QCOSTARICA – It is common that at the beginning of the year house or apartment rent goes up, as landlords adjust rents. However, according to Ley 7527, Ley General de Arrendamientos Urbanos y Suburbanos (Law 7527, General Law of Urban and Suburban Leases), the increase cannot be whimsical.
In Costa Rica, residential rental contracts are for a minimum of three years, regardless if the contract (lease) calls for a shorter term and as such increase in the monthly rental after the first year of contract must be equal to or less than the inflation rate of the 12 months prior to the expiration of the contract.
ARTICULO 70.- Plazo del arrendamiento. “La duración del arrendamiento no podrá ser inferior a tres años. Se entenderán convenidos por el plazo de tres años, los arrendamientos para los que se haya estipulado una duración inferior o no se haya fijado el plazo de duración. El plazo se contará a partir del día en que el arrendatario recibe el bien.” (ARTICLE 70.- Term of the lease. The duration of the lease may not be less than three years. Leases for which a shorter duration has been stipulated or the duration period has not been set shall be understood to have been agreed for a period of three years. The term will be counted from the day the tenant receives the property). See legislation (in Spanish) here.
In other words, the annual increase in the monthly payment corresponding to residential rent cannot be greater than the Consumer Price Index (CPI) published by the National Institute of Statistics and Censuses (INEC) in mid-December 2020 or the beginning of January 2021.
For example, if we use the adjustment that is in force for 2020, according to the IPC, the maximum increase is 1.52%, the IPC as of December 2019.
However, residential rent in US dollars or any other foreign currency cannot increase the monthly payment since the law recognizes that the appreciation of the currency is sufficient.
ARTICULO 67.- Reajuste del precio para vivienda. Cuando el precio del arrendamiento de una vivienda sea en moneda extranjera, mantendrá la suma convenida por todo el plazo del contrato, sin derecho a reajuste. (When the rental price of a home is in foreign currency, the agreed amount will be maintained for the entire term of the contract, without the right to readjustment). See legislation (in Spanish) here.
It is recommended that there is a written contract, but if there is not, what must be proven is the start date of the rental agreement, and the easiest way to prove this is by saving the receipts for the monthly payment.
At end of the contract (3 years) a new monthly payment can be negotiated between the landlord and tenant.
Excluded from Ley 7527, Ley General de Arrendamientos Urbanos y Suburbanos are hotels, bed & breakfasts, hostels, and vacation homes, for stays up to 30 days.
What to do in case your rent is increased beyond what the Law stipulates?
Keep in mind that any increase in the monthly payment greater than what is allowed by law is illegal; If your landlord does demand an increase, you have two options to prevent abuse:
- Notify the landlord in writing: Spell out through written means, be it a letter or an email, inform your landlord that you have deposited the monthly payment agreed in the contract plus the adjustment of the CPI authorized by the INEC. If the 2021 adjustment is not yet available use 2020 as a reference.
- Go to the civil court: Depending on your place of residence, you can go to the nearest civil court and request a rental consignment. This option is recommended when your landlord does not accept the monthly payment according to what is stipulated by law, because the landlord may tell you that it does not accept the payment unless and threatens a breach of contract that could eventually lead to an eviction. By going to the civil court, you are ensuring compliance with the payment in accordance with what the law indicates.
Verbal contracts have the same validity
Although in urban areas it is common for rental contracts to be in writing, in more rural areas it is usual for them to be verbal, “an agreement between neighbors”.
The Law is clear, verbal contracts have the same validity as a written agreement, therefore, for the purposes of increasing the monthly payment, both landlord and tenant, must respect all the conditions that the Law regulates, such as the minimum lease term of three years and adjustments to rent.
Finally, bear in mind that the increase in the monthly rent is optional.
This means that if the parties agreed not to raise the annual monthly rent then there will be no increase. But if there is an increase stipulated, it cannot be greater than the CPI regardless of what the landlord and the tenant have signed.
To be clear, if the contract does not indicate that every year the amount of the rent would be adjusted, according to what is allowed by law, then it is understood that the agree rent in that contract will not increase until the contract expires after the term agreed, which cannot be less than three years, when they will have the opportunity to renegotiate the amount of a possible new contract.
Confusion
There is some confusion in all of the above, rental terms, rent increases and contracts in foreign currencies.
Previously, the Law stipulated rents in colones could automatically be increased 15% each year, and rents in foreign currencies (ie US dollar of Euro) could be increased by stipulating the increase in the contract.
In addition, many a foreigner, not well informed on Costa Rica’s residential tenancy law, accept terms contrary to the law, such as renting for a six month period, then renewing for another six months at a new rent. And repeating.
Another point of confusion is the three year term. While ALL residential rental contracts are for three years, a tenant can leave prior by giving at three months prior notice and in most cases forfeiting the security deposit.
ARTICULO 72.- Extinción del contrato por el arrendatario. Salvo pacto escrito en contrario, el contrato de arrendamiento se extingue cuando el arrendatario avisa al arrendador, con tres meses de anticipación, su voluntad de terminar el arrendamiento. La extinción del contrato no altera las responsabilidades de las partes en cuanto a los demás derechos y obligaciones nacidos del arrendamiento. (ARTICLE 72. Termination of the contract by the lessee. Unless there is a written agreement to the contrary, the lease is terminated when the tenant notifies the lessor, three months in advance, of his wish to terminate the lease. The termination of the contract does not alter the responsibilities of the parties regarding the other rights and obligations arising from the lease).
