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New specific performance law increases safeguards

Designed to provide added protection for those buying property on the Island, a new Specific Performance law will come into force in Cyprus shortly that will replace the existing ‘Sale of Land (Specific Performance) Law’.

THE Sale of Land (Specific Performance) Law has helped to protect the rights of property purchasers for some years as the act of depositing a contract of sale at the Land Registry effectively prevented the vendor from selling the property in question to someone else or changing his mind about the sale.

However, it has long been recognised that the Island’s current Specific Performance law has a number of problems that enable unscrupulous vendors to exploit their position. For example, there is no obligation on a vendor to repay any existing mortgage that he may have on a property or from rescheduling or extending those mortgages. This problem has resulted in many thousands of people buying property on land that a developer has mortgaged and who face the very real threat of losing their homes as a result of a developer becoming bankrupt or a mortgagee foreclosing.

To alleviate the problems with the current law, a new law entitled ‘The Sale of Immovable Property (Specific Performance)’,  N81(I)/2011, has been approved by parliament and will shortly come into force. The new law, which contains significant changes designed to help protect those buying property and assist them to secure their Title Deeds, comes into effect on 29th July.

New legal provisions/safeguards

Some of the key points of the new law are noted below:

  1. A contract of sale for a property can be deposited at the Land Registry within 6 months from its date of signing to ensure the buyer’s right to become its registered & legal owner. (Before this had to be done within 3 months).
  2. Any term in a contract of sale that prevents it from being deposited at the Land Registry is void ab intio (from the beginning). So if a buyer is required to hand over a deposit or any sum of money for the purchase of a property and there is a term in the contract that prevents it from being deposited at the Land Registry until that money is paid, this is illegal and the buyer can file his contract immediately without constraint. (It is quite common for vendors to demand 20% or 30% of the purchase price on signing a contract to secure the agent’s fees).
  3. A vendor of a property is required to deposit a buyer’s contract of sale at the Land Registry before he encumbers that property with (for example) a mortgage.  This is an important change to the law which will now recognises that a buyer has a better right over the property if he has signed a contract of sale as it requires the vendor to deposit that contract before mortgaging the land.
  4. Should a vendor fail to comply with the above he will have committed a criminal offence and will be liable to a prison sentence of up to two years and/or a fine not exceeding €5,000.
  5. In circumstances where a property is sold that is already mortgaged, the buyer may pay a proportion of that mortgage to the mortgagee (usually a bank). The mortgagee is required to accept this – and the buyer’s contract of sale, having been duly lodged at the Land Registry, will take precedence over that mortgage regardless of whether the whole amount of the mortgage has been repaid. Furthermore, the vendor cannot intervene in this arrangement.So if a person purchases a property for (say) €200,000 and it is discovered subsequently that the land is mortgaged for €8,000,000, that person may pay the mortgagee €200,000 (or any smaller sum that is proportionate to the value of the property purchased). So in future, buyers will not be called on to pay the purchase price of the property and the debts of the vendor.However, for contracts that have already been lodged at the Land Registry when this law comes into force, the above arrangement can be made providing that both the vendor and mortgagee give their written approval.
  6. The encumbrance that is created by depositing a contract of sale at the Land Registry for Specific Performance secures each sum that the buyer pays towards its purchase price. So if the buyer has paid €200,000 to the mortgagee or the developer (see point 5 above) then that sum is secured against the property he has bought – or to the whole of the land if a separate Title Deed to that property has not been issued. In essence, the contract lodged at the Land Registry is regarded as a mortgage in favour of the buyer giving him the extra security of a secured creditor.
  7. In any legal action for Specific Performance brought against the vendor by the buyer, the Court may decide to award damages for breach of contract rather than a Specific Performance order. In such cases the contract of sale that has been lodged at the Land Registry acts as a mortgage in favour of the buyer to the value of the awarded damages.If a buyer is awarded damages under the current legislation, it is lodged as a ‘memo’  at the Land Registry and goes to the back of the queue behind other possible claimants such as suppliers, contractors, subcontractors, agents and any other unsecured creditors.But now that the buyer’s contract of sale is viewed as a mortgage and seemingly holding all the rights of a secured creditor, much like a bank, the buyer’s power to liquidate the immovable asset and seek its liquidation through the Court will be easier under the new law.
  8. Under the present law, a buyer can only sue for Specific Performance once a Title Deed for the property he has purchased has been issued. However under the new law, a buyer can file a single action for Specific Performance – and in that action he may also request the issue of orders enabling him to undertake all the measures necessary to secure the required permits, licences, approvals, so that a separate Title Deed may be issued in his favour plus an order for any costs he has incurred.
  9. The Court may issue a Specific Performance order in favour of a buyer even through there is a pre-existing mortgage on the development. However, the Court will only issue such an order if the buyer has paid a proportion of the debt to the mortgagee (see paragraph 5 above). Under the present law, a court cannot issue such an order unless the whole of the mortgage has been repaid and the mortgagee gives his consent.
  10. Any contracts of sale that were signed and that have not been lodged at the Land Registry may be filed within six months from the 29th July. 

    So if a buyer signed a contract of sale in 2005 but failed to file it at the Land Registry, he now has a 6 month window of opportunity to do so.

Readers' comments

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  • Steve says:

    For me the problem with these new provisions is that their sole purpose is actually to get new buyers into the Cyprus housing market again, but does nothing much to fix the existing problems. Clause 5 comes close to addressing previous travesties of justice, but as usual the devil is in the detail.

    “However, for contracts that have already been lodged at the Land Registry when this law comes into force, the above arrangement can be made providing that both the vendor and mortgagee give their written approval.”

    It would take a lot of optimism to expect a developer with a mortgage on a property that has been sold and paid for to agree to the application of this new legislation.

  • Costas Apacket says:

    Thank you Nigel.

  • @Costas Apacket – Your lawyer will have a receipt from the Land Registry – and possibly a copy of the contract bearing the Land Registry’s stamp. These will be held in your file.

  • Costas Apacket says:

    Ref: Point 10.

    What is the most secure way of determining if your contract of sale has actually been lodged at the Land Registry?

  • @Robert Briggs – the new law doesn’t cover contracts before 29th July, with the exception of the third paragraph of item 5 and the second paragraph of item 10.

  • Robert Briggs says:

    Will this new law cover contracts before 29th July 2011, so the likes of Mr Conor O’Dwyer will be entitled to compensation? Please inform. R.B.

  • @Costas Apacket – They don’t have to be any more artful or creative.

    There is still no requirement for a vendor or a lawyer to advise a buyer about a pre-existing mortgage. So if a buyer uses one of the ‘dodgy’ lawyers, or uses the ‘free’ legal services provided by some of the developers, they will still end up buying property built on mortgaged land, like so many people have done in the past.

    But having said that, the new law is a definite improvement over the old one!

  • Costas Apacket says:

    This looks good on paper and should work in theory.

    In practice we all know what the Cypriots will do with it.

    Another smoke screen for ‘as you were’, but just be a little more creative and ‘artful’. ;>)

  • @Jim – I appreciate the problem. Although the developer ‘must’ do something, if he doesn’t the only recourse the buyer has is to take him to court.

    This is not satisfactory. If a developer doesn’t do something that he is supposed to do, the authorities should take him to court (not the buyer).

  • Jim says:

    @Nigel. What I don’t like, is the vague language used, such as this may happen & not what will happen. It is all to weak & open to the whims of a Cypriot court. What is need is, if buyer does this, then vendor must do this & land registry will issue a title deed.

    In its present form, it does little to inspire confidence.

  • @Jim – thanks for your comment. I believe that the land division is covered by point 8 if a buyer files for Specific Performance: “request the issue of orders enabling him to undertake all the measures necessary to secure the required permits, licences, approvals, so that a separate Title Deed may be issued”.

    But it looks extremely cumbersome and puts the onus on the buyer to take legal action against the developer.

    I cannot see why the government cannot get its head around doing what needs to be done to get a Title Deed available when a buyer takes delivery of a property.

    Other countries can do this, why not Cyprus? It isn’t rocket science!

  • Jim says:

    This is all well & good, but there appears to be no compulsion on the developer to divide up the land into individual plots within any timeframe. In fact this may still be impossible if any part of the land still has a mortgage. A buyer may well have paid off their part of the mortgage on the land the house is built on, but be no nearer getting that all important title deed.

    This new law goes part of the way, but fails to ensure the issue of a title deed in exchange for payment.

  • Clive Fletcher says:

    No chance of developers and most certainly not lawyers being fined or going to jail – El Presidente will grant them an Presidential Pardon – remember he did it before for a lady lawyer.

  • Andrew says:

    Methinks 2 years prison and or a fine not exceeding €,5000 will scare them witless! Can anyone imagine the big developers actually getting two years prison?.

    Simply issuing Title Deeds to a buyer, when the property is paid for, would have be a lot simpler and more in line with the rest of Europe.

    I don`t see that this new Gordian knot will get the buyers rushing back.

  • Robert Briggs says:

    Perchance, they are finally getting the message?

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