My 10 Commandments and what you should know about sales contracts
Because I have observed various problems which are related to the issue of sales contracts, which are either drafted by the sellers themselves, or by lawyers, I would like to present my own opinions of what should additionally comprise an ideal sale document in order to protect the buyer. I believe that my 36 years experience in the real estate sector has given me sufficient experience in this field which is why I would like to present my own 10 Commandments for reflection and discussion.
• 1: You must check if there is at least planning permission or even better a building permit. Several projects are sold without a permit, which is not guaranteed to be delivered not even upon completion, as a result of which the units are powered by generators (since the EAC does not provide electricity without permits). During the check, one should also determine if the permits have been renewed as these expire every three years. Therefore, besides the initial permit, to check if there is a renewal.
• 2: Check if the property is subject to charges, such as mortgage fees, etc. If there is a mortgage ask for a “release” (to free the mortgage on the property purchased) from the lender. If the seller can not provide this “release”, then do not even bother to enter into such a deal.
• 3: The document of sale should mention when it is expected to get the final approval certificate. Depending on the district, this period could also vary. Usually, it is 3-5 years after completion (if the project is large) and around 1-2 years in case of an individual development or housing.
• 4: The sale contract should also include the expected issue of the title deed. Once again, this varies by district. If, for example, the project is in Paralimni then 5-6 years is considered a reasonable period (!), while in the case of Strovolos, it could be 2-3 years.
The 3rd and 4th commandment will probably not be accepted by the seller in the absence of a title deed and so it is considered highly risky for the seller under the present state of the industry, what with the long delays, etc. Then again, if referring to the 3rd and 4th commandments, even and there is no commitment by the seller, any Court will consider a ‘reasonable period’. What determines a ‘reasonable period’ will depend on the effort and circumstance of each case, such as the shortcomings of municipalities and the Town Planning office in each district that may even exceed ten years.
• 5: You must insist to include the term of the right of the buyer in case of the absence of a title deed, to be able to resell the property at any time to a second buyer, thus cancelling the original document of sale with the seller and the seller to sign a new contract with the new (second) buyer. This way, there is some way to the buyer to exit the deal in the absence of a title deed. This process needs serious legal and accounting advice (ensuring a tax payment certificate from the Income Tax office for the first purchaser, withdrawal of the original contract of sale from the Land Registry, covering the expenses of the seller; probability that the seller has an additional tax burden, etc.). This is a goo condition to ensure is included in the sales contract.
• 6: Some sellers take advantage of the buyer’s entrapment and may demand up to 10% tax or commission on the new sale price, to accept the condition for the right of the buyer. I believe that if there are no tax parameters, the seller’s fee (eg. EUR 2-3,000) must be determined at the initial stage of the agreement, so as not to have any doubts in the future, in addition to the responsibility of the original buyer for any additional taxes being added on top. The concession of the contract of sale does not require the permission of the original seller.
• 7: Agree to the value of the property as at 1/1/1980 either through valuation, or by a rough calculation of 1/4 to 1/5 of the sale value (where that is not determined by the Land Registry). This way, during the period between the delivery of a unit and the title deed issue (which determines the value as per 1.1.80) there is no room for doubt. During the transfer, there should be the settlement of the exact amount.
• 8: If it is a new building, to demand a period of warranty of at least 12 months for good construction (whereas the structural part is the manufacturer’s responsibility and is determined by open-ended parameters).
• 9: If the building is ready, have a civil engineer to make even a rudimentary check for the structural design of the building. An experienced eye of a civil engineer may find weaknesses that each buyer will not observe.
• 10: Your sales document should be stamped within a period of one month (if you are late, it is not the end of the world, but there is a small fine) and deposited with the Land Registry within six months from signature. In addition to the security for the buyer, if the document of sale is not deposited, the buyer will not be entitled to any refund of the property tax (as at 01/01/80) and there is a risk that the Lands Surveys Dept. to demand transfer fees at the date of transfer, instead of the sale fees. Also, the deposit of the sales document is allowed under certain conditions of the Lands Surveys to release potential troubled mortgages and allow the transfer of the title deed.
I felt the need to refer to these additional parameters in the case of title deeds, because of the ongoing protests, mainly by foreigners, who often give bad publicity to Cyprus, mainly in the British press.
I also hope to have troubled all involved stakeholders, both industry professionals and potential buyers with these 10 Commandments, for the benefit of the construction industry and to help smoothen out doubts that will help this sector recover its reputation.