquidate the asset. It exists to prevent rogue partners from selling a company-owned property without the others knowing, preventing future lawsuits.
Standard practice in many Costa Rican real estate transactions dictates that this document is provided at closing, or occasionally during the due diligence period. In our case, the sellers delayed paying their attorney to draft the formal 32 ter document until after the buyer approved due diligence, as they didn’t want to incur the expense in case the buyer backed out for some reason. When the time finally came to sign it, Person 2 simply refused, legally paralyzing the corporation from transferring the title.
The Loophole in Standard Purchase Agreements
You might be wondering: Can’t the buyers sue the seller for breach of contract?
Here is the harsh reality of many standard Purchase and Sale Agreements (PSAs) in Costa Rica: If a buyer backs out after due diligence, they forfeit their initial deposit to the seller. However, if a seller backs out, many boilerplate contracts simply state that the initial deposit is returned to the buyer, with zero additional penalties.
Because of this standard phrasing, the seller was able to walk away with virtually no legal repercussions. Meanwhile, the buyers were left without their dream property, out-of-pocket for their inspection and legal fees, and holding useless airline tickets. As the agents who successfully brokered the deal, we were also left with no commission after weeks of hard work.
Lessons Learned: How We Are Protecting Our Buyers
A seller backing out of a binding sales contract is incredibly rare in the Costa Rica real estate market. However, “rare” is not an excuse to leave our clients unprotected.
To ensure our buyers never have to experience this emotional and financial whiplash, we are implementing two mandatory clauses in all future PSAs we draft for our clients:
- Upfront Corporate Authorization: If a property is held in the name of a Costa Rican corporation, the 32 ter shareholder agreement must be officially signed and presented within 5 days of signing the initial contract. We will no longer wait for due diligence to end to verify that all corporate partners are legally bound to the sale.
- The Seller Penalty Clause: If the seller breaks the agreement for any reason after signing, they will be legally required to pay the buyer a penalty equal to 2% of the total sales price as compensation for damages. (Note: This penalty strictly applies to a seller arbitrarily backing out; it does not apply if a contract is canceled because the seller refuses a buyer’s request for a price reduction after a home inspection).
Work With Agents Who Evolve
Navigating the Costa Rican real estate market requires more than just finding a pretty house; it requires aggressive, proactive representation. We learn from every single transaction, adapting our strategies and contracts to ensure your investment is fiercely protected from day one until the moment you get your keys.
If you are looking for safe, secure, and expert real estate guidance in Costa Rica, contact our team today.
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