Title Deed Reforms for Cyprus Worth Millions Next Year

Based on assumptions about the charges levied for the issue of Title Deeds & expectations of the number of properties that will be processed, Neoclis Sylikiotis believes that the Cyprus Government could receive €160 million next year alone as a result of his reforms.

Interior Minister Neoclis Sylikiotis could well clinch the title of “Man of the Year in 2010? if his set of five amending bills on Title Deeds get through parliament, thus helping the plight of as many as 100,000 Cypriots and foreigners desperate to get possession of their property Titles.

The reforms will also help restore Cyprus’ tarnished image abroad, but more importantly generate millions of Euros in new revenue for the state, as government finances continue to deteriorate rapidly.

In an exclusive interview with the Financial Mirror, Sylikiotis said the five draft bills, which will work with the property amnesty legislation, will also deal with many other issues, such as adding to the safety of property transactions and solving chronic problems inherited over several decades.

The Minister is now presenting his plans to political parties and special groups to inform them but also to shorten time taken in the House to discuss the issue and put it to a vote.

“I expect the Council of Ministers to approve the bill in December, and after it is forwarded to the House it should take no more than 1-2 months to pass,” he said.

Budget positive
Solving the plight of up to 100,000 Cypriots and foreigners is Sylikiotis’ number one priority, but he agrees that a successful passage of the bill and its correct implementation will also generate millions of Euros in additional revenue for state finances next year.

“If you assume an average €8,000 charge to complete the issue of the final Title Deed and considering that we expect 20,000 units to be processed through 2010, then it’s safe to assume that the government could receive up to €160 million next year alone, plus more revenue in the following years,” the Minister said.

Red tape
Sylikiotis does not seem to be worried about the additional red tape that the draft legislation will create, confident that the Land Registry and other relevant departments will be able to handle the burden.

In an effort to speed up the process of evaluation, audit and final conclusion, Sylikiotis said he shall not hesitate to recruit the help of the private sector if such a need arises.

“We already use the services of the private sector for land surveying, so if I see that things are not moving at the speed that the bill provides, then I shall bring in the private sector to help.”

Sylikiotis clarified that there is no issue of having three different types of Title Deeds, but only one. There will be Titles which state “Clean” meaning that no violations have been spotted, or “Incomplete” meaning some violations and “Limited” suggesting there are serious irregularities, thus blocking a sale.

For example, if there is a property development of 100 flats or houses and most of those units do not have a town-planning problem, the fact that a Completion Certificate cannot be issued for the whole development means that Title Deeds cannot be issued for any of those units. “This is why we came up with the idea of differentiating between categories of Titles.”

Continuing with the same example, Sylikiotis said 70 property owners will receive a “Clean” Title; another 20 would get an “Incomplete” Title due to the minor irregularities. With a lot of developments involving apartment blocks, these irregularities are often no more than parking spaces not having been designated, or the use of common areas not being clearly defined. But these are the kind of irregularities which don’t affect neighbouring units.

In cases where there are major irregularities or illegalities, then a “Limited” Title will be issued, in other words a Title Deed with an appendix of the illegalities which typically affect neighbouring units. This means that the owner cannot sell or otherwise transact the property unless the irregularities are corrected.

Special execution
Apart from the various provisions for a town planning amnesty, something else which appears for the first time in the new legislation is the “Special execution” order. A buyer will no longer depend on the developer – he can apply directly to the Director of the Land Registry, who will have the right to consider whether to issue the Title Deed without having to wait for the landowner. Today, that possibility is only available after you have applied to the court for a special execution order, but with the new law the buyer will have this new right.

The special execution provision also includes an obligation of the developer to comply with the process and gives the authorities the power to impose a fine if the developer does not fulfil these obligations. The developer will be obliged to apply for a Completion Certificate, and once this is issued, there is the obligation to apply for the Title Deeds to be issued.

Sylikiotis believes that a provision in the bill allowing the government to “name and shame” developers who offend repeatedly will force many to behave, but he said he could not explain why similar legislation on the introduction of the Euro and supposedly in place to check against rampant price increases has never worked. Another important aspect is the option of the seller filing the sales agreement, because often there could be a lot of crooked deals which deprive the state of much needed revenue.

“For example, in the Famagusta free area there are 25,000 units that have not yet applied to register,” the Minister said.

Now there will be an obligation to do so, which will protect the buyer against a seller taking a deposit and then selling the property on to another buyer. Once a sale is agreed, the law says that when the signed sale agreement is filed, it comes into force as far as the Land Registry is concerned. The buyer has ownership, even though he may not yet have received the actual Deed, and so can’t sell or transfer it.

Be vigilant
In the event of a developer going bankrupt as was the case of Pieris Estates and more recently with Froiber, there is no intention to pass legislation to regulate the operation of developers as is the case for banks, insurance firms and financial investment services.

In case of default, the only protection against banks seizing property is the lack of such legislation.

“The Bankers Association came to me to change the law, but I declined and they know well that it will not even come up for discussion,” said a defiant Sylikiotis who nevertheless, called on the public to be more vigilant and proceed with property transactions only after getting the clearance from lawyers and other experts.

In other countries, when borrowers default on their loans against which they have pledged their property, the banks usually take possession of the property and auction it off within six months. In Cyprus, the process takes more than seven years to move through the courts and even if sanctioned, it may take several more years for the Land Registry to process.

Sylikiotis said he has not heard a case when a bank seized the property of a loan defaulter, adding that in a small country like Cyprus, such issues are normally dealt with through arbitration.

Sylikiotis said there are up to 100,000 properties with minor or major infringements with their Titles that need to be solved and acknowledges that a big number also refer to property purchased by foreigners.

“I sincerely hope that our prop
osed bills will address the situation and in the process help improve Cyprus’ image abroad among foreign buyers.” he said adding “nevertheless that foreigners, just like Cypriot need to be more vigilant.”

A pressure group formed by a number of foreigners with problematic Title Deeds, as well as the Bar Association have criticised the Title Deeds reform bill and insist that Cyprus should adopt the same practice as abroad, and issue Title Deeds immediately after the construction work is completed.

The Bar Association said that for units built illegally and to which Certificates of Final Approval are not issued, the appropriate authority will take legal action for compliance against the owner of the land and every affected buyer. But Sylikiotis is worried that such measure, if adopted, would complicate the matter and shift many of the problems to the courts, which are already overloaded with a huge backlog on other legal cases, which usually take five years or more to settle.

“I’m not suggesting that the proposed bills are the perfect answer that will solve all problems. But at least with these suggestions, we shall help solve past problems and avoid creating new ones in the simplest way possible for a complicated issue that has been going on for decades,” said Sylikiotis.

Cyprus property group condemns Title Deeds laws
The Cyprus Property Action Group (CPAG) contends that the government’s proposed legislation currently before the House Legal Affairs Committee “in effect is merely an amnesty for developers who have failed to adhere to planning/building permits issued or even built illegally without these permits“.

Consequently, it fails to address the main problem of “developers taking mortgages on properties they have also sold to unsuspecting buyers“. Buyers then “wait years to obtain Title Deeds and stand to lose their homes should the developer go bust and if the buyers cannot then pay off ‘their’ portion of the mortgage“.

After arguing that successive governments have “totally abandoned” enforcing the Completion Certificate law “which is designed specifically to protect buyers and the integrity of the planning system“, the CPAG also said that by creating three categories of Title Deeds, “the proposed legislation also seriously undermines the rights of the buyers who may be subjected to the effects of such provisions.”

In CPAG’s view, anything less than a complete or clean Title Deed in practice would prevent a buyer from selling a property or taking out a mortgage. Since Article 23 of the Constitution (Property Rights) guarantees every owner the right to dispose of their property, CPAG considers “this particular amendment as being totally unconstitutional“.

CPAG accused the Cyprus government of “consistently misleading” the UK government and the EU by suggesting that the proposed legislation represents “action to address the serious issues raised by these bodies.”

The statement concludes: “Sooner or later they will have no choice but to address the issue of developer mortgages. The question is: just how much damage to the economy, the image of Cyprus and people’s lives will have been caused before the Government shoulders its responsibilities?”

Bar Association opposes Title Deeds legislation
The Cyprus Bar Association has opposed the Government’s proposed legislation, saying that the amendments will not solve the problem, but add to it.

The Bar Association said that the problems arose with the complicated and time consuming procedure of the subsequent division and issue of separate Title Deeds for buildings and their units on a particular piece of land, complicated further if a problem appears in one of the units.

When and if the procedure ever finishes and the Certificate of Final Approval is issued, then a new and unnecessary procedure for the division of the building and of issuing separate Titles for each unit starts from the beginning. And if in the meantime another prohibited construction is carried out the whole procedure is stopped and started from the beginning leading to court proceedings or a long procedure for relaxation.

If finally all the procedures finish, then a new episode starts with the Land Registry for the issuance the Title Deeds.

All these procedures are time consuming and in many circumstances result in separate Titles not being issued. Because of the above delays, along with the development boom in the past years with sales to foreigners, we are at a deadlock, the Bar Association said, adding that the solution is simple when a structure is finished and the ownership and boundaries are not doubted, then Title Deeds should be issued immediately.

For this to happen, some small amendments need to take place in the Streets and Buildings Regulation Law, and in the Immovable Property Law.

As for the units that were built illegally and to which Certificates of Final Approval are not issued, the appropriate authority will take legal action for compliance against the landowner and every affected buyer of the unit, and when the problem has been solved, to proceed to issue a Certificate of Final Approval followed by the registration and issuance of Title Deeds.

© Financial Mirror 2009