Deposit of Contract of Sale of Immovable Property
The Sale of Land (Specific Performance) Law No. 81(I)/2011
The Sale of Immovable Property (Specific Performance) Law, No. 81(I)/2011 entered into force on the 1st of August 2011, replacing the previous Legislation, regulating the specific performance of Sale Contracts.
The new legislation introduces provisions for the enhancement and upgrading of the protection of purchasers, provided that they deposit the sale contract with the appropriate Lands Office, in order to safeguard that the object of the sale shall be finally registered in their names, either through the transfer thereof by the vendor, or through the procedure of specific performance. The term "specific performance", means the registration of the property in the name of the purchaser, after the issuing of the relevant Court Order, when the vendor refuses or he/she is not in a position or fails to comply with his/her contractual obligations.
A necessary precondition for the purchaser in order to safeguard the benefits provided by the new Legislation is to deposit the Sale Contract with the Department of Lands and Surveys, within the specified time limits.
The innovative safeguarding provisions of the Legislation are the following:
➤ Registration of the property in the name of the purchaser, despite the existence of a prior mortgage.
In most cases, the property being sold is mortgaged. Under previous legislation, in order for the mortgaged property to be transferred to the purchaser, it was necessary that the vendor paid off his mortgaged debt to the creditor. Where the vendor was unable to perform his/her obligations against the creditor, the purchaser could not activate his/her right for specific performance, because of the mortgage, unless he/she had paid off the mortgage debt himself/herself.
The new legislation provides the opportunity to the purchaser, when the object of the sale is mortgaged, to pay the amount due each time, under the Sale Contract, to the mortgage creditor directly and not to the vendor. When the purchaser pays that part of the mortgage debt which corresponds proportionally to the value of the property he/she has purchased as compared to the total value of the property mortgaged, the Court may issue an order for specific performance, ordering the registration of the property in the name of the purchaser free from the encumbrance. The part of the mortgage debt that is attributable to the purchaser is determined by the ratio of the value of each property under sale, in relation to the total value of the mortgaged property.
➤ Security of the amount paid by the purchaser, under the Sale Contract deposited.
The new Law secures the amount paid by the purchaser, where the specific performance of the Contract is not possible, either due to inability on the part of the vendor to release the object of the sale from any encumbrances, or due to sale of the property for other reasons. A similar security is provided also where the Court, instead of a specific performance order, issues an order for compensation. In both cases, the amount is secured in accordance to the priority of the encumbrance created by the deposit of the Sale Contract.
➤ Adoption of the institution of vesting of the rights and obligations deriving from the existing Sale Contract, and the possibility to deposit the Vesting Contract at the Lands Office.
Through "vesting" as provided in the new Law it is now possible to deposit a vesting contract whereby the purchaser (transferor), who has deposited the Sale Contract with the appropriate Lands Office, before being registered as the registered owner of the property, may grant (vest) his rights deriving from the sale contract to a third person (the transferee), either with or without a consideration.
➤ Securing of borrowing by urchasers through financial institutions by depositing the Vesting of a Security Contract.
Through an agreement between the purchaser (transferee of security) who has deposited his Sale Contract and a third person (creditor/transferor of security), the rights of the purchaser deriving from the sale agreement are vested to the creditor in order to secure his/her monetary obligation against the creditor.
Subject to the provisions of the Law, the proposed purchaser must proceed with a lot of caution (and preferably request the assistance of expert advisors) to the following actions in the order they are laid out below:
➤ Upon deciding on the immovable property he/she is interested in, he/she may apply to the appropriate Lands Office to search whether the property is subject to any encumbrances (e.g. mortgage, memos etc) or whether the owner is charged with court prohibitions (e.g. bankruptcy, interim orders).
➤ In case the property is part of a development or a plot under division, the purchaser is advised to ask the vendor to produce a planning permit or land building permit or division permit, as the case may be.
➤ He/she is then advised to apply to the Planning or Building Authority to verify the above permits.
➤ If the object of the sale contract is another type of immovable property (e.g. field) it is advisable to seek information from the Planning Authority regarding the prospects and and the allowed development thereof (use and density of buildings or other).
➤ In case the immovable property is encumbered with a mortgage, it is advisable to request from the vendor to inform him/her on the value ratio of the property under sale in order to be aware of the part of the mortgaged debt apportioned to him/her. The purchaser has the right to pay an amount corresponding to the value of the property he/she has purchased (part of the mortgaged debt) directly to the mortgage creditor and not to the vendor and the mortgage creditor is obliged by law to receive it. If so paid, and the vendor refuses or is not in a position to proceed to the transfer, the purchaser may apply to the Court for an issue of a Court Order of Specific Performance in order to be registered as the owner, regardless of any existing encumbrance, and his property will thus be released from such encumbrance.
➤ It is advisable that in the case of a part of an immovable property (namely a building plot under division or a unit on a building), the architectural plans indicating the part of the property under sale shall be attached to the contract of sale. Where there exists a Planning or a Building Permit, it is advisable to use the approved plans of the permit.
➤ As soon as the Sale Contract is signed and stamped by the Registrar of Stamp Duties it is advisable to be lodged at the District Lands Office of the District in which the property is situated. Regardless of the six month expiry date for its deposit, any delay may create problems to the purchaser if in the meantime other encumbrances are deposited as against the object of the sale.
➤ The deposit of the Sale Contract is carried out by completing and submitting Form DE.129, which is available at all District Lands Offices or it may be downloaded from the webpage of the Department of Lands and Surveys.
➤ Where there are conditions requiring the prior deposit of the Contract of a previous mortgage, the purchaser, having so informed the vendor, may apply to the mortgage creditor to settle the payment of part of his proportion of the mortgaged debt.
➤ If one purchases property from a person who is not the registered owner thereof, but he is a purchaser under a Sale Contract lodged, in other words, if he proceeds to the signing of a Vesting Contract, then, in addition to the above actions, he/she must:
➤ Confirm that the Sale Contract has been lodged with the Lands Office.
➤ Be informed by the vendor in the Sale Contract of the existence of any amount due by the transferor and/or other obligations to the vendor.
➤ Arrange for the manner of payment of the Capital Gains Tax by the transferor.
➤ The deposit of a contract of sale is carried out at the District Lands & Surveys Office of the District where the property is situated, by completing Form DE130 (copy of the form may be obtained at any District Lands Office or downloaded from the webpage. The signatures of the contracting parties on the relevant form must be duly certified, unless they are duly certified in the actual Vesting Contract. The application to be lodged must be accompanied by the Vesting Contract duly stamped and by the Certificate of Payment of the Capital Gains Tax.