Is it safe to buy in Cyprus
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. Return to faq's
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 2011
New legal provisions/safeguards
Some of the key points of the new law are noted below:
- 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).
- 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).
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 and failed to file it at the Land Registry, he now has a 6 month window of opportunity to do so.