Purchase of Immovable Property in the Republic of Cyprus
Purchase of Immovable Property in the Republic of Cyprus
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The purchase of immovable property is usually a landmark decision in one’s lifetime, not least owing to the financial implications of entering into such a transaction. We would therefore always advise that any agreement relating to the purchase of immovable property in the Republic of Cyprus be made in writing in order to determine the precise scope of the agreement between the parties and, more importantly, for each party to have a very clear understanding of its rights and obligations as against the other.
It is worth noting from the outset that, if the prospective purchaser is a third country national, a foreign company, or a Cyprus company controlled by third-country nationals, a permit of the Council of Ministers shall be required for the acquisition of immovable property in the Republic of Cyprus.
Due Diligence Stage
The diligent prospective purchaser would do well to ask the seller to provide identification documents (in case of a natural person a valid passport or I.D. and in case of a legal person corporate certificates and the Memorandum and Articles of Association) and documentation pertaining to the property in order to ascertain the characteristics and legal status of the property in question including, at the very least, a copy of the Certificate of Registration of Immovable Property (Title Deed) and a recent Immovable Property Search Certificate issued by the Department of Lands and Surveys and showing any open files, applications, notes, observations, charges or encumbrances registered against the property such as mortgages, memos, usufructs, rights of third parties etc. This is because it is imperative for the purchaser to make sure that the property in question shall be transferred into his name free of all and any charges and encumbrances.
In addition, if the subject-matter of the sale is a house, apartment, or building of any kind, the prospective purchaser should also ask the seller to provide any other documents confirming that the necessary building and planning permits pertaining to the construction of the property have been issued by the competent authorities and that the manner in which the building was constructed adheres to the provisions of the relevant permits. These documents include (without limitation) the planning and building permits, the certificate of approval, and architectural plans pertaining to the property.
Depending on the content of the documents provided by the seller, the purchaser may ask for additional information, clarifications and/or documentation.
Satisfying any KYC / Due Diligence Procedures adopted by the Financial Institutions Involved
From a practical standpoint, it is always advisable to notify the seller’s bank of the proposed transaction at the preliminary stage (and in any event prior to the execution of the sale agreement), in order to make sure that the bank’s due diligence process on the purchaser will be completed by the time the sale agreement is signed and, crucially, that any payments made by the purchaser towards the purchase price into the seller’s account will be accepted by the seller’s bank. In order to authorize any payment or to accept receipt of any payment, banks and financial institutions must now be satisfied that all internal KYC / Due Diligence policies have been complied with. In this respect, the prospective purchaser will be expected to provide supporting documentation in respect of, among others the reason for making any payment under the sale agreement (this can be proved upon presentation of a duly stamped sale agreement) and the source of his funds (e.g. income from sale of property, rent etc). It is therefore advisable that any such KYC / Due Diligence/ background checks (including documentation evidencing source of funds) be completed in advance and in any event at a stage prior to the signing of a sale agreement in order to avoid any inconvenience and/or delays.
Contract of Sale, Payment of Stamp Duty and Deposit of Contract of Sale at the Land Registry
It goes without saying that prior to entering into any agreement, the parties (i.e. the seller and the purchaser) must agree on the terms governing their relationship and the subject-matter of the agreement, in this case the sale of the property from the seller to the purchaser.
In the course of drafting / review of the sale agreement, particular emphasis must be placed on material terms of the agreement in order to ensure that the rights of the purchaser are sufficiently protected. Such terms include the manner and timing of payment of the purchase price, delivery of possession and transfer of title (and, in particular that the seller must undertake to transfer the title in the property to the purchaser free of any encumbrances, charges whatsoever), the defects liability period offered by the seller (in case of purchase of a new house / apartment), the right of the purchaser to deposit / lodge the sale agreement upon payment of a particular amount of the purchase price and remedies of the purchaser in case of breach of the agreement by the seller.
The sale agreement must be duly stamped by the Tax Department within thirty days from the date of signing thereof and the applicable stamp duty is borne by the purchaser (the amount of the stamp duty is calculated on the basis of the value of the transaction by reference to the purchase price). Upon the expiry of the 30-day period, the purchaser will be required to pay the stamp-duty plus a penalty for late submission.
Typically, the terms of the sale agreement provide that, upon payment of a particular amount or instalment of the purchase price, the purchaser shall be entitled to deposit the sale agreement at the District Land Registry Office for specific performance purposes. At this juncture, it is worth noting that the deposit of the sale agreement at the Land Registry must be made within six months as from the date of signing thereof; in case the said deadline is not complied with a court order extending the time frame for the deposit shall be required. The existence of a duly deposited sale agreement is regarded at law as an encumbrance on the property.
Transfer and Registration of Title
On the other hand, the purchaser must arrange, prior to the date of transfer of the property in the purchaser’s name, to settle all applicable or outstanding taxes, levies, fees and costs pertaining to the property and to procure the issuance of the necessary tax or other clearances, payment receipts and confirmations required by the land registry in order to process an application for the transfer of the property.
The process of transfer and registration of title in the property unto the name of the purchaser commences following an application filed by the seller before the competent district land registry office to this end. Provided that the land registry is satisfied that all necessary documents have been submitted, and that the purchaser has settled the purchase price, the transfer and registration of title in the property is completed upon payment, by the purchaser, of the applicable land registry transfer fees (unless the nature of the transaction falls into any of the exceptions provided for under the Law and in respect of which no transfer fees are payable).
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