Letter of Intent vs Purchase Agreement

Finding the property of your dreams in Costa Rica can be thrilling — the ocean views, the lush surroundings, the promise of a new lifestyle. But in that excitement, many buyers rush into signing documents they don’t fully understand. In this guide, we’ll clarify two key documents often used in Costa Rican real estate transactions — the Letter of Intent (LOI) and the Purchase Agreement (PSA) — and explain how to handle them wisely.

We’ve said it before and it bears repeating: always get proper legal advice before signing anything. This applies not only to real estate but to any important transaction in life.

Learn what to look for when hiring a real estate broker in Costa Rica. 

What Is a Letter of Intent (LOI)?

A Letter of Intent (LOI) is a preliminary document expressing one party’s interest in entering a future agreement — for example, a buyer showing intent to purchase a property.

It’s meant to be simple and non-binding, outlining only the main terms of the potential deal such as:

• The identities of the parties involved
• The property or asset in question
• The general price or range
• A timeline or intention to proceed

Once the LOI is signed, both sides can take time to negotiate and prepare a detailed, legally binding Purchase Agreement.

Why You Should Be Cautious When Signing an LOI

Although an LOI is intended to be non-binding, in Costa Rica it can accidentally become legally enforceable if drafted incorrectly.

Here’s the issue:
A proper LOI should be unilateral — only the buyer (or the interested party) signs it. However, many real estate agents or sellers include two signatures (buyer and seller), which can transform it into an actual contract under Costa Rican law.

Once both parties sign and key elements like the property, price, and terms are included, it satisfies all the legal requirements of a binding contract, even if labeled “Letter of Intent.”

That’s where problems arise. You might think you’re just expressing interest, but you’ve actually entered into a formal obligation.

What a Proper LOI Should Look Like

A well-drafted LOI should:

• Be brief and clear, avoiding complex legal terms.
• Include only essential information (property, parties, and price).
• Be signed by one party only — typically the buyer.
• Serve only as a statement of intent, not a binding commitment.

Its purpose is simple: to demonstrate serious interest and to motivate the seller to move forward in good faith, without yet creating legal obligations.

Once both parties agree in principle, the details should move to a full Purchase Agreement (PSA), prepared and reviewed by an attorney.

The Purchase Agreement (PSA)

After the LOI comes the real contract — the Purchase Agreement (sometimes called a Purchase Service Agreement). This is the legally binding document that sets out the specific terms of the property sale. Learn more about how to purchase real estate in Costa Rica. 

A well-prepared PSA should cover:

• The object of the contract (the property and its description)
• The purchase price and payment method
• Deadlines for deposits, due diligence, and closing
• Obligations of each party
• Default clauses and remedies
• Conditions for closing
• Mortgage details or encumbrances
• Risk of loss and liability
• Any other special agreements between buyer and seller

In other words, the PSA is where the deal becomes official — and where legal protection truly matters.

Why You Need Independent Legal Representation

One of the most common mistakes foreign buyers make in Costa Rica is relying on the seller’s attorney or agent to handle the paperwork.

That’s a red flag.

Even though it may seem convenient, the seller’s legal team is there to protect the seller — not you. Having your own independent attorney ensures that the Purchase Agreement is drafted to safeguard your interests, your investment, and your peace of mind.

Your lawyer will also make sure the LOI doesn’t accidentally turn into a contract and that the PSA accurately reflects the terms you agreed upon.

The Bottom Line

Buying or selling property in Costa Rica involves serious financial commitments. Whether you’re the buyer or the seller, both parties deserve to have their interests clearly protected.

A Letter of Intent that looks like a contract is one of the most common pitfalls in the Costa Rican real estate market. It can create unwanted obligations and confusion in case of disputes.

Always have your documents reviewed by a qualified professional who understands local real estate law. The right legal representation ensures you don’t sign away more than you intend — and that your dream property doesn’t turn into a legal nightmare.

Feel free to reach us with your questions or comments.