Protection given to immovable property purchasers in Cyprus
The rapid growth of the real estate market in Cyprus and the complexity and variety of the related transactions led to the need of replacing the previous legislation regulating the specific performance of immovable property contracts.
The Sale of Immovable Property (Specific Performance) Law 81 (I) of 2011 (the “New 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.
The New Law has certainly helped to ensure that the object of the sale will end up in the purchaser’s name. The provisions introduced with the New Law can be summarised as follows:
a. Securing the remedy of specific performance under Section 7 of the New Law
A purchaser of immovable property may secure the remedy of specific performance by depositing a duly stamped copy of the contract of sale at the Land Registry within six(6) months from the date of its execution, thus preventing the vendor from transferring the property elsewhere or charging it for as long as the contract is valid and legally effective. In case the vendor refuses to transfer the property, the purchaser may apply to the Court for an Order to transfer the property into his name.
b. Registration of the property in the purchaser’s name, regardless of a prior mortgage
Most often the object of the sale is subject to a mortgage. With the New Law, the option of paying the amount of the mortgage to the mortgagee is given to the purchaser. When the purchaser pays the mortgagee i.e. the financial institution that part of the mortgage debt corresponding to the property he purchased, the Court may issue an order of specific performance, mandating the registration of the property in the name of the purchaser free of the mortgage and encumbrance.
After securing the planning permit, the vendor is obliged to determine the value ratio of each portion of the building/land to be divided and deposit it in the Registry. This information is available to the prospective purchaser provided that the vendor has deposited it at the Registry. It is important for the purchaser to know that (notwithstanding the fact that the sale contract is accepted for deposit by the Land Registry without requiring a planning permit) it is impossible to exercise the right to override the ranking in priority of the mortgage without the prior determination of the value ratio. Consequently, any prospective buyer is advised to confirm that a planning permit exists before deciding whether or not to proceed to a sale agreement. It is hereby noted that the priority of the sale contract over a prior mortgage does not apply to contracts concluded before 01.08.2011, unless the consent of the vendor and the mortgagee is secured.
c. Safeguarding the amount paid by the purchaser under the deposited contract of sale
If for any reason it is impossible to implement the Contract, the New Law safeguards the amount paid by the purchaser. A similar safeguard is also given if the Court, instead of issuing an order of specific performance, issues an order for compensation. In both instances the amount is safeguarded by the order of priority of the encumbrance created by the deposit of the contract and not by the subsequent deposit of the Court decision. This is crucial because if in the period between the two deposits there are other subsequent encumbrances, the purchaser is protected from the date of depositing the contract.
d. Safeguarding the distribution of jointly owned immovable property sold in parts
With the New Law the distribution of jointly owned property sold in parts is safeguarded and acquires legal status. Therefore it is possible to deposit the sale contract in which not all joint-owners are vendors, and the vendor is one of them, as long as all joint-owners reach an agreement on a distribution of the property and the object under sale corresponded to the vendor.
e. Adoption of the institution of assignment of rights and obligations
The assignment of rights and obligations arising from an existing contract has been introduced in the New Law. By the term ‘’assignment’’ we mean the agreement between the purchaser and the assignor and the assignee, by which the assignor gives to the assignee the rights and obligations of the purchaser arising from the sale contract.
f. Securing purchasers’ borrowing from financial institutions through the deposit of the Collateral Assignment Agreement
The New Law introduces the possibility of borrowing, giving as collateral the contract of sale. What this means is that the purchaser (assignor) in a deposited sale contract, by agreement with a third person, surrenders his rights to the assignee in order to secure the financial obligation of the assignor to the assignee. This provision gives financial institutions the security of the repayment of a loan by the purchaser and also strengthens the creditworthiness of such purchaser.
It is generally advisable that any prospective purchaser should apply to the Land Registry for an investigation and/or search on the immovable property to check whether such property is subject to any encumbrances or if the owner is subject to legal prohibitions. Further if the object of sale is part of a building or a building plot under division, the prospective purchaser is advised to check the planning, the building or the division permit, depending on the case, prior to starting any negotiations with the vendor.
For more information and guidance please email Michalaki, Pitsillidou & Co LLC – iMPK Global Business Law Firm – Cyprus Lawyers, at firstname.lastname@example.org or visit our website at www.impklawyers.com.Tel. +357 25660092 – Fax +357 25 660097.