This article describes the necessary legal research requirements, also known as the "due diligence" exercise that must be undertaken on behalf of an intended purchaser in connection with the potential purchase of property in Cyprus. It is imperative for intended purchasers and their advisers to do the following checks before purchasing a property or even commit to purchasing a property by paying a reservation fee or deposit.
- Title Deed
First and foremost, the purchaser must obtain and check a copy of the title deed issued by the Land Registry in order to verify ownership. The title deed will also indicate the exact location, the nature of the property, the total area and the most recent valuation according to the Land Registry, which is indicative but likely outdated.
- Land Registry Search
It is imperative to request and obtain a recent search issued by the Land Registry for the property in question so as to determine whether there are mortgages or other encumbrances on the property which may prevent a purchaser to obtain a title on that property. This includes any contracts of sale submitted for specific performance purposes, memos by a creditor pursuant to a court order, a charge or other rights such as rights of use, easement etc. This will enable the purchaser to effectively utilise legal mechanisms at the time of purchase which will secure the lifting of such encumbrances before or simultaneously upon transfer of the property, such as registration of the contract of sale for specific performance purposes, withholding payment until receipt of a bank waiver or payment simultaneously with the lifting of 3rd party encumbrances. It all depends on the circumstances which apply. Bear in mind that only the legal owner of the property is authorized to conduct such a search, therefore the seller can either obtain and provide this to the purchaser upon request or, ideally, the seller can provide the purchaser or his representatives with a power of attorney, duly certified by a certifying officer in order to directly conduct such a search.
- Department of Lands and Surveys (DLS) Online Portal
Upon receiving a copy of the title deed, you can use the specific references listed such as title no. plot number, sheet, plan, area etc in order to conduct a search online via a publicly available data base found at http://portal.dls.moi.gov.cy/en-us/homepage which will have information about the nature and characteristics of the property which you are interested in buying. For one you can verify what is stated on the title deed. Most importantly, especially if you are buying land or a plot of land which is intended for development, you are able to identify the exact zoning determination on the said land, which will specifically indicate what can be developed on it. As a general matter every piece of land can be utilised only as permitted by the city planning ordinances as determined by the planning authorities who will give zone designation on every property, depending on the area. On the DLS portal you can view the total area of the property, how much square meters you can build on the property in percentage terms of the total area (in other words the built ratio), what you can build as a footprint or the size of the ground floor in percentage of the total area (in other words the coverage ratio), how many floors you can reach and at what height, in order to utilise the full built ratio. This of course is only a preliminary confirmation as there may be other specific variables at play such as government incentives, which are specific to your intended development and for which you need to contact an architect or other property expert for further clarifications. You can generally explore this at a later stage if the original zoning is suitable for your intended development.
Ask and obtain all and any permits available on the property issued by any authority. This should include permits, if available, receipt of applications for permits and the architectural plans and drawings which accompany such applications. Briefly described, as a general matter, before a person can proceed with construction in Cyprus they must first secure a planning permit from the planning authorities after submitting architectural drawings and other specific information. Subsequently and once the planning permit is obtained one must apply and obtain a construction permit from the municipality where the property is situated. Only after the construction permit is issued can one can begin construction, although it is standard practice amongst developers to start some form of construction after the planning permit is issued. After construction is finalised there is a final inspection for what is called a "certificate of final approval" and then a title deed is issued. From the above, especially for those properties purchased "on the plans" and prior to fully being constructed, any potential purchaser of property must seek and review at least a planning permit to ensure the intended development is feasible. Even if the property is an apartment or a house which is fully constructed it is necessary to obtain and have the relevant permits to ensure it was built compliant to the permits issued. Similarly, if there is title deed, after a certificate of final approval was issued, permits are necessary to ensure that no illegal alternation was made which will then become the responsibility of the purchaser. In case of land, separation permits may be also relevant. Where no planning permits are issued and neither the intended purchaser nor the seller wish to undertake the cost or spend the time to apply, it is possible to apply for preliminary views to the relevant planning authority on an intended development for an indication as to the feasibility of the development, but this is a mere indication and is neither conclusive nor binding.
- Physical Inspection
No matter what it says on paper, it is necessary that the purchaser conducts a physical inspection of the property. Depending on the type property you are buying it may be advisable that the physical inspection is conducted by an expert. If you are buying land it is better to take a land surveyor with you as even the title deed may be wrong on the total area of the property, or in other circumstances the title deed may be right but the seller is showing a larger plot and maybe the boundaries are incorrect between neighboring properties. If you are buying a property being developed, it is advised that you inspect the progress and validate what the developer is telling you. If you are buying a fully constructed property take a civil engineer or other property expert to determine its condition and confirm whether there are illegal alternations made for which you will become responsible. Last but not least you must always see something before you buy it, even if it's purely an investment, as there may be neighboring properties or other factors which come into play in terms of the potential value or use of the property which cannot be identified on paper such as noise from factories, smells, nuisances etc.
- Professional Reports
It is strongly advisable, especially for large investments of property, that a prospective purchaser seeks and obtains at least a professional valuation of the property, from a licensed chartered property surveyor. Where there is financing involved this is normally requested by the bank in any event. Where the purchase consists of land to be developed, it is strongly advisable that the purchaser seeks a report from an architect or other suitable professional on what exactly can be built on the land, what incentives can be utilised for building more, what is the approximate total cost of construction and what other variables are relevant to the intended use. Where the purpose of the property is for an investment, to rent or re-sale, the purchaser should also seek in the report of the valuer to include an indicative rental or sale price for the intended construction, whether it is residential or commercial. This is most often determined in price per m2 so you are utlimately able to make a relevant feasibility study on the investment taking into account both potential revenue and total costs.
In conclusion, before you buy or commit to buy a property in Cyprus seek and obtain the title deed, a recent land registry search, check the DLS portal, obtain and review all necessary permits, do a physical inspection and lastly get expert opinions in the form of professional reports. The above list is certainly not exhaustive and further steps may be necessary or warranted, depending on the circumstances, such as legal and financial due diligence on the seller. Once all the above are checked and evaluated, the purchaser ,through his lawyers, can proceed to produce or negotiate a draft of, ideally, a written contract of sale which will take all factors and risks identified into account during the above due diligence process in order to safeguard the purchaser's interest and particularly that of duly obtaining a legal title.
12 July 2018