THOUSANDS of buyers of property in Cyprus facing the threat of a bank chasing them for someone else’s spiralling debt, or for repossessing property for which they had paid in full, can fight back using a little-known consumer protection law, and, in the process, radically transform the whole property market.
property buyers can make a claim for misselling
Under a 2005 European Union directive on consumer protection that became Cyprus law in 2007, property buyers whose purchase was encumbered by a developer’s mortgage or other charge without their knowledge, can make a claim for misselling. If upheld, that claim would see the original purchase agreement declared void.
The Unfair Commercial Practices Directive 29/2005/EC, which was introduced into Cyprus law as Law 103(1)/2007 on July 18, 2007, states that it is a violation for a business to omit or hide material facts from buyers, which if had been made known, would have influenced the buyer’s purchasing decision.
A question to the European Commission tabled in the European Parliament (EP) last week by British MEP Daniel Hannan says that “it is clearly a material fact that the property being purchased has a developer’s mortgage on it, and that in the event of the developer being forced into liquidation, buyers could potentially lose their homes. This fact is systematically hidden from potential buyers by developers.”
The European Parliament question continues: “Cypriot banks even grant mortgages to buyers without informing them that the developer may also have a prior mortgage of his own on the property.”
The Cyprus property market has failed to recover
The property market in Cyprus, which practically stagnated when the economic crisis hit home, has noticeably failed to recover in areas such as Paphos that have previously relied on British nationals buying holiday or retirement homes.
A major factor in this absence of recovery is a growing awareness of the long-standing legal and bureaucratic mess surrounding the issuing of Title Deeds, compounded by an increasing number of reports of sharp practice by developers, lawyers, estate agents and banks.
The British High Commission in Cyprus and a number of British MPs have been inundated with complaints from British nationals relating to the purchase of property in Cyprus. The current UK government is aware of those problems, and recently recommended to the Office of Fair Trading (OFT) that it investigates the question of misselling in relation to EU directive 29/2005/EC. Some of the larger developers regularly market their services in the UK at foreign property fairs, either directly or through agents, so the OFT would be able to take action against anyone found to be breaking the law.
The body named in Cyprus Law 103(1)/2007 as the competent authority for not only enforcing the law’s provisions, but also to actively take steps to change the prevailing attitudes that result in misselling and other unfair commercial practices, is the Commerce Ministry’s Competition and Consumer Protection Service (CCPS).
Cyprus Property Action Group (CPAG) representative Denis O’Hare told the Sunday Mail that when he contacted the CCPS to ask how it was implementing the law in relation to property, he was told that “it does not cover immovable property“.
However, the definition of terms contained in the law defines “product” as “any goods or service, including immovable property, rights and obligations“.
Immovable property necessitates positive obligations on traders
Further, the EU directive clearly states that not only is immovable property covered, member states are expected to introduce additional laws or regulations to ensure this, Paragraph 9 in the Preamble says: “Financial services and immovable property, by reason of their complexity and inherent serious risks, necessitate detailed requirements, including positive obligations on traders. For this reason, in the field of financial services and immovable property, this Directive is without prejudice to the right of Member States to go beyond its provisions to protect the economic interests of consumers.”
The directive also states (preamble paragraph 22) that “it is necessary that Member States lay down penalties for infringements of the provisions of this Directive and they must ensure that these are enforced. The penalties must be effective, proportionate and dissuasive.”
Under Law 103(1)/2007. when the CCPS discovers a breach, it has the power to do various things, including imposing an administrative fine of up to 5 per cent of the turnover of the person responsible, or a fine of up to CY£150,000 (€256,290). Anyone who hinders the CCPS’s work is guilty of an offence punishable with a maximum fine of CY£50,000 (€85,430) or a 6-month prison sentence, or both.
A lawyer who is very familiar with the Cyprus property market told the Sunday Mail that “to my knowledge, the 2007 law has not so far been used“, and despite its having been published in the Government Gazette, did not think many lawyers – let alone consumers – would even be aware of it.
The lawyer said that the issue of misselling property by omitting crucial facts was clear-cut, and the first line of protection was reliable legal advice: “You should be explained the law in Cyprus, you should be explained your rights, you should be explained what is involved in the deal, and then as a responsible adult, you make your decision.”
The Competition & Consumer Protection Service are obliged to act
Regarding the CCPS’s responsibilities as the competent authority, he said: “Once a claim has been lodged with the CCPS, they are obliged to investigate.” If the CCPS were to fail to act, an alternative would be to make a proper claim to the courts, asking for an agreement believed to be based on misselling to be voided, “As soon as you get a judgement in your favour, you would then ask for a remedy, which would include a claim for damages to cover monies paid, compensation, etc.”, the lawyer said,
He added that, depending on the details of each case, a separate request might be needed to oblige a developer to assume liability for repayments under a mortgage agreement covering the purchase of a property.
O’Hare was unequivocal about who needs to act: “The competent authority is the CCPS, They are the ones who must enforce the law, and must rule on whether or not misselling has taken place, It’s black and white – the law is there to make sure that consumers are aware of things that might dissuade them from entering into a purchase agreement.”
The implications for the Cyprus property market are huge
He added: “Now that we know that misselling is a crime in Cyprus law, will the CCPS ensure that this behaviour is stamped out? Not to do so would be to compound the original crime.” The implications for the Cyprus property market are huge.
Proper enforcement of Law 103(1)/2007 may well drive a number of unscrupulous developers out of business, quite apart from the prospect of the banks having to deal with their own liability and at the same time sort sound loans from the unsound from among the estimated €7 billion in property- related mortgages.
One major bank is already having to deal with its sizeable exposure to one developer said to be facing financial difficulties, compounded by unconfirmed allegations of the misselling of Swiss franc mortgages to purchasers of property from that developer.
What is certain for many property-buyers today is that the current situation simply cannot be allowed to continue unchecked.