Problems with the Specific Performance Law in Cyprus
Although it does prevent the seller from changing his mind about the sale and you from being gazumped by another buyer, the Specific Performance law is not watertight. For example:
- There is no requirement for the vendor to clear any mortgage on the property before your lawyer deposits your contract of sale at the Land Registry.
- Vendors are free to reschedule or extend existing mortgage without the buyers permission.
If the lenders foreclose and call in the mortgage, any claim they have on the property will take precedence over your claim to ownership. This is because the mortgagee's claim existed before your claim to ownership, which is created when your contract of sale is deposited at the Land Registry.
To avoid the problems described above, it is essential that if you are purchasing a property and discover that it, or the land on which it is built, is already mortgaged that you pay an agreed proportion of that mortgage to the mortgagee (usually a bank).
- There is no way of forcing the owner to make the Title Deed available. E.g. If the land on which the property is built needs to be sub-divided before it's Title Deed can be issued, there's no way of forcing the owner to do so without recourse to the Court.
- If you fail to repay a proportion of the vendor's mortgage as described above, under certain circumstances the seller may still mortgage the land on which your property is being built without your permission, even though you may have paid him for it in full!
- If you don't act to transfer ownership of the property to your name when its Title becomes available, your ability to seek Specific Performance may lapse. (The vendor should advise you when the Title Deed for the property you're buying is issued).
These, and other, situations may put you in an invidious position. You may pursue the owner through the Court, but this will obviously cost you in both time & money.
Even if you decide not to pursue the matter, when you die, your children and the other beneficiaries of your Will will receive considerably less than you bargained for as a result of legal fees incurred in resolving the situation.
Your lawyer may be able to 'dissuade' the seller from delaying matters by including penalty clauses in your contract of sale. However, there is no cast-iron safeguard without recourse to the Court and the sooner you can get Title to the property registered in your name, the better.
As the lawyer George Coucounis said during our Title Deed discussion on CyBC Radio 2, the Cyprus Specific Performance law gives you the "right to own the property" you have bought (although exercising that right may sometimes prove difficult if not impossible without recourse to the Court).
- Your Contract of Sale requires that you, as the buyer, and the seller to fulfil their their obligations to each other as described therein. The seller is protected from any breaches of contract that you may make. E.g. If you are late in making a payment, you may have to pay a penalty interest payment.
- Similarly you, as the buyer, are protected (if your lawyer's done their job properly) from any breaches of contract that the seller may make. E.g. You should be able to claim compensation if the developer fails to deliver the property by the contractually agreed date.
The Specific Performance law takes your protection one stage further - once you and the seller have completed their contractual obligations to each other.
- If the Contract of Sale has been deposited with the District Lands' Office and providing that both you, as the buyer, and the seller are able to make the transfer of ownership, then within six months you being notified by the seller, the seller must effect the transfer ownership of the property to your name.
- If the seller refuses or delays, you can apply for a Court Order instructing the District Lands' Office to carry out the transfer of ownership immediately.
There are two further aspects of the Specific Performance that help to protect you as the buyer:
- Firstly, when the Contract of Sale is deposited at the District Land's Office for Specific Performance it creates a 'claim' against the property you're buying. This claim prevents the seller from changing his mind about selling it to you or selling it again to someone else. (You can read more about these claims in my 'Property Claims' section).
- Secondly, when the Title Deed for the property area available, the Property Transfer Fees you pay will be based on the market value of the property on the date the Contract of Sale was signed. If your lawyer fails to deposit your Contract of Sale for Specific Performance, then the Property Transfer Fees you pay will be calculated on the market value of the property at the date you visit the District Lands' Office to effect the transfer of ownership. As the value of property tends to increase, you will prefer your transfer fees based on the value of the property at the earlier date!
- Thirdly, a contract of sale deposited at the Land Registry is viewed as a mortgage and holds 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.
The major objective of the Cyprus Specific Performance law is to protect your interests as the buyer from wrongdoings by the seller. It gives you the 'right to own' the property once you & the seller have fulfilled their obligations to each other as defined in your sale Agreement and the Title Deed has been issued.
In August 2011, the Cyprus Government replaced an earlier Specific Performance Law with a new law designed to increase safeguards afforded to buyers.