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HomeTopicsExpat LivingCosta Rica Contract Nightmares: How to Protect Yourself

Costa Rica Contract Nightmares: How to Protect Yourself

Signing a contract or making a deal in Costa Rica can be the simplest thing, full of good faith and trust for all parties involved or it can be a nightmare experience in which, usually the weakest party, must suffer the loss of time, money and hope and in some cases the stronger party can count on this as leverage.

Investors and businesspeople that visit Costa Rica can be divided into those that have great corporate legal advice and on the other hand, the rest of the people that come to buy a property, lease a house, rent a cabin, build a house, buy a car, start a business and so on and don’t expect to have to hire a lawyer to enter into a relatively small deal.

When a person decides to contract a good or service, he or she has usually had some communication with the seller or offeror and is usually pleasantly impressed with the manner, treatment, and service, simply because the seller will probably put his best foot forward in order to get the sale. In my experience one can usually trust reputable businesses to carry out their obligations in a timely and responsible manner. The trick is distinguishing those who are reputable from those who are not.

In the beginning there is a lot of trust involved and in many, many cases, even a friendship has evolved between the parties. The buyer or client finds it hard to “offend” the seller by requesting all the elements of guarantee that, deep down in his or her mind, they know they should require.

A contract in Costa Rica has some very simple rules and some nuances that people should consider before signing and handing over their hard-earned money.

A contract must clearly state who is contracting for each side. Identifying the contracting parties should be a simple matter but contracts are often negated or annulled because the contracting parties are unclear or outright false. If it is an individual, the contract must state the full name, with both last names if they are from Costa Rica, the marital status, the activity or profession, the exact address and the cedula (national ID) or passport number.

It must be stated if the person is acting on their own behalf or in representation of a company, an association or other group. Corporations must be identified by name and by “cédula jurídica” number (corporate ID number) and it´s essential to check that the corporation is current and up to date in taxes.

If more than one corporation is mentioned, the responsibility for each entity should be precisely defined. The address for the purpose of notification is extremely important in case the situation ends up in court and the opposing party must be served.

A contract must have a specific time frame for compliance, for both or all parties. It should be clear who is supposed to perform each action and on which dates. Very often these aspects are so uncertain that it is difficult to prove there is a breach of contract. There should be no blank spaces that can be filled in later. Each party must perform some consideration. It is important each party is certain they can perform theirs in a timely manner.

Performance is an essential aspect of the contractual relationship, and it is sometimes difficult to pinpoint. For example, in construction contracts, the owner can often want to change his mind about this or that element (color, types of materials, etc.) and those changes can cause important additional expenses which were not contemplated in the contract wording.

Other examples can be the quality of the materials, the time of performance, warehousing costs, unexpected expenses, import duties, transportation, security, weather issues and many others.

In Costa Rica a contract must be set in Spanish because if that contract ends up being disputed in court, it will not only have to be officially translated but at that point the parties are leaving, in the hands of the translator, the possible meaning of essential concepts.
Many times, to make it easier or more convenient for the client, sellers or agents will have the contracts drafted in English and as long as everything goes well, there’s obviously no problem but when problems arise, and the contract has to be judicially disputed, legal costs skyrocket.

In Costa Rica a contract can certainly be stated in US dollars but if it goes to court, that dollar amount must be converted into Costa Rica colones at the outset of the court process and the final sentence will be in colones, and the collection of money will necessarily be done in colones.

There are some special contracts that can be executed in dollars for certain reasons, such as import and export contracts but, in any case, at the end of the day, the loser who must pay, can pay in colones, at the official exchange rate of the Costa Rica Central Bank. The colon has been a very stable coin for a long time, but when dealing with large sums of money, that exchange rate should be an important consideration.

When entering an important contractual relationship, no matter how nice or responsible the opposing party may seem to be, one must, for a moment, mentally assume that this business relationship will end up in court and one must do that in order to take all necessary precautions, precisely to avoid going to court, spending thousands of dollars and losing a friend.

Some important questions one must ask oneself are the following: If things go bad what are my real chances of recovery? Does this person or company have enough assets or insurance to reimburse me if there is a problem? Is there a way to establish an escrow or trust account where the money can be safeguarded until my opposing party complies?

If a person finds it difficult to be upfront with their counterpart, they might consider hiring a lawyer or other representative to speak for them. It will be less expensive to hire a representative before the contract is signed than hiring a lawyer when you must go to court.

An important difference with other countries is that, in Costa Rica, certain contracts or actions must be performed by a Public Notary. The Public Notary here is very different from the U.S. figure. In the U.S., the public notary is no more than a qualified witness, whereas in Costa Rica the “Notario Público” will necessarily be a lawyer (or a diplomatic official in embassies overseas).

He is obligated to give BOTH parties legal advice and cannot represent one party in detriment of the other. He or she must be impartial. The “Notario Público” is there to ensure the LEGAL ACT ITSELF is done correctly.

He is not there to represent one party against the other but rather to protect the legality of the act he is authorizing. That said, the Notario Público will probably be more likely to protect the interests of the party paying his fees, for which reason, in practical reality, each party usually hires their own.

Contracts that must be registered such as marriages, divorces, wills and estates, transfers of property, mortgages, car sales, liens, encumbrances, property limitations, subdivisions of land and many other acts MUST be performed by a Notario Público and must be entered into a large book with Folio size pages that is called a “PROTOCOLO”.

Contracts is an enormous area of the law. A failed contract does not necessarily need to end up in court because an important option, usually for smaller claim issues, is the “Comisión Nacional del Consumidor” (Consumer Defense Office), which is a powerful government office that protects the consumer and works very well.

For everyday contractual situations the best thing is to use keen common sense. In the first place, understand we are in a different country, with some particular rules and a specific legal culture. One cannot simply try to transpose a foreign legal culture. It is important to not be impulsive; to check a business´ references (performing a background check can usually prove useful) and find others that have contracted with them. In business reputation should be paramount. It is impossible to foresee all possible scenarios but the best advice, in practical terms, is always to deal with very reputable businesses.

About the Author

Lic. Jorge Montero B. is an attorney educated in the U.S.A. and in Costa Rica. He holds various specialties and master’s degrees in criminal, Commercial, Environmental and Agrarian Law from the University of Costa Rica and has over 30 years of litigation, contract and counsel experience.

Tel: (506) 8384 – 2246
WhatsApp: (506) 8384 – 2246

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