Breach of Contract in Costa Rica: Your Legal Options

Breach of Contract in Costa Rica: Your Options and How to Enforce Them

A breach of contract in Costa Rica happens when one side fails to deliver what it promised, delivers it badly or delivers it late. It might be a builder who disappears with your deposit, a supplier who never ships, a buyer who stops paying or a local partner who walks away from a distribution deal.

Costa Rican law gives you several options, and the right one depends on what you actually need: getting the job done, ending the relationship, getting your money back or recovering what you lost. This guide explains those options, the contract clauses that change the game and the mistakes we see most often, especially with clients managing a project or business from abroad. It is part of our guide to civil liability in Costa Rica.

What counts as a breach of contract in Costa Rica

Breaching a contract is not only doing nothing at all. Article 702 of the Civil Code says that a party who fails to perform its obligation, whether in substance or in manner, is liable for the damages that follow. In practice, that covers four situations:

• Total breach: the work or delivery never happened.
• Partial breach: only part of what was agreed was delivered.
• Defective performance: what was delivered is different, of lower quality or flawed.
• Late performance: it was delivered after the deadline, and the delay caused you harm.

Start by rereading the contract carefully: what each side committed to, by when, under what conditions and with what consequences. Often, part of the answer is already in the document.

Your options after a breach of contract in Costa Rica

In two-sided contracts, Article 692 of the Civil Code says that the right to terminate for non-performance is always implied. The party that performed can choose between two paths, and claim damages on either one:

The choice is commercial as much as legal. Demanding performance from an insolvent party may get you nowhere; terminating a contract that still benefits you can be expensive. It is a decision worth making with advice.

The formal demand

Before suing, it usually makes sense to send a formal written demand giving the other side a reasonable time to perform. That letter does several jobs at once: it documents the breach, it may be required to put the other party in default depending on the contract, it opens the door to a settlement and it shows the judge you acted in good faith.

Wording matters. A letter that admits too much, sets the wrong deadline or accidentally waives a right can be used against you later. In Costa Rica the demand should be in Spanish and sent in a way that leaves proof of delivery. If the amount or the relationship matters, have a lawyer prepare it.

Contract clauses that change the game

A well-drafted contract decides much of what happens when things go wrong. Pay special attention to these clauses:

• Penalty clause: sets an agreed amount payable if a party breaches, governed by the Civil Code from Article 708 onward. It can make collection easier but may also cap what you can recover, depending on how it is written.
• Limitation of liability: caps on damages or exclusions of certain losses. Not all of them hold up; a clause trying to excuse intentional misconduct, for example, will not.
• Arbitration or conciliation: if the contract sends disputes to an arbitration center, that is where the case goes, not the ordinary courts. Costa Rica is party to the New York Convention, which matters for enforcing arbitral awards across borders.
• Governing law and language: contracts copied from U.S. or European templates often clash with Costa Rican rules, especially on real estate and employment.
• Guarantees: bonds, deposits, bank guarantees or an escrow arrangement let you collect without waiting out a long lawsuit.

If you are making significant payments against future delivery, such as a home build, holding the funds with a trusted third party drastically reduces the risk. AG Trust, part of our group, offers trust and escrow services designed for exactly that.

What damages you can recover

Beyond the performance itself or the return of what you paid, you can claim damages that are the immediate and direct result of the breach, under Article 704 of the Civil Code. That includes the extra cost of getting the work done by someone else, the cost of fixing poor work, profits lost because of the delay and interest on amounts owed.

In some cases moral damages are also recognized, for example when the breach affects your family home or the reputation of your business. We explain how each type of loss is proven in our guide to suing for damages in Costa Rica.

Before you claim: did you do your part?

In two-sided contracts, the party demanding performance should have performed, or be ready to perform, its own obligations. If you also have pending payments or missed deliveries, the other side can use that as a defense.

That does not sink your claim, but it means the facts must be laid out carefully: who breached first, how serious each breach was and what was communicated along the way. That reconstruction often decides the case.

Contracts where we see the most breaches

• Home building and renovation: abandoned projects, delays, defective work, deposits never used for the job. A very common problem for owners managing a build from abroad.
• Property purchases: missed payments, deeds that are never signed, undisclosed liens. If the dispute is about title, see land disputes in Costa Rica.
• Leases: unpaid rent, damage to the property, evictions, governed by Law 7527 on Urban and Suburban Leases.
• Purchase of goods: products never delivered, delivered with defects or different from what was offered.
• Professional and tech services: software, consulting or marketing projects not delivered as agreed.
• Distribution, supply and franchise agreements: early terminations, broken exclusivity, missed targets.

Business-to-business contracts and foreign companies

When the contract is commercial, the Commercial Code applies, with shorter limitation periods than the general civil rule and trade practices that can shape how the contract is read. Many business contracts also include arbitration clauses, which moves the dispute to an arbitration center.

Foreign companies should be especially careful with local distributors and representatives. Law 4684 on the Protection of Representatives of Foreign Companies can affect how a distribution relationship may be ended and what compensation may be owed. Get advice before terminating one of these agreements.

For companies, the cost of a breach is not only the amount in dispute: it is also client relationships, cash flow and management time. In business disputes we usually look first for a negotiated outcome that protects the business, without losing sight of deadlines or evidence. If you are setting up or running a company here, see our guide to companies in Costa Rica and our corporate compliance calendar.

What can you demand in your case?

Answer five questions about your contract to get a preliminary view of the options the law gives you.

How to enforce a contract in Costa Rica

1. Review the contract and the evidence: obligations, deadlines, penalty clauses, arbitration, messages and payments.
2. Choose the strategy: demand performance, terminate or negotiate, and decide which damages to claim.
3. Send a formal demand: a written notice, in Spanish, that documents the breach and sets a deadline.
4. Negotiate, conciliate or arbitrate: depending on what the contract says and what serves the business.
5. Sue: if there is no agreement, go to the courts or to the agreed arbitration. If the debt is in a suitable document, faster collection procedures may be available.
6. Enforce: attach assets, call on guarantees or enforce the judgment or award.

Common mistakes after a breach of contract

• Continuing to pay advances without verifiable progress.
• Negotiating only by phone or in person, with nothing in writing.
• Ending the contract on your own without the proper steps, and becoming the breaching party.
• Hiring a new contractor before documenting the state of what the previous one left.
• Ignoring the arbitration clause and filing in the wrong forum.
• Letting time pass because the other side keeps promising to pay.

Preventing disputes from the start

The best protection against a breach is written before you sign. A solid contract defines obligations precisely, sets measurable deliverables, ties payments to verifiable progress, includes guarantees, regulates early termination and picks the right dispute resolution mechanism. Contracts drafted for another country's laws often leave gaps under Costa Rican law. If you are about to sign an important contract, a review now costs far less than litigation later. You can request one through our contact page. You can also email us directly at info@aglegal.com with a short description of what happened, and we will send you a link to schedule a video call to talk through your case.

Frequently Asked Questions

What can I do if someone breaches a contract in Costa Rica?

You can demand performance or terminate the contract, and claim damages either way, under Articles 692 and 702 of the Civil Code.

What does Article 702 of the Costa Rica Civil Code say?

That a party who fails to perform its obligation, whether in substance or in manner, is liable for the damages that result.

What does it mean to terminate a contract for breach?

It ends the contract because the other side did not perform. It involves returning what was exchanged and, where appropriate, paying damages.

Do I need to send a demand letter before suing?

In most cases it is a good idea. It documents the breach, may be needed to put the other party in default and opens the door to a settlement.

What is a penalty clause?

A clause that sets an agreed amount payable if a party breaches. It can simplify collection but may limit what you recover, depending on its wording.

My builder took my deposit and disappeared. What can I do?

You can demand performance or terminate and claim the deposit back plus damages. Document the state of the work before hiring anyone else, and act quickly to preserve evidence and locate assets.

What if I did not fully perform either?

The other side can use your breach as a defense. It becomes important to establish who breached first and how serious each breach was.

Where do I file if the contract has an arbitration clause?

With the arbitration center named in the contract. The ordinary courts will generally not decide the merits.

How long do I have to sue for breach of contract in Costa Rica?

It depends on whether the contract is civil or commercial. Contracts between merchants have shorter periods than the Civil Code's general ten-year rule.

Is a verbal contract enforceable in Costa Rica?

Verbal contracts are valid in many cases, but proving their terms is harder. Messages, payments and witnesses help reconstruct them.

Can I enforce a contract while living outside Costa Rica?

Yes. Your lawyer can act under a special power of attorney, and foreign documents can be used once apostilled and officially translated into Spanish.

Recommended Reading

• Civil Liability in Costa Rica: Complete Guide
• Suing for Damages in Costa Rica
• Malpractice in Costa Rica
• Personal Injury in Costa Rica
• Companies in Costa Rica

This article is for general information only and is not legal advice for any specific case. Every claim depends on its facts, its evidence and the applicable deadlines. To discuss your situation, contact AG Legal.