Property Law/Need-To-Know-Guide

The first tip is that one should always get independent legal advice before buying property in Cyprus. Even though the system is relatively simple yet legal advice is a must for reasons that will become obvious below.

The Land Registry System.

Cyprus has one of the best land registry systems in the world in the sense that all land is recorded and registered and every owner has a title deed. So all land in Cyprus is freehold. This means that you are the absolute owner of the land once you have a title deed.

The Contract of Sale.

This is sometimes called the “contract of purchase” , the “sale agreement” etc. It is basically the legal document with which a buyer agrees to purchase the property from a seller. The seller is usually the developer of the land.

It is of crucial importance to deposit the contract of sale, once signed, at the land registry of the district where the property is situated. Deposition of the contract of sale acts as a charge on the property and the seller cannot sell it to a third party. In addition, deposition of the contract of sale at the land registry gives the right to the buyer to sue the seller for specific performance of the contract in case the seller does not, for any reason, transfer the property (when a title is issued ) to the buyer. 

If the buyer does not deposit the contract of sale at the land registry  then in case of seller’s default (i.e. in case the seller refuses to transfer the property to the buyer when title deeds are issued) the buyer’s  only remedy is to sue for damages.

The Title Deeds.

The biggest problem is with the title deeds. Buyers should make sure that the seller is in a position to issue title deeds so that he can transfer the property to them.

Title deeds are issued after the project (whether a house or flat is ) is completed and provided that the Building Authority checks that the development in question is in accordance with the planning and building permit.

There is a lot of delay by the authorities to inspect and approve new properties and for this reason there is delay in the issuance of title deeds. In Nicosia, for example, it takes 18 months to 2 years for a title deed to be issued whereas in other areas like Paralimni it may take 5 years or more.

Another reason for the non-issuance of title deeds is defects in the building or deviations by the building permit with the result that the project does not get final approval. In such a case the developer must correct the problems and sometimes this may be difficult, impossible or too expensive.

The worst scenario, however, occurs where the developer has a mortgage over the land – usually in favor of a bank - for a loan. In this case, which happens all the time, the developer has to repay the loan in full before the bank lifts the mortgage and title deeds are issued. If the developer has financial problems or even worse he goes into liquidation the whole thing may end in a nightmare. Why? Because the bank has a priority over everyone else on the land and building and consequently may sell it to a third party or not release the mortgage. So the buyers remain totally exposed and there have been cases that buyers had to pay twice the value of their property by repaying the developer’s loan to the bank, in order to free the property.

The Bank Guarantee.

This is the stage where a bank guarantee is important.

A bank guarantee is a guarantee issued by a  bank in favor of the buyer. Very simply stated the bank guarantee says that in the event the developer is not in a position to issue a separate title deed within X years,  then the bank will pay the buyer  the amount stated in the guarantee. In this way the buyer is sure that if the seller goes bankrupt or does not comply with the permits and cannot issue titles, he will at least get all or some of his money back, depending on the amount of the guarantee.

The problem with bank guarantees is twofold: First the question arises who pays the bank charges. Banks charge 1.8% per year as bank charges on the amount guaranteed. If the bank guarantee will be valid for 2 or 3 years then this is an additional cost. Secondly many developers –especially young companies - refuse to give a bank guarantee because this in practice means that they will have to “lock” their money in the bank for the amount of the bank guarantee. In addition they will be exposed in case for some reason there is delay in the issuance of title deeds and a buyer cashes a bank guarantee. It should be noted that cashing a bank guarantee does not mean that a buyer loses his property. A bank guarantee is an additional safeguard.

Two or three years ago developers were more willing to give bank guarantees. At the moment, however, due to high demand they have no reason to do so.

As a matter of practice , for example, for contracts of sale made in Nicosia developers agree to bear the costs of a bank guarantee after 2 years from the date of the contract because (usually) title deeds are ready within 24 months from delivery of the property. In Paralimni, on the other hand,  are different and there is a lot of delay so developers do not want to bear any costs because they know that a title cannot be issued within 2 years. It usually takes between 5 – 7 years.

How can we help?

Property law is a key area of our practice. Our managing partner is member of the Board of Directors of the Cyprus Association of Immovable Property Owners, and we advice regularly on property law related issues. Our clients are primarily from the UK and the local market.

Some of the services that we provide are:

• Confirmation of the ownership of the property.
  
• Checking the property has any charges.
  
• Checking the credibility of the seller.
  
• Inspecting if the necessary permits are in place like for example town planning permit, building permit etc.
  
• Drafting the contract of sale.
  
• Depositing the contract of sale at the land registry.
  
• Obtaining, where necessary, permits from the Council of Ministers.