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How to reduce your risks when buying off plan

If you’re buying an off-plan property in Cyprus for which Planning and Building permits have not been issued, the easiest way to reduce the risks and protect your interests is to put your stage other payments in escrow until such time as the property developer presents the required permits to your escrow agent.

THE majority of Brits buying new property in Cyprus buy ‘off plan’ from one of the many developers. (Off plan is where a property being bought is at the planning stage and has yet to be built)

One of the potential benefits of this approach is that in a rising market, it is possible that the value of the property will increase between the time that the contract is signed and you take delivery.

However, there are also a number of risks associated with buying off plan. If you are a regular reader of this news magazine, you will have read about the various property scams, the Title Deed nightmare reported on Channel 4 and the many other problems that beset the property industry in Cyprus.

In addition to these problems, potential buyers also need to be aware of the fact that off-plan properties are very often marketed before the required Planning and Building permits have been issued for their construction. Indeed, some ‘property developers’ even start construction work before these permits have been issued – even though this is illegal.

I have no problem with property developers risking their money by building illegally. However, if you hand over money to a developer before permits have been issued for the construction of your property, you are putting your money at risk.

What are the risks?

There are several risks associated with buying property before the required Planning and Building permits have been issued, including:

  • The Town Planning Department may refuse to issue the developer with a Planning Permit – or it may require him to make substantial changes to the design that makes the property unrecognisable from the one that you have contracted to buy.
  • Similarly the Municipal Authorities and District Administration Offices may refuse to issue Building Permits, until the developer has changed to design to comply with regulations.
  • The Cyprus Electricity Authority will not connect a property to the mains supply until its Building Permit has been issued. So you could end up taking delivery of a property without a permanent electricity supply – and you will be unable to get a permanent supply until the matter has been resolved.
  • Some ‘property developers’ sell off plan properties they know they cannot build. For example, a couple who contacted me bought a penthouse on the third floor of a block of apartments. Several months and stage payments later, the developer told them that they couldn’t have an apartment on the third floor, so they were changing the contract for one on the second floor. Needless to say the couple were very annoyed! They were absolutely furious when they discovered they couldn’t get out of their contract or get their money back! (They’d used the developer’s ‘pet’ lawyer). I soon discovered that there was a two floor height restriction in the area in which the apartments were being built – a fact that the property developer would have undoubtedly known about when he sold the couple an apartment on the third floor!
  • The authorities may issue a demolition order against the owner or tenant of a property that has been built unlawfully. If this happens, buyers are at risk of losing everything.

In summary, if you hand over money to a property developer before Planning and Building permits have been issued for a property’s construction:

  • The property you take delivery of may be significantly different from the one you thought you were buying.
  • You may have no permanent electricity supply.
  • You may be conned into buying something the developer knows he cannot build.
  • The property could be demolished if it’s been built illegally.

(I should point out that professional property developers do things properly – it’s only the rogues and conmen masquerading as ‘property developers’ who break the law.)

How to reduce your risks

If you’re buying an off-plan property in Cyprus for which Planning and Building permits have not been issued, the easiest way to reduce the risks and protect your interests is to put your stage other payments in escrow until such time as the property developer presents the required permits to your escrow agent.

For those of who have not heard the term ‘escrow’, it is a process by which money, documents, or other property is held by a neutral third party (known as the escrow agent) until agreed upon conditions have been fulfilled. (In the case of buying an off plan property, the condition will be that the developer presents the Planning and Building Permits to your escrow agent).

Any decent independent lawyer will act as your escrow agent and will incorporate the necessary clauses into your contract of sale with the property developer.

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