SELLING AND BUYING IMMOVABLE PROPERTY IN CYPRUS
Immovable property acquisition in Cyprus has been on the rise, and it continues to grow since it is a profitable investment for non-Cypriot residents. The government’s Golden Viza initiative, which allows purchasers to obtain permanent residency in Cyprus, has significantly contributed to the building and selling of immovable property.
A. Various Types of Conveyancing Transactions
It is necessary to differentiate between the various types of properties, as each one has important elements which need to be considered before finalising the transaction. Broadly speaking these are:
1. Purchase of plot(s) of land.
2. Purchase of off plan properties being constructed by the vendor.
3. Purchase of already constructed are ready to move in properties.
B. General Observations
Prior to engaging and finalising a transaction with any vendor, the following matters need to be taken into consideration:
– The financial standing and viability of the Vendors (especially when buying off plan properties), and the risks arising from the possibility of their financial insolvency.
– If the Vendor is or was under liquidation / bankruptcy or if any liquidation / bankruptcy notices or proceedings have been filed against such Vendor.
– The Vendor’s prior conduct. Have any Court proceedings been instigated against them, and what were those cases about?
– The Vendor’s general reputation in its field.
C. Issues to Consider Prior to Concluding a Transaction
In our practice we have completed throughout the years numerous property transactions. The following is a list of matters which need to be investigated prior to concluding a conveyancing transaction, especially if purchasing off-plan. The list is not meant to be exhaustive and is merely an indication of some of the vital issues:
· Title deeds – every property bought has to be specifically described on the title deed, and its surface area to be clearly indicated. This signifies that the property has been erected legally and according to the issued permits and licenses. We advise against purchasing properties for which no separate title deeds have been issued, unless a certificate of final approval exists or the competent authorities confirm in writing that there are no obstacles to the issuing of the title deeds. Many times, we come across properties which have been erected illegally and/or without obtaining any licenses prior to commencing construction. It is not farfetched to say that in many instances properties have been illegally erected over beach protection zones or they extend into neighbouring plots. With title deeds such dangers simply do not exist. Always ask to receive a newly issued copy of the title deed since older versions of it may not contain all up-to-date information, such as notices and prohibitions, which might have been recently added to it.
· Off-Plan Properties – one needs to consider whether the vendor has obtained a Planning Permit and a Building License. Along with these documents, the potential purchaser should ask to receive the specific terms attached to these permits and licenses, as well as the authorized architectural plans. Once the property is constructed, the purchaser must require from the developer to provide a signed declaration by the overseeing architect / civil engineer that the property has been completed according to the terms of the permits and licenses, and as per the approved plans.
· Quality of Structure – consideration has to be given to the quality of the property and to the existence of any latent defects or damages. For this reason it is recommended (and your lawyer should advice you as such) to retain the services of an architect and/or civil engineer who will carry out the necessary surveys so as to evaluate and establish the safety, soundness and quality of the structure.
· Unauthorised Additions orAlterations – it has to be established that the property and its layout corresponds to its description on the title deed and the plans. Otherwise, it could mean that unauthorised work has been carried out on the property. Therefore, it is always important to establish whether any additions or alterations had been licensed by the competent authorities. These unauthorised additions or alterations may be noted on the title deed and as such prohibit the sale of the property.
· Third Country Nationals – any person not being a Cypriot or EU citizen has apply in order to obtain permission from the Council of Ministers prior to registering immovable property in their name. If no separate title deeds have been issued, it is essential to include in the application the building license and approved architects’ plans. Hence the importance of establishing at the outset that the necessary permits and licenses have been obtained prior to commencing construction. Also note, that third country nationals may not register in their names shares over land but only the whole of the ownership.
· Land Charges – it is extremely important to investigate whether there are any mortgages, memos or other encumbrances registered over the property to be bought. The encumbrance created by the filing of the contract of sale follows the order of priority it receives by filing it. Therefore, if other charges pre-exist of the filing of the sales agreement, it will not be possible to transfer ownership to the purchaser unless all other previous charges are eliminated. Also, enquiries need to be made as to whether the property is affected by any development plans (e.g. new roads) or any compulsory acquisition.
· Communal Management Fees – the vendor should produce a declaration, issued by the management committee of a jointly owned building, evidencing the settlement of communal fees owed to date. Otherwise, the new owner is as much as liable for owed communal fees as the previous owner.
· Plots of Land – the potential purchaser needs to establish if there is legal access to the property or if it is enclosed, and if there is water and electricity supply to it, and if it is a plot of land or merely a parcel which will need to be converted into a plot.
· VAT – enquiries need to be made as to whether VAT will have to be paid. For the sale of plots of land there might or might not be a need to pay VAT, depending on who the vendor is, but on the sale of off-plan or already constructed properties from development companies it is almost always necessary to pay VAT. The current percentage for acquisition of immovable property is 19%, however it may be discounted to 5% if the property is to be the main residence of the purchasers. The discounted 5% will apply to the first 130 m2 provided that the total buildable residential area does not exceed 190 m2 and the total value of the transaction does not exceed €475,000.
· Transfer Fees – upon transfer and registration of the property in the name of the purchaser(s), transfer fees will need to be paid at the land registry based on the value that the land registry gives to the property on the day of the transfer. The fees are calculated as follows: Up to € 85,000 – 1.5%, € 85,001 – € 170,000 – 2.5% and over € 170,001 – 4%. There is total exemption from the payment of transfer fees, if the transfer relates to a transaction that is subject to VAT
D. Terms of the Sales Agreement
Another important aspect of the conveyancing transaction is the sales agreement. When negotiating the terms, all possible scenarios have to be taken into consideration. From experience, we are of the opinion that the below elements are of utmost importance and should be carefully addressed in a sales agreement:
· Deposit –deposits paid under agreements are refundable in case of termination, unless damages can be proved. The intention of the parties as to the handling of the deposit in case of breach or rescission by a party has to be clearly stated in the agreement. Also, provision could be made that the legal fees, estate agents’ fees and moving out costs will be covered by the deposit in case that the purchaser is responsible for breach of the agreement.
· Time – time for performance has to be agreed upon. It should be clearly stated as to when the vendor is obliged to give possession and to transfer ownership of the property, until when the vendor is under an obligation to issue separate title deeds, or more importantly until when the vendor is expected to complete the property. Otherwise, and if time is not stated and made of the essence, no specific performance may be ordered by the Court and/or the innocent party may not be able to terminate the agreement.
· Technical Terms – when the property is bought off plan, it is vital to agree on all the technical terms of the construction as well as the basic cost for every material used or fixture installed. This will ultimately be of use if during the construction process the purchaser wishes to substitute such materials. By agreeing to basic costs, it will thereby be easier to ascertain the difference of costs for extra work performed or different materials used.
· Third Country Nationals – provisions should be made as to what will happen in the event where a third country national is not granted permission by the Council of Ministers to purchase the property. It could be stipulated that the purchaser may be able to assign his/her rights over the property to another party provided the full purchase price is paid. Otherwise, the agreement will be frustrated and any money paid to date should be refunded to the purchaser, unless the vendor may prove that damages have been sustained.
· Payment Plan – they payment installments should be related to the construction stages. For each construction stage completed, the developer should provide to the purchaser a certificate issued by the overseeing architect confirming the event. A small portion of the purchase price (usually 2%-5%) should be settled only upon the issuing of a separate title deed for the property.
· Guarantees – Development companies always advertise under the general brand name, but when it comes to selling, most of the times the project is in the name of a newly registered limited liability company. These companies, usually own no other assets other than the plot that the building is being erected on. As such, the purchaser should demand for the mother company to sign a guarantee agreement so that should there be a breach of contract, both the selling company and the mother company as guarantor will be jointly and separately liable for the payment of damages to the purchaser.
· Penalties – Provision should be made in the sales agreement that in case of delays in delivering the property, the developer will be liable for the payment of penalties which usually amount to the rental value of the property.
E. Independent Legal Advice
Conveyancing encompasses many elements which if not taken seriously into consideration at the initial stages of the negotiation, can and will have serious financial consequences to the innocent party. It is for this reason that when dealing with any such transaction it is vital to obtain independent legal advice for safeguarding you from any pitfalls which may jeopardise your investment.
Without hesitation, our advice is to retain the services of a law firm when considering to sell or more importantly buy immovable property in Cyprus. At the end of the day the cost incurred is disproportionately smaller to the benefits obtained and to the money potentially saved.
In many instances development companies suggest that legal representation in conveyancing cases is not necessary. There are also some estate agents who unfortunately undertake to prepare the sales agreement themselves(!) Notwithstanding that this is illegal, it is obvious that the estate agent who has a vested interest in completing the transaction will not be equipped to make provisions which will afford you any protection in case of breach by the vendor.
Lawyers in Cyprus owe a duty of care to their clients, the level of which should be that of a ‘usual, diligent and competent professional’[1]. Being under this duty, your lawyer will be obliged to perform all necessary due diligence procedures in order to identify inherent dangers and bring them to your attention. Failure to do so could lead to a negligence claim by which ultimately you may be compensated for the damages you have sustained from such behaviour.
Our expertise
Y. Argyrides & Associates LLC can offer you comprehensive services comprising legal and administrative assistance in activities related to immovable property. The aim is to assist our clients to have a clear view of the land registry system and the Law in Cyprus. The professional qualifications and expertise of our can assist you with the various stages of the procedure.
For requesting assistance and support please feel free to contact us at: [email protected]
YIANNIS ARGYRIDES │ Managing Partner
Email: [email protected]
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Any interested party should seek professional advice from their legal experts.
[1] Beaumont Muriel and other ν. NK (2010) 1 CLR. 525
