The Interior Minister Neoclis Sylikiotis explains how he is determined to cut through the Gordian knot of the Title Deeds issue.
Question: Could you start by clarifying what the new Title Deeds legislation is about?
There are five draft amending bills. The proposed legislation is not just about the town-planning amnesty. Although these bills also deal with a town-planning amnesty, they deal mainly with making issuing of Title Deeds easier, with the buyer at the very heart.
To give one simple example: Currently, if there is a property development involving 100 flats or houses, even if the majority of those units do not have a town-planning problem, the fact that a Completion Certificate cannot be issued for the whole development means that Title Deeds cannot be issued for those units. This is why we came up with the idea of differentiating between categories of Title.
Let’s be clear: we are not talking about three separate Title Deeds – there is only one Title Deed. What we are simply saying is that in particular cases, any [building permit] irregularity will be recorded as an appendix to the Title, which is why that Title will be designated “incomplete”. This will help the buyer because it will allow us to issue the Completion Certificate. So in my earlier example, say 70 property-owners will receive clean Title, say another 20 would get an “incomplete” Title due to the minor irregularities. With a lot of developments involving apartment-blocks, these irregularities are often no more than parking spaces not having been designated, or the use of common areas not being clearly defined. But these are the kind of irregularities which don’t affect neighbouring units.
In cases where there are major irregularities or illegalities, then a “limited” Title will be issued, in other words a Title Deed with an appendix of the illegalities which typically affect neighbouring units. This means that the owner cannot sell or otherwise transact unless he ends the illegalities.
Editor’s comments and questions
Regarding the Minister’s statement “there is only one Title Deed”, earlier reports have referred to “three types of Title” and “Title Deeds being divided into three categories”. Is the Minister now saying that these irregularities will be attached as an Encumbrance (in the case of incomplete) or a Prohibition (in the case of limited) to the property in question – or is some new mechanism being designed?
The paragraph on the subject of major irregularities or illegalities raises a number of questions.
Is the decision on whether there are major irregularities or illegalities with the property taken before the transfer of Title from the property developer to the buyer or after the transfer of Title has taken place?
If it takes place before the transfer of Title, does mean that the developer will have to compensate the buyer by refunding monies paid plus expenses?
If it takes place after the transfer of Title, I envisage situations (e.g. where a property developer has built an illegal three floor apartment block rather than a legal two floor block) where the demolition or partial demolition of the structure may be necessary to end the illegalities. In this eventuality who will compensate the buyers of the third floor apartments, who may have bought the properties in good faith, for their loss?
On a similar note, does this mean that the buyer who will have purchased property without knowledge of the illegalities be expected to somehow end those illegalities that resulted from the actions of the property developer?
If the irregularities/illegalities have reduced the market value of properties built in the vicinity of the illegal construction, will the owners of those properties be compensated by the offenders?
Who decides whether there are major irregularities or illegalities with the property? There have been cases in the Paphos area where although the Building Permit had been approved by the relevant authority, the Building Permit itself contravened the zoning regulations for the area.
Out of the 130,000 properties currently without Title Deeds, how many will this legislation address?
This is being done in order to enable Title Deeds to be issued for the whole development, to limit the problem of any illegalities with a few units. So in my example 70 Titles are clean, 20 are “incomplete”, and the remaining 10 “limited”.
Apart from the various provisions for a town-planning amnesty, something which appears for the first time in the new legislation is the “special execution” order. A buyer will no longer depend on the developer – he can apply directly to the Director of the Land Registry office, who will have the right to consider whether to issue the Title Deed without having to wait for the land-owner. Today, that possibility is only available after you have applied to a court for a special execution order, but with the new law the buyer will have this new right.
Editor’s comments and questions
Will the buyer be able to apply for the “special execution order” when they take delivery of the property?
On what bases or criteria will the Director of the Land Registry reach his decision?
How long will it take the Director of the Land Registry to decide whether to issue the Title Deed?
Assuming that a buyer’s application for a “special execution order” is successful, how long will it take for the Title Deed to be issued?
Bearing in mind that there are some 130,000 properties without Title Deeds, how many “special execution order” applications are anticipated – and have the Land Registries taken on extra staff to process those applications?
Question: But where does the problem of developers’ mortgages fit in? The laws create a right, but there are debts hiding behind that right.
That is irrelevant. Under the special execution order process, if the buyer can prove he has paid what he was supposed to, the Title Deed can be issued, and let the bank solve its problem with the developer.
Editor’s comments and questions
Later in the article the Minister advises Mr Charalambous that he has already turned down a request from the Banks Association for legislation that would make the liquidation process easier.
Do the banks and other interested parties support the proposed “special execution order legislation”?
In his deliberations regarding applications for a “special execution order” will the Director of the Land Registry take into account any views or objections raised by property developers and banks?
How many of the 130,000 properties waiting for Title Deeds are encumbered by developer’s mortgages and what is the value of those mortgages?
Question: So the new law will protect the buyer?
That’s exactly the point – the special execution order process applies to a specific property unit. The provisions also include an obligation on the developer to comply with the process and they give the authorities the power to impose a fine if the developer does not fulfil his obligations. The developer will be obliged to apply for a Completion Certificate, and once this is issued, there is the obligation to apply for the Title Deeds to be issued. This is the point where the mortgage question sometimes comes in. Up to now the developer could hold things up by saying “I have a mortgage, I can’t get the Title Deeds issued, because I would have to pay off the mortgage.”
But now there will be the burden of possible fines, and secondly there will be “naming and shaming” of developers who offend repeatedly. A company that is serious about its business will avoid this.
Another important aspect is the option of the seller lodging the sales agreement, because sometimes a lot of games can be played with this. Now there will be an obligation to do so, which will protect the buyer against a seller taking a deposit and then selling the property on to another buyer. Once a sale is agreed, the law says that when the signed sale agreement is lodged, it comes into force as far as the Land Registry is concerned. The buyer has ownership, even though he may not yet have received the actual Deed, and so can’t sell or transfer it.
Editor’s comments and questions
Fining, naming and shaming property developers who repeatedly offend is an excellent idea! Will the information on those offenders be widely available, such as on the Internet, and published in different languages that reflect the ethnicity of those buying property on the island?
Who will have the obligation of lodging signed sale agreements at the Land Registry – the vendor, the purchaser, the lawyer acting on behalf of the purchaser?
Question: But in practice, won’t the Land Registry simply say that, for the Title Deed to be issued, the mortgage has to be paid off first? Are you saying that the whole process will change?
Yes, this is where the special execution order comes in. When a third party can now apply for the Title Deeds, the obligations relating to mortgages are transferred from that party. Of course, very often this depends on the contract the buyer has signed.
This legislation does not only deal with the future; it deals with the past, because today we have some 100,000 cases that aren’t in the system. This legislation will help the whole process, since – through the town-planning amnesty, or the special execution order process, or the obligation to lodge a sales contract – we will force these deals to enter the system.
The Minister’s statement “Of course, very often this depends on the contract the buyer has signed” is absolutely correct.
It is well-known that lawyers have close personal and commercial ties with property developers as they rely on the income they receive from these relationships to sustain their businesses. They fail in their duty of care towards buyers by failing to advise them about mortgages and other problems and the sales agreements they draw up are heavily biased in favour of the vendors.
A simple way around this problem would be to mandate the inclusion of a series of standard clauses in all property sale agreements that would protect both the vendor and the purchaser from ‘indiscretions’ by the other party.
The Cyprus Bar Association has already offered to assist the Ministry in drawing up the new Title Deed legislation, and I’m confident they could draw up these clauses.
(Standard form contracts are available in Cyprus – I used one for the construction of my house).
I’d like to add a few things about developers’ mortgages and bankruptcies, because a lot is being said about this. The truth is that a lot of people don’t understand the system that operates in Cyprus, because they start from what happened in the United States or the UK with the banks holding toxic debt and having to take drastic measures. In Cyprus it is no simple step for a bank to liquidate a property [in order to recover a debt]. That has never happened here. Even in the case where a developer went completely bust – Pieris Estates – finally the banks, the liquidator and all concerned had to come to an arrangement, which allowed people to get their Title Deeds. OK, it may not have been an ideal solution, but at least people did get their Deeds.
When Pieris Estates went under back in the 1980s, the bankruptcy soured diplomatic relations with Kuwait as many of those who had bought property from the company were Kuwaiti.
The affair continued until 2006 at which time the European Court of Human Rights ordered the Cypriot Government to pay €29,000 to four Greek Cypriot buyers for allowing their case to drag on in Cypriot courts for more than two decades.
First of all, the bank does not have the power to move to liquidation on its own. Yes, it can go to court and obtain a winding-up order, but it then needs the Land Registry to do its part. So if the Land Registry says it will not do that, the bank cannot proceed. As Minister I already turned down a request from the Banks Association for legislation that would make the liquidation process easier.
Then again, Cyprus is such a small community that if the banks went ahead with liquidation [and seized property] in some cases, their indirect loss would eventually be bigger than any immediate gain, because people would be more wary of taking on the kind of debt they are nowadays – hence their incentive to reach an arrangement.
Two property developers have already gone bust and the banks have told a number of their buyers that their homes could be taken away to recover the debts.
Just last week a case was reported on the Greek language TV stations in which a bank was proceeding with the forced auction of a divorced woman’s house to recover her former husband’s debts.
So what are we doing? We are plugging the gaps in legislation in order to strengthen the position of the buyer, to give him more tools to use in relation to the seller. With the new legislation, both the seller and the bank will be forced to solve the problem. But there is another side: during the period of very high demand over the last 15 years or so, some people bought with their eyes shut. That’s not to say that some developers and lawyers locally did not take advantage of the situation in a way that created problems. But the main incentive with the new legislation is to create healthy conditions in the property market. When I say that we need to cut through the “Gordian Knot”, this is not a phrase I use lightly.
© Cyprus Mail 2009
The Gordian Knot is a legend associated with Alexander the Great. It is often used as a metaphor for an intractable problem, solved by a bold stroke (“cutting the Gordian knot”).