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Why share OWNERSHIP instead of a CONDOMINIUM?

Legal Structure
and Financing
   

Both SHAREHOLDER COOPERATIVES and CONDOMINIUMS are recognized legal forms of ownership in Costa Rica. The condominium structure is more common in Costa Rica and in North America. In day-to-day operation they can (and in our case are) the same.

The main difference between the two structures in this case is that a Purchaser buys SHARES of the Corporation, which owns all the land. In a condominium, the person has title to the land on which the house sits and shares the right of use of the common elements.

DESCRIPTION

When I say "cooperative" possible images of 1960's "hippy" communes or kibbutz's come to mind —not so. A "shareholder" in Doneste S.A. —the registered owner of the land and improvements thereon— is like a shareholder in any small or large company. Residencias Los Jardines de Pozos S.A. is the builder; it owns all 200 shares of Doneste S.A. Once the construction is completed,
Doneste S.A. will purchase all the assets of RLJ de Pozos S.A. (a paper transfer) RLJ de Pozos S.A. will cease to exist. This ensures that all the assets are now transferred to and owned by Doneste S.A.

At this point in time, a Purchaser buy shares in Doneste S.A. which are wholly owned by Residencias Los Jardines de Pozos S.A. Each house has been allocated a fixed number of shares, e.g. house 109 has 11 shares allocated to it and house 113 has 10 shares. Owners of those shares have the RIGHT OF EXCLUSIVE USE INPERPETUITY of a specific house and RIGHT OF COMMON USE OF THE COMMON ELEMENT FACILITIES. These RIGHTS are written into the Agreement of Purchase and Sale and are further reinforced and defined in the Shareholder Agreement which forms part of the Agreement of Purchase and Sale. All of the shares of Doneste S.A., except those which the Developer retains respecting any continued ownership of the project which it may have, will eventually transfer by way of purchases, to future Doneste S.A. shareholders. The voting control of the property will also transfer from Residencias Los Jardines de Pozos S.A. to Doneste, S.A., when future share purchases have been consummated.

The subsequent sale of shares of Doneste S.A., by owners of those shares is UNRESTRICTED.

The property management company, the local real estate industry, and other shareholders can assist in re-selling; or alternatively, the Owner of the shares can market the shares him/herself.

EXPLANATION

The main difference between the two structures is that a Purchaser buys SHARES of the Corporation, which owns all the land and buildings. That ownership of the land is registered in the National Land Registry Office, in the name of, Doneste, S.A.; this is verifiable by the Share Purchaser's lawyer. A "condominium" owner has title to the property on which the house sits and common use of the non-titled common property. Regardless, of this distinction, an owner can only "use a house" —you can't eat it, you can't move it. Each legal structure has some advantages and some disadvantages.

Being registered "on title" means your ownership can be traced and if it can be traced, it can be seized or taxed more easily by those countries looking at world-wide income or attached by an unhappy spouse, a creditor, or if one were to be sued in Costa Rica. Having a non-traceable asset would be more desirable. Visibility of ownership is even possible if the property is held in a corporate name —a common form of ownership in Costa Rica. Property ownership can be traced by those really wishing to do so. A lot of work and expense has to go into making and maintaining non-visible ownership. A question to ask at this point might be: How can I trust those hired to hide the asset? Problems begin with finding and trusting a Costa Rican lawyer. Sorry to say this, but most people would agree with this pejorative assessment —there are many, many horror stories that can be told.

Share ownership does not require registration of the shares in an public forum; possession, identification and a private paper trail is all that is necessary to claim RIGHT OF USE benefits. The shares can be held in a secure location, eg. safety deposit box, and sold, gifted, or passed along in your estate, and the rights associated with those shares go with the shares.

In Costa Rica, real estate is frequently owned by single purpose corporations. The transfer / sale of property normally takes the form of buying the shares of the company or the assets of the company. In addition to maintaining a degree of anonymity share purchase avoids land transfer tax. Buying the shares of an existing corporation avoids the necessity of establishing one's own corporation (about $800 + annual filings. Finally, corporate tax on this type of corporation has become a bit of a political football. At one time, an annual tax of $2,000 on small corporations was discussed. The current interim emergency tax schedule has settled on approximately $300-$500. However, this is subject to change when the final legislation is approved and is likely to be always viewed as a source of revenue by the government.

Local banks will finance condominiums; they will not finance cooperatives.

Banks in CR differentiate between residents and non-residents. If you are a resident, it is easier to get mortgage financing; if you are a non-resident it is more difficult, more expensive, more time consuming and more financial disclosure is required. In addition, when a mortgage is granted by a bank, it is registered on title. The value of the property is then taxed on something not less than the registered mortgage value. Historically in CR, the sale price for properties without registered mortgages are normally substantially understated in order to reduce the annual property tax.

In short, when viewed in a larger perspective share ownership has its advantages.

Financing

The owners of the development are builders —not bankers.

The houses are moderately priced and are affordable by many. Most purchases have used their resources and have purchased outright. For those who required financing, purchasers have used their N. Am. sources—they are cheaper and easier to deal with. Recently (June 2006) a N. Am. company approached us offering to finance the property here. In several cases, the Developers have provided some short term bridge financing to allow purchasers time to get the affairs reoriented.

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