In 2015, the Parliament in Cyprus introduced the Law 139(I)/2015, commonly known as the “Trapped Buyers Law” to address issues faced by property buyers who were unable to obtain title deeds for the properties they purchased, despite having fulfilled their contractual obligations.

This predicament arose from various complications, including developers’ failure to clear mortgages or other encumbrances on the land where the properties were constructed, leaving buyers in a difficult position.

Under Trapped Buyers Law, trapped buyers could submit an application to the Land Registry for the transfer of title deed, and if successful, they managed to “bypass” the developer and achieve the transfer of the title deeds for the properties the purchased into their names.

Recent developments

A recent ruling by the Court of Appeal in Cyprus, following an appeal by a banking institution against a lower Court decision, has significant implications for the trapped buyers. The Court found that the provisions of the Law, which allowed the transfer of title deeds to buyers despite the existence of mortgages, infringed the rights of creditors, i.e., the banks. This decision deems these provisions unconstitutional, emphasizing the banks’ rights to retain claims on mortgaged properties, even if they are sold to third parties.

Summary of the Case

The case involved a bank which had provided loans to a developing company, which had secured these loans with mortgages on land intended for future construction. A third-party buyer purchased an apartment to be built on the mortgaged land and later applied to the District Land Registry to transfer the title deed into their name, on the ground that they fulfilled their contractual obligations. The Land Registry’s initial decision in favour of the buyer was objected by the Bank. The District Land Registry rejected the Bank’s objection, citing that the necessary documentation supported the application for title transfer. However, the Bank proceeded with a legal action, seeking to nullify the Land Registry’s decision and declare the law unconstitutional.

The Bank initially challenged the decision of the Land Registry at the District Court, and then appealed to the Court of Appeal, arguing the unconstitutionality of the Law.

Ruling of the Court of Appeal

The Court of Appeal ruled that certain clauses of the Trapped Buyers Law are unconstitutional. This ruling recognizes the rights of banks to retain mortgages and their claims on properties even if they have been sold to third parties, i.e., the trapped buyers, despite the existence of legislation aimed at protecting buyers who have been trapped in these circumstances.

The decision of the Court of Appeal resulted in both the suspension of the ongoing reviews of the applications already submitted by trapped buyers with the District Land Registry Departments, and the halt in the acceptance of any new applications.

The ruling will not impact cases where title deeds have already been transferred to the trapped buyers, but it will affect the pending cases in District Courts, as it sets a precedent.

Consequences of the Court’s Ruling

1. Heightened Legal Uncertainty: Trapped buyers now face increased uncertainty regarding their property ownership. The suspension of application reviews and acceptance of new applications by the Land Registry Departments of each District means that buyers who have fulfilled their contractual obligations may still be unable to obtain title deeds due to existing mortgages.
2. Parliamentary Response: The Parliament will need to consider alternative legislative measures or amendments to address the constitutional issues highlighted by the Court. This could involve drafting new laws to ensure the balanced protection of trapped buyers while upholding the constitutional rights of creditors.
3. Market Impact: The uncertainty and legal complications arising from this ruling could affect the real estate market in Cyprus. Potential buyers may be hesitant to invest in properties without clear title deed processes, potentially leading to a slowdown in the market.

Conclusion

The recent ruling of the Court of Appeal and the decision of the authorities to stop the review of the existing applications and the acceptance of any new applications, pose a significant setback for the protection of trapped buyers in Cyprus. Although the Government had enacted legislation to safeguard buyers, the Court of Appeal sided with the Bank.

The Parliament should act swiftly to address these constitutional issues and find a fair solution that protects both buyers and creditors.

Those who consider purchasing or selling a property in Cyprus are advised to seek independent legal advice and consider the specific circumstances of each case, to ensure an efficient and smooth process and to protect their financial interests..

Maria Kokoridi
Lawyer at Polycarpos Philippou & Associates LLC

The Appeals Court ruled unanimously on 20th June that the ‘Trapped Buyers’ law was unconstitutional.

The objective of the Trapped buyers law, which was introduced in 2015, was to a transfer property to its purchaser(s) who, although they have fulfilled their contractual obligations to the vendor, were unable to obtain its Title Deed.

Typically this situation occurred when a developer had mortgaged the land on which he was building or a memo or any other encumbrance has been registered on the property and the developer was unable or unwilling to repay this mortgage and any other debts – and a developer whose company is insolvent.

In these situations, the bank had ‘first call’ on the property. So if the developer failed to pay off the mortgage or went bankrupt, the bank would be able to sell/auction the property to recover the debt (even though the property’s purchaser had paid the developer in full for the property and may have been living in it for many years).

In 2015 the Appeals Court ruled that certain clauses of the 2015 law were unconstitutional, as they violate the right to property as well as the right to freely enter into a contract. This appeared to apply solely to cash buyers as the bank that loaned the money to the developer didn’t have any knowledge of the sale (as they would have done if the buyer needed a bank loan to buy the property.)

However, the latest decision by the Appeals Court rules the whole of the Trapped Buyers’ law unconstitutional.

Here’s the reply received from the Land Registry in reply to a question about a Trapped Buyers application:

“the Appeals Court decided in a Civil appeal that articles 44IH – 44KB of N139(I)2015, come into conflict with articles 23 and 26 of the Constitution, as a result of which the examination of the processing of any request of an Enclaved Buyer is terminated.”

It seems that the only option available to the government is to repeal and issue a revised Trapped Buyers law dealing with the mortgage issue.

Update 19 July. According to the Interior Minister, Title Deeds that have already been issued to buyers cannot be taken back. The Minister is already on the case and is expecting to put a revised law for consideration before parliament in Sept.

So far the trapped buyers law is suspended.

What a mess!

Advice to those considering buying a property in Cyprus

The only advice I can offer to those considering buying a property in Cyprus is:

Only buy property that has a clean Title Deed. I.e. a property that is not burdened by any debts or other encumbrances and does not suffer from any planning infringements. Do not buy off-plan.

Always use an independent lawyer when buying a property. I.e. a lawyer who has no connection whatsoever with the person selling the property or anyone else involved in the sale such as the estate agent.

(For British buyers, The UK Foreign Commonwealth and Development Office provides a list of English-speaking lawyers to help British nationals find the legal support they need. You can find the list at Find a lawyer in Cyprus.)

Further reading

The Appeal Court judgment may be found at Civil Appeal No.: 285/2018