Latest Headlines

An end to greedy developers extorting cancellation fees

The days when greedy property developers could extort contract cancellation fees from purchasers who wished to sell a property in Cyprus before its Title Deed had been issued have come to an end.

THE new Sale of Immovable Property (Specific Performance) N81(I)/2011, which came into force earlier this year, contains important provisions that significantly improve the purchaser’s position compared to the situation that existed under the old Law that it replaced.

One of the most important changes in the new Law, which has remained so far almost unnoticed, is its provision about “assignment contracts” which may, if properly utilised, solve the problem of resales where an up-to-date title does not exist.

Under the new Law any purchaser of property may assign his rights and/or obligations under the contract to an assignee, either gratis, or by the payment of an amount of money. This “assignment contract” can be concluded without the agreement of the original vendor (usually a property developer) and can be deposited at the Land Registry within two months of its signing, provided the original contract has already been deposited at the same Land Registry Office.

The “assignment contract” has, in effect, the same legal status as the original contract. It is binding on the original vendor and its depositing at the Land Registry offers the same protection to the assignee as that provided by the Law to the original purchaser.

Thus, if the original vendor (e.g. property developer) fails to fulfil his obligations by issuing and transferring an up to date title in the name of the assignee, the latter may apply to the Court and obtain an order for the Specific Performance of the contract. The Court may:

  1. order the transferring of the title in the name of the assignee and, when a title does not exist;
  2. order that all necessary actions be taken so that the title is issued.

If the property is assigned (in effect resold) by the payment of a higher price than the original price of the property, the original purchaser/assignor may have to pay Capital Gains Tax for the assignment. A tax clearance from the Capital Tax Office must, therefore, be produced at the Land Registry before depositing the assignment contract.

In the Law there is no reference to any obligation of the original purchaser to pay Property Transfer Fees. So as soon as the original purchaser pays any capital gains tax due, he is relieved from any further obligations and disappears from the scene.

The new procedure has several important advantages over the procedure of cancellation agreements:

  1. It is an absolutely lawful procedure, so no question of tax evasion or other illegality arises.
  2. The original vendor/ developer is not involved. Therefore his consent is not required and no question of payment of “contract cancellation fees” or any other amount of money to him arises.
  3. The new purchaser/assignee has the full protection of the new Specific Performance Law.

In conclusion, there is no doubt that the new procedure is extremely beneficial to both prospective vendors and prospective buyers of resale properties and it is expected to significantly boost the resale market in Cyprus.

About the author

Andreas SymeouAndreas D. Symeou LL.B, M.Sc (U.L.A.) was the draughtsman of the original amendments to the Immovable Property (Tenure, Registration and Valuation) Law, which underwent many changes before being approved by parliament on 24th March 2011.

He is a property consultant and a Member of the Royal Institute of Chartered Surveyors (MRICS) and may be contacted at [email protected]

Readers' comments

Comments on this article are no longer being accepted.

  • Johnny Cyprus says:

    Nigel; Yes of course the contracts may be assigned.

    It needs the agreement of both parties, however. A buyer could not assign his rights and responsibilities without the agreement of the Seller.

    That’s how the Developers have been able to exploit buyers with excessive cancellation fees, and why they have been in no hurry to furnish title deeds for many years.

    When it comes to those with a charge on the property, (the banks) you can’t sell anyway without their agreement.

    If the new laws ride roughshod over these rights then there is no chance of an orderly property market in Cyprus.

    Thanks for giving us all the chance to exchange our views.

  • @Johnny Cyprus – I have just been looking through some contracts people have sent me and came across the following clause:

    “This Agreement shall also be binding on the successors in title, heirs, executors, and administrators of the estate and the assignees of the parties.”

    So it would appear that contracts can be assigned.

  • Odd_Job_Bob says:

    To add to the Costas Apacket love-in: I completely concur with everything you have just stated. We all should be wise to what happens here now but for some strange reason, lots of us seem not to and still pose the angst-ridden questions of why the government don’t do this and that and the other, when “it’s in everybody’s best interest”. Answer very simple: Because it isn’t.

    I am constantly surprised by the surprise of subscribers to this forum at yet another spiffing wheeze to divest us of our cash. Every new layer of legislation solves nothing (new SP rules, planning amnesties, disproportionate and prejudicial increases in rates, new fleecing procedures for transfer taxes, latest IPT imaginary calculations etc etc etc). For me, partial to my military analogies (and on checking in Wikipedia!), the overall effect reminds me of the way barbed wire was used in WWI to direct attacking troops “into the machine gun killing zones where it would be very costly” to take them out. Replace the words “machine gun” with “Cyprus legal system” and see what you get.

    So, where is the Viking ship that will rescue us? The last few weeks have, if we ever had a doubt before, shown us what the EU will do to help. From the Intrade betting website: http://www.zerohedge.com/news/intrade-odds-euro-collapse-end-2012-now-50: “One can listen to Eurocrats promising the moon and the stars, and that the zEUR0.PK will survive come hell or high water, or one can trade the probability of the Eurozone’s breakup based on reality. For those who opt for the latter, (the probability that the Euro will not survive past 31 December 2012) is now trading at perfectly even odds or 50%”. The chances of the Eurozone (and by extension, an EU with any form of authority, if it still exists) have been reduced to those of a coin toss.

    What will become of Cyprus post-Euro? We’ve seen government inability to handle budgets, developer bad-debt which, like Voldemort or the “Scottish Play”, never gets mentioned, we see shops and restaurants and pubs closing all around us and, in last week’s Cyprus Mail, we see people starting to get mugged in their own home (lady in Parraklisia cooking her Sunday lunch). With all the guys from Eastern Europe who came here to work, with a big “So long, Suckers, I’m going to come back home rich!” effectively trapped here by poverty and the crushing shame of failure (over the last few years in the UK, the number of unemployed Polish men committing suicide rather than go back home is a virtual epidemic), what can we expect? Hey, it may all get better, but there are no signs that it will.

    However, my particular Viking ship DID come in. It’s due to sail back to Blighty next week and I, having managed to divest myself of most of the assets here (losses relatively small as have been hedged), will be on it. So, farewell Cyprus, it’s been fun. Don’t forget to write….

  • Costas Apacket says:

    When I buy a crepe in my local village square, the guy in the creperie stand doesn’t take my money and then say, ‘Hold on chap, don’t eat that crepe yet because it still legally belongs to me’.

    Same when you buy a car, some furniture, a washing machine, in fact almost everything except a property.

    Let’s not kid ourselves, Cypriots have a very clear understanding of what it means to own something that you have paid for, which is why it just doesn’t add up when it comes to buying a property in Cyprus.

    The talk of Ottoman Law, inefficient district lands offices and planning departments is just a smoke screen for something much more sinister, in my opinion.

    The only logical reason for being able to own a crepe and not a property in Cyprus is that someone else stands to benefit from this lack of legal ownership.

    Since it is highly likely, and stands to reason that this someone else is a Cypriot, and a powerful Cypriot at that, then you have to look where the powerful Cypriots hold sway.

    This is mainly in Government, Property Development Companies, the Legal Profession and the Banks.

    It therefore leads me to believe that the ongoing situation, where the issue of Legal Title is so protracted and drawn out in Cyprus, is a direct result of both political and financial interference, by those powerful Cypriots, for their own ends.

    In my opinion, the only way to resolve this once and for all is for it to become less attractive to these powerful Cypriots to continue in this collusive manner, which will eventually need intervention from the EU and ECHR.

    I for one look forward to the day when this happens.

  • Mike L says:

    Costapacket has hit this right on the head! Why are the Government unwilling to issue Title Deeds at point of sale? Do they really want Cyprus’s property market to collapse (even more than it has)?

    Confidence in the Market is the key. Greed isn’t. Look where it has got them!

  • Mike says:

    To be fair Mr Symeou probably drafted the amendment within the confines of the parameters of his brief from Government. He may also wish to see a deed issued at point of sale but can only draft legislation as instructed.

    As andyp alludes to, if as much effort went into solving the problem as is spent on avoiding the inevitable then there would probably not be a problem now and all those North Europeans and Scandinavians buying elsewhere would return to the Cypriot market.

    Tony is also right – let the Banks and Developers come to an equitable solution where their debt is concerned and not constantly ask innocent parties to pay their debts for them. If they go under then so be it, sure it will have a devastating effect on the Country and the population at large but at least we might then be less reluctant to keep spending what we actually do not have. The eventual results of that will be even worse.

  • Johnny Cyprus says:

    If the above is an accurate report of the provisions of the act, then it can only make things worse.

    The situation under so-called ‘Specific Performance’ is similar to ‘exchange of contracts’. The two parties agree to a contract; binding one to provide a property, and the other to pay a specific sum for it. The contract is enforceable by either party if the other is in breach.

    ‘New SP’ now says that the rights and responsibilities of the parties can be assigned in the event of a resale. Further, it is suggested above that this can be done without recourse to the original vendor.

    But the purchaser may not have paid for the property in full and the vendor may not have provided proper title. The contract may be incomplete for various reasons and it is simply not possible to assign all rights and responsibilities without recourse to both of the original parties.

    A vendor who has not been paid in full would not accept the liability for outstanding payments being transferred to a third party. The process would be open to abuse and this would surely be challenged in the court of equity.

    One presumes it is imagined that the rights of other parties with an interest in the property can be ignored too. So the holder of a mortgage can also stand aside while the buyer resells the property?

    Buyers, sellers and interested parties would be further compromised and the market likely to be killed.

    I reckon they must have been smoking something.

  • Milo says:

    Why do all this? Surely the answer is give out the Deeds on completing the purchase?

    That and only that gives the buyer full rights to their own property, anything else is a cover up to keep Developers and banks happy.

    No deeds, no sale. A child could come up with the perfect answer.

    I have Deeds now, but I would dearly love my £5000 pounds back that I had to pay to my ex Developer who charged me this under the counter payment in 2007 for my previous property that we sold. Even then the Developer had a 100,000 cheque in his hand the balance of the sale, the property we owned in full, no mortgage, that cheque from the buyers was made out to the Developer!! How did that occur I wonder? Unbelievable and basically extortion.

    It still sticks in my throat, and my then Lawyer oversaw the cancellation deal, advising us to pay as the Deeds would not be transferred to the new buyer.

  • Peter says:

    So my developer will willingly forgo his ‘kickback’ and hand over the title deeds to the next buyer? He must be such a nice guy. Most would still want the ‘fackie lackie’ in the little brown envelope to hand over the deeds.

    Of course I could always incur yet more legal costs to keep the lawyers employed.

  • tony says:

    What would happen to loans/memos that the bank has given to the developer?

    If there were no loans/memos on the property when the original purchaser bought the property but new loans/memos have been taken out since then, the new purchaser will be held responsible for these.

    So the law in these cases do not help the original purchaser to sell their property.

    The title deeds should be handed over as soon as the property has been paid for (as happens in the UK) and leave the greedy banks and developers to sort out their own mess

  • andyp says:

    As it is highly unlikely that anyone will now accept a transfer of a contract without a title deed I wonder why this government and their advisers persist in coming up with schemes which do nothing to help but rather prolong the agony.

    We all know that the absence of title is the problem at point of sale and that the stories we early purchasers were given was quite simply a lie and this includes statements from the Interior Ministry backing up this lie. This was a CO ORDINATED fraud and Cyprus has been found out yet they continue to deny and ignore the facts.

    Planning Amnesty – Let’s get the victims to pay more.
    Lawyer regulation – Let’s not go there.
    Developers – Not their fault.
    Banks – Do you want a mortgage on something we already have a mortgage on but you do not know about. Might we suggest a Swiss franc one.
    Government – Oh we got caught but we can’t ask the developers nor banks to accept responsibility. Let’s go for the victims again.

    They put more effort into ducking the problem than sorting it

  • @Denton Mackrell – As the old law has been scrapped, anyone wishing to try and sell their property now can take advantage of the new law.

    (Whether they will be able to sell without a Title Deed is another matter).

    As someone has already pointed out, rather than fixing the underlying problem (i.e. the unacceptable delay in issuing Title Deeds) the government is papering over the cracks in the current system, whose sell-by date has expired.

  • Denton Mackrell says:

    Er….but it doesn’t apply retrospectively. So all those tens of thousands who had already purchased and who may wish to take advantage of this new wheeze now as re-sellers can’t do so. They are the ones who need assistance, not some future virtual group of maybe buyers. It is those already abused by your system who have already broadcast Cyprus as a ‘No Buy Zone’ to thousands upon thousands of potential buyers outside Cyprus who you need to assist – if you want to regenerate the market.

    If this is good news for new buyers (and it’s a BIG if), it is unlikely to be of much benefit to the Cyprus property market for years to come. Too late Mr Symeou, I’m afraid. Polishing horse manure or even the brass on the bucket you collect it in just will not bring in new buyers in the numbers this economy needs to stop the slump.

  • Costas Apacket says:

    Well Andreas, I ask again.

    What is wrong with implementing a clear, transparent and equitable system where individual Legal Title Deeds are provided to property purchasers at the point of sale?

    This system, as practised in most civilised societies, would have the following benefits:

    1. Both the primary and secondary Cypriot property market would become very attractive to investors and home purchasers alike.

    2. The Cypriot Government would receive the benefit of transfer taxes being paid in full immediately after completion of every property sale instead of waiting for many years, or never, as is the case now.

    3. The Cypriot Government would also receive immediate payment of any IPT, Capital Gains taxes and any other taxes / charges due from both Developer/Seller and property purchasers.

    4. The Cypriot Banks would have solid and unencumbered assets to underpin their loan books, rather than double lending on the same assets, as currently occurs.

    5. The international reputation of the Cypriot property and legal systems would be greatly enhanced.

    So you see Andreas, by just taking some very simple and relatively easy legislative steps, it would be a Win, Win, Win, Win, Win situation for Cyprus.

    That is unless there is a ‘lose’ situation for some powerful players who would profit from the current obscure, opaque and unworkable systems currently in place in Cyprus?

    Why do the Cypriot establishment appear to be so afraid of simply issuing a Legal Title to own a property? What is the big problem Andreas?

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

  • Text size

Back to top