The purchase of newly constructed or off-plan properties without a separate title deed has long been a common feature of the Cyprus real estate market. Although this practice is widely adopted in property transactions, it understandably creates a degree of uncertainty for buyers, as the completion of the transaction and the full vesting of their ownership rights are contingent upon the issuance and transfer of a separate title deed into their name.
Until such transfer is effected, buyers may be exposed to various legal risks, including existing encumbrances affecting the underlying land, as well as financial difficulties affecting the seller or development company. Accordingly, conducting comprehensive legal due diligence prior to entering into a sale and purchase agreement is essential for safeguarding the buyer’s interests.
The following are some of the key matters that prospective buyers should carefully consider before signing a sale and purchase agreement.
1. Verification of Ownership of the Underlying Property
As a first step, the buyer should obtain and examine the title deed relating to the land upon which the apartment building or residential unit has been, or is intended to be, constructed. This review is necessary to confirm that the seller or development company is the lawful registered owner of the property.
2. Assessment of the Developer and/or Construction Company
Due diligence should not be limited to the property itself but should also encompass the developer responsible for the construction of the apartment building or residential development. Prospective buyers are advised, with the assistance and guidance of an experienced real estate lawyer, to carefully assess the credibility, experience, financial standing and reputation of the developer or construction company involved.
In addition, where the development is under construction, buyers should verify, and require the seller to warrant, that the contractor undertaking the construction works is duly licensed and registered with the Cyprus Council for the Registration and Control of Building and Technical Works Contractors and is authorised to carry out construction works of the relevant category and class. The registration and licensing of the contractor serve to protect buyers against inadequate, inexperienced or unqualified contractors and provide assurance that the construction works are being undertaken by a competent and properly authorised contractor possessing the requisite qualifications and expertise to execute the development.
3. Planning and Building Permits
An essential component of the buyer’s due diligence exercise is the review of the planning and building permits relating to the development of the apartment building or residential development. Buyers should insist on obtaining copies of all relevant planning and building permits in respect of the property in order to verify that the apartment building and/or residential development has been, or will be, constructed in accordance with the approved architectural plans and in full compliance with the terms and conditions imposed by the competent authorities.
Such verification is particularly important, as unauthorised deviations from the approved permits, planning irregularities or unapproved additions may hinder the issuance of separate title deeds until such unauthorised works or irregularities are duly regularised.
Given the potentially serious consequences of planning and building irregularities, buyers should insist that the sale and purchase agreement contains robust representations, warranties and undertakings from the seller confirming that the development has been, or will be, constructed strictly in accordance with the planning permit, the building permit and the approved architectural plans. The inclusion of such representations and warranties is of fundamental importance, as it affords the buyer a contractual basis upon which to seek remedies against the seller. Should any such representation or warranty subsequently prove to be untrue or inaccurate, the buyer may be entitled to claim damages for any loss suffered as a result.
4. Land Registry Search Certificate
Particular attention should be paid to Section 4(1A) of the Sale of Immovable Property (Specific Performance) Law of 2011 (Law 81(I)/2011). Pursuant to this provision, the seller is required to provide a Land Search Certificate relating to the immovable property that constitutes the subject matter of the sale and purchase agreement. Such certificate must bear a date not more than five (5) working days prior to the execution of the sale and purchase agreement. The search is conducted at the relevant District Lands Office in order to ascertain whether the property is subject to any registered encumbrances, including mortgages, court judgments (memos), prohibitions, easements or other restrictions which may adversely affect the issuance or future transfer of the separate title deed to the buyer.
This requirement serves an important protective function by ensuring that the buyer receives up-to-date information regarding the legal status of the property immediately prior to entering into the transaction.
5. Existing Mortgages and Statutory Protection of Buyers
In practice, development companies frequently obtain financing for the construction of apartment buildings and residential developments by granting mortgages over the underlying land in favour of financial institutions / banks. Consequently, one of the most significant issues that a buyer must investigate is whether the property is subject to an existing mortgage.
Where a Land Search Certificate reveals that the property is burdened by a mortgage registered prior to the deposit of the sale and purchase agreement, the Sale of Immovable Property (Specific Performance) Law (Law 81(I)/2011) provides important statutory safeguards for buyers.
Where the property is encumbered by a mortgage, buyers should insist that the sale and purchase agreement expressly identifies the account connected to the secured debt and provides that all payments of the purchase price are made directly to that account.
Under this framework, the mortgagee (i.e. the Bank) is required to issue and sign a written certificate (Type A form) confirming that once 95% of the agreed purchase price (including any advance payment already paid by the buyer to the seller) is paid into the designated bank account, the mortgagee undertakes to release or discharge the sold property from the mortgage.
Buyers should also ensure that the Type A form is duly executed by the seller’s lending institution and lodged with the District Lands Office upon the submission of the sale and purchase agreement. Such measures significantly reduce the risk associated with the existence of a mortgage and facilitate the future release of the property from the encumbrance.
If the mortgagee subsequently fails to release or discharge the sold property from the mortgage, the buyer shall submit to the District Lands Office a duly signed and stamped receipt of payment by the mortgagee/bank (in the form of Type B as prescribed by the aforementioned law), and the Director of the District Lands Office shall transfer the property, being the subject matter of the sale and purchase agreement, in the name of the buyer.
6. Deposit of the Sale and Purchase Agreement at the Lands Office
Finally, buyers should ensure that the sale and purchase agreement is deposited with the relevant District Lands Office within six (6) months from the date of its execution. The submission fee payable to the District Lands Office for the deposit of the sale and purchase agreement is currently €50. The buyer is also required to submit the application for the deposit of the sale and purchase agreement (Form Δ.Ε.314)
The timely deposit of the sale and purchase agreement is of critical importance, as it activates the statutory protection afforded by the Sale of Immovable Property (Specific Performance) Law and creates an encumbrance over the immovable property in favour of the buyer. Proper and timely deposit of the sale and purchase agreement enables the buyer to seek an order for specific performance and compel the transfer of the title deed in the event that the seller fails to comply with its contractual obligation to transfer ownership within the agreed timeframe.
Conclusion
Although the measures outlined above are not exhaustive, taking such steps prior to but also after the signing of a sale and purchase agreement can significantly safeguard and protect the buyer’s rights and interests. It is, however, of paramount importance for prospective buyers to obtain legal advice and guidance from a qualified lawyer prior to executing the sale and purchase agreement, in order to ensure that all rights and remedies available to the buyer are expressly and clearly incorporated into the agreement.