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Legal stakes raised in Cyprus Title Deed scandal

A case about to come before the UK High Court in London against several Cypriot developers and lawyers could help to create a healthy property system in Cyprus according to Dr Katherine Alexander-Theodotou.

The Middlesex Guildhall will house the Supreme Court of the United Kingdom

The Middlesex Guildhall will house the Supreme Court of the United Kingdom

THE legal stakes are about to be raised in the Title Deeds scandal, as a case will be brought before the High Court in London in the coming weeks by property buyers in Cyprus who are still without their Title Deeds. All of them are facing additional – and in their view unjustified – financial demands and/or the risk of losing their property.

We are not just aiming to help individual property owners, we are pursuing the case in the High Court in order to open the road to create a healthy property system in Cyprus,” Dr Katherine Alexander-Theodotou, who chairs the Anglo-Hellenic & Cypriot Law Association (AHCLA), told the Sunday Mail.

UK barristers put the chances of a successful case at more than 65%

The case is being brought against a number of developers and lawyers by 24 named property-owners – British, Cypriot and others – who have lost patience and faith in the Cypriot legal system. It also represents a vote of no confidence in Cyprus’ government institutions – starting with the Interior Ministry – which many people believe are failing to take the necessary steps to solve the Title Deeds mess on a long-term basis. Two UK barristers have assessed the chances of the case succeeding as being higher than 65 per cent, so the funding is ultimately being covered by insurance companies.

Once we have taken this action in the UK High Court, we will take it straight away to the European Court of Justice to ensure that the UK High Court ruling is recognised and enforced in Cyprus,” said Alexander-Theodotou.

title-deed-scam

Property protesters at Peyia

Currently, the Title Deeds to more than 100,000 properties have still not been received by their owners, 30,000 of them non-Cypriot. Pressure groups such as the Cyprus Property Action Group (CPAG) and the Cyprus Land and Property Owners’ Association (KSIA) have made it their business to publicise this issue and to lobby the Cypriot and UK governments for change.

The Title Deed problem has been around for more than 30 years

KSIA President Yiorgos Strovolides said during a demonstration in Peyia by property-owners earlier this month that “this is not a new issue – it’s been around for 30 years or more – and to be fair to the current government, you cannot wholly blame it for the state of affairs. But we believe that it is to everybody’s benefit that something be done about this problem.

More than a month ago, Interior Minister Neoclis Silikiotis talked publicly about a series of legal amendments plus a new piece of legislation which, he said at the time, aimed to remove the main reasons why developers effectively block the issuing of Title Deeds to the rightful owners of new property. The amendments amount to an amnesty for developers who have broken the town-planning laws.

Developers re-mortgage properties – buyers must be sure of what they’re signing

Interior Ministry Permanent Secretary Lazaros Savvides has told the Sunday Mail that the new draft legislation aims specifically to require a developer to release an existing charge on a property – i.e. a legal interest or claim of a creditor – before taking out a new mortgage. “Some developers do enter into arrangements for re-mortgaging properties without releasing the prior charge to the bank,” he said. “Ultimately, the commercial agreement is between the buyer and the developer, so the buyer must be sure of what he is signing.

An experienced lawyer who specialises in property, who preferred not to be named, said that “the amendments will solve a small part of the problem – provided the House of Representatives actually approves them. At the moment, if there is a problem with one flat or unit in a project, then nobody in that project gets a Title Deed until the problem is resolved. Or the developer might have the obligation to build a pavement or access-road, and for all sorts of reasons does not fulfil that obligation. This sort of situation would be resolved by the proposed amendments.

An Interior Ministry official responsible for town-planning issues has confirmed this. He said that the amendments will enable public authorities to bypass uncooperative developers and proceed unilaterally with the issuing of Title Deeds to individual property-owners. He also said that “the new law will give first charge to the buyer of the property, rather than second or third charge after a mortgage borrower.

However, in a written answer given in the House of Lords just over two weeks ago, the UK government said that it had been told by the Cyprus government that the new legislation will only apply to future cases. A spokesman for the British High Commission told the Sunday Mail: “We have been informed that the planned legislation is not intended to be retrospective, but the decision ultimately lies with the Republic of Cyprus, whom we have asked to meet with representatives of interested parties.

When asked why, the Interior Ministry official said: “The new law addresses future sales because it cannot automatically change existing contracts.

Forget future sales if the current situation continues

The response of CPAG President Denis O’Hare was blunt: “Forget future sales, because there will be no future sales if the current situation continues.” As for the next step involving legal action in Britain, O’Hare said: “One of the things we have to do is increase pressure on the government. We’ve tried to do things on a co-operative basis, but have got nowhere. It is a shame that people have to turn to a court in another country to get justice,” he added.

As for timing, the Interior Ministry official said that the draft legislation is currently with the Legal Services for vetting, and then will be presented to the National Council for approval. On this basis, he said that “the aim is to present the draft legislation to the House of Representatives when it resumes work in September after the summer recess.

The catch is that the House of Representatives has a track-record of favouring short-term, narrow interests rather than doing the right thing. The restaurant VAT saga is the most recent example of exactly how a legal measure targeted at a specific problem – easing the crisis in the tourism sector – can be sidetracked and delayed by the legislature.

For campaigners, the crux of the problem is that we have a system resulting from general inaction by successive governments; an absence of clamping down on conniving developers, lawyers and banks; bureaucracy and alleged corruption in public administration; a lack of confidence in the local legal process; and a body of property law that is not sufficient for preventing or penalising abuse.

Alexander-Theodotou said that legal arguments need to be presented for the changes to the law, “which should also answer the question whether any of them comply with European directives and regulations“.

What really needs to happen is for a team of qualified legal experts to sit down, scrap the whole lot of the existing law, and rewrite it on a healthy basis,” she said. “What is happening now is like giving an injection to a dead body which is already in the morgue.

The Cyprus government has created a monster

O’Hare shares this view. “An amnesty didn’t work three years ago, and it won’t work now. Developers simply can’t afford to have Title Deeds issued because of their mortgages,” he said. Referring to the practice of allowing a developer to register a sales contract with the Land Registry instead of a Title Deed, he added: “The government has created a monster.

The net result of years of the current system is the estimated €4 billion debt owed by developers, a significant proportion of it taken out as mortgages on a questionable legal basis. The question facing this government is how to change the system without landing itself with a massive financial obligation, especially in the current economic climate.

Leptos, Aristo and Pafilia are said to be among the main offenders over Immovable Property Tax and account for the lion’s share of the debt.

Smaller developers are already declaring bankruptcy, but big developers like Leptos, Aristo and Pafilia – who are also said to be among the main offenders over Immovable Property Tax – account for the lion’s share of the debt.

It has been suggested by campaigners that one way of solving the deeds problem is for the government to focus on the estimated €5 billion in transfer tax it would realise if and when the 100,000 outstanding deeds are issued. This would create options for dealing with the developers’ estimated €4 billion debt.

O’Hare agrees: “The bottom line is that if the government gives a guarantee to everyone that they will get Title Deeds, this would solve the problem overnight, and help the economy.

Clearly, the legal framework relating to property needs to change radically. The current government does not appear willing to address the whole problem, for its own reasons.

A UK High Court ruling enforced with or without the help of a European Court of Justice ruling, in combination with increasing scrutiny of Cyprus’ property laws by other EU institutions, would mean that whether it likes it or not, the government will have to make radical and effective changes to the property system relatively soon.

The role of the banks

The banks are a crucial piece of the Title Deeds puzzle. Alexander-Theodotou is highly critical of the role of certain banks, which in some cases have made domestic loans – as opposed to commercial loans – for second properties, when it is illegal in Cyprus to own two domestic properties.

She said that the banks do not seem to take enough care to establish a clear basis for extending a loan – its purpose, for instance, or the security offered, especially when a house has not yet been built.

When loans go bad, the banks tend to chase the deed-less “owner” of a house standing on mortgaged land rather than the person who took actually out the mortgage.

O’Hare puts the blame squarely on the way the system operates: “Why would developers make payments on a mortgage when they know they will not be penalised if they don’t?

A specialist property lawyer’s view

The real problem in Cyprus is that property can be sold off-plan, in other words before it is even built. What about those people who pay their money but don’t receive a property that is fit to live in, or even a property at all? They are quite right to despair.

I’ve nothing against developers as such, but selling off-plan without the certainty of completing and selling property with title-deeds has proved to be too much of a temptation for some.

At the moment, a builder with five years’ experience can call himself a developer, start up a project by selling off-plan, and basically do what he wants in terms of whether he completes the project, to what standard, and so on. If things go well, OK, but if things go wrong and he decides to stop the project and just pocket the money he has received in advance, there is not much to stop him.

Lack of professionalism among many developers is a big problem. The government must take drastic measures to regulate the land development market in such a way to drive out the unprofessional and unscrupulous operators.

Before Cyprus gained independence from Britain, the rule was “No Title Deed, no sale”

We also need to look at the role of those banks which extend loans against plans rather than something more solid. We should expect banks to be more conservative in terms of requiring solid security in the form of other property, personal guarantees, etc.

There is no practical reason why the land development market can’t operate on the basis of certification by independent civil engineers and other professionals. But the basic rule should be: no title-deed, no sale. Ironically, that was the rule here before Cyprus gained independence from Britain.

A court case in the UK may well help to concentrate the minds of the government and legislators.

Copyright © Cyprus Mail 2009

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