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.

Name-and-shame

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.

Foreigners

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 proposed 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.”

Criticism

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.

Cyprus’ Own Version of “Yes, Minister!”

IT HAS BEEN our ethical principle throughout many years of personal, academic and professional integrity, hundreds of published works, academic life and professional engagements and practice to respect the opinions of others and where we disagree to critically appraise and assess and openly challenge their world view of things but without being rude or disrespectful. After all, that is how knowledge progresses.

Someone says the earth is flat and someone else comes forward to disprove it and offer an alternative interpretation of how the world is. We are doing the same here.

We listened to the government, we studied their intentions and we published, in summary, their plans to modify existing laws to solve the problem of Title Deeds. We respect their efforts to put matters right but we are not convinced.

The audacity and naïveté of the proposals are uncharacteristic of the normal legislative process. Indeed, we are horrified that any such proposals have even been considered for the statute book for they are a legal minefield and a social time-bomb. As such, we are indeed overtly critical of these ideas in the present article.

Right at the outset, we say that the proposals are a shambles of illogical parts and misconnections and a recipe for disaster. This is an interesting point that should not escape attention. Most scientists and ordinary people are always preoccupied with how to predict disasters (be they personal, physical, climatic or social) and for that purpose they create all kinds of models to understand the formation of disasters and how to prevent them. The intended amendments to current laws to deal with the problem of Title Deeds are an exception to this rule. They stand for the opposite effect: they are a social and legal tool of engineering crafted to cause a disaster.

Title Deeds, building and planning regulations and consents: a sinister combination

The solution to the problem of Title Deeds is simple enough: disentangle it from the myriad of rules and regulations regarding matters of building and planning regulations and you have your answer.

Why should ownership of property be linked and interrelated to matters that have absolutely nothing to do with the right of ownership of any asset? Whether you are buying a ramshackle of a building, a rock, a disused garage, a rotten and not roadworthy car or whatever, and you are entitled to claim that it is yours, that object of desire or choice ought to be yours. If that property proves to be unworthy of use, or violates some safety regulation or rule, or has unauthorized additions or extensions or modifications that call into question its legitimacy and can prove a hazard to the owner or to others then action in these circumstances is appropriate to address those issues and breaches. In normal circumstances, it should not be about challenging ownership or subjecting it to a crude classification of a Definitive (Complete) or Incomplete or Restricted Title Deed.

It is simply absurd. It confuses the right of property ownership with administrative, health, safety, building and planning issues amongst others.

Economic and political expediency and a model for conflict

Most of the measures and procedural means e.g. applications, planning, building, fees, fines, Certificate of Approval, committee decisions, Updated Title Deeds, classification and registration of properties, challenges, court proceedings, legal fees etc. have to be paid for.

The only obvious beneficiaries out of the proposals if they are legislated will be the developers, the banks, legal practitioners and, especially (at least for a while), the state.

By and large the proposals shed responsibility away from the state in protecting the purchasers, and generally the property market, onto the judicial system, committees and bureaucratic procedure. Much of this dependence is reflected on the procedural aspects laid down for each of the legislative changes and ways of resolving issues and challenges.

The amended laws, rather than succeeding in establishing better social relations, will increase and facilitate more disputes and unrest between the main active participants – vendors, purchasers, authorities and banks. Almost everything is referred either to special committees or the competent authorities or to courts for resolution of differences instead of the government being bold enough to see to its own responsibilities and enact legislation that clearly and unequivocally states and protects the rights of purchasers. In fact, the much trumpeted use of “specific performance”, the Sale of Land (Specific Performance) Law, which the government considers to be the tool via which purchasers can attain their rights, though useful, puts the onus entirely on purchasers to fight for their rights when in fact those rights ought to have been bestowed on them at the time of purchase without ever anyone needing to use specific performance to acquire ownership rights. In particular, how exactly specific performance will apply when there is not a single reference to the dubious but serious matter of mortgages and other charges involving banks and many other third parties?

For the government to rely on the good will of developers and the banks and the Cypriot cultural context to find a compromise to assist the purchaser (Neoclis Sylikiotis, 2009, “Minister confident Title Deed changes will work”) shows a lack of proper understanding of the adverse legal and psychological context within which purchasers have found themselves trapped in.

Specific Performance, developers and banks

In the context of the confused and assumingly interrelated laws and their amendments, this piece of legislation, the Sale of Land (Specific Performance) Law, is on its own useful and relevant to purchasers in seeking out justice.

In particular, the extensions given by courts and the introduction of retrospective application and execution of specific performance (i.e. to cover for those who have not had their contracts of sale deposited at the Land Registry within the permitted time limits) are welcomed.

However, as noted earlier, there is nothing said about the relationship between a developer and a bank and the clearance of debts or, if the debts are allowed to remain, how a bank would release the collateral (i.e. the property) and allow for the transfer of Title Deeds to purchasers. Banks are not charitable organizations and even charitable organizations have to have some income from somewhere and their assets need to be protected.

Sadly, such matters over outstanding debts are normally resolved only when purchasers are willing to pay off the debts of the developer to protect their holdings from receivership. Even after the payment of debts (which effectively leaves the developer richer and happier) the road to recovery and taking over ownership of their asset is riddled with innumerable other obstacles.

The forgotten “shareholders”

The issue of specific performance and the law changes in general do not account for the particular issue and problem of co-ownership and how “shares” in a building or a plot of land onto which buildings have been erected can be accommodated under the new laws.

Many purchasers have been sold properties by being given a share of ownership (normally for mortgage purposes). But the complications that arise for those with such shares of co-ownership are hard to describe.

The most difficult stumbling block in applying and receiving Title Deeds in such cases is that one is not now dealing with a single developer or seller but with a number (and sometimes many) co-owners whose signature and consent is required for matters to proceed.

The proposals do not consider nor do they provide any indication of how the blight of these people may be addressed.

Contradictory and confusing regulations and cronyism

The proposals are full of contradictions. They are an amalgamation of diverse parts that do not synchronize and do not act in concert as a single entity for a single purpose either within each law or between the different laws.

Anyone who read our presentation in the previous two issues of In Touch will understand the problem first hand. For example, under the Regulation of Streets and Buildings Laws the strict procedure of permits and consents is watered down by “exemptions”. The Certificate of Approval is presented throughout as a main requirement for acquisition, entry, classification of Title Deed etc. and can only be granted if the right planning and building consents have been given in the first place.

Interestingly, the same Certificate of Approval, in the absence of such consents, can also act as a building and planning consent and can be issued independently to whether there is or there is not a formal building or planning permit and consent! Does this invite confusion and illegal building activities or not?

The whole intended legislative process relies on the requirement that procedural rules should be followed and the designation of type and category of Title Deed depends on that. The exemptions and contradictions that are plentiful across the intended changes both within each law and between laws invite chaos, confusion, illegal activity, backstage scenarios and the emergence and exercise of patronage and cronyism. If one is not happy enough or satisfied with the result, s/he can always apply to a committee of three individuals to sort out the presented problem or can refer matters to the judicial process at his/her own expense.

Special committees, updated Title Deeds and the consequences of bureaucratic overloading

The establishment of committees of three individuals to examine and rule on matters relating to the Town Planning & Land Survey Law and the Regulation of Streets and Buildings Law regarding unauthorized works, lack of permits and consents and issuing a Certificate of Approval etc. prior and after the enactment of the present proposals will generate a tremendous amount of applications by those concerned.

If this is also linked to the process of upgrading or downgrading Title Deeds under the proposed changes to the Immovable Property (Possession, Registration and Valuation) Law, the committees and the Land Registry may prove, as noted, a good income generating source for the government as thousands of applications will be launched – but with a problem. There are over 130,000 current cases of properties without Title Deeds and many of those have to do with breaches of building and planning consents and the lack of a Certificate of Approval.

In addition, in Cyprus just about one in every three buildings (a conservative estimate) is probably in breach of such permits and consents via various illicit extensions and erections such as “garages” or “carports” or “pergolas” or “porches”, or “conservatories”, or in the case of many Cypriots, unauthorized and unregistered buildings (if not mansions) erected on land they own.

Assuming all these thousands of dwellings may have to be registered and re-registered on application or by enforced registration under one of the new Updated Title Deeds categories created by the amended Immovable Property (Possession, Registration and Valuation) Law, a serious question needs to be asked.

How will the committees or the Land Registry, or courts in general manage to deal and cope with such an avalanche of new work? How would they ever meet deadlines when at the moment, even before the implementation of the new legislative changes, there is a serious backlog of unfinished applications for Title Deeds stretching back ten years? In fact, by the government’s own admission, if one believes the official statistics, there appears to be in any given month a backlog of, on average, 1,000 applications for building permits in each district. This translates to 6,000 per month and 72,000 per year in all districts (Ministry of Interior, 2009, 22 August).

In such circumstances, when everything is under pressure, there is also again the hidden prospect and risk of cronyism becoming the rule of the day as the system may function only under the motto of whom you know and who is prepared to pay something extra for “fast-tracking” applications and favourable decisions.

Updated Title Deeds, categories and the creation of housing (social) classes

The categorization and registration of properties under either Definitive Title Deeds, or Incomplete Title Deeds or Restricted Title Deeds will introduce serious economic and social inequalities and injustices in the market.

Their implementation will, at a stroke, create three distinct social classes (a caste system) of homeowners: one category (Definitive Title Deeds) that bestows privileges and a high status and two classes (Incomplete and Restricted Title Deeds) that establish a bigger and broader class of “untouchables” in the market.

Those homeowners, who fall in the latter category, will see the value of their asset diminish in social and economic terms; they will be shunned by prospective buyers and banks on application for loans or other financial arrangements and, in all, they will experience financial ruin and social exclusion.

The government should do well to quickly re-think this ladder of Title Deeds and the social consequences that will follow if they are enacted.

Updated Title Deeds and retrospective upgrading or downgrading

The creation of a ladder of Title Deeds is a worrying feature on its own and we dealt with its social consequences above.

But what is also worrying and almost unheard of in the normal context of enacting new laws, is that any property at any time can be re-graded upwards or downwards.

This power to change the positioning of any property including properties that currently have full Title Deeds (which may mean being downgraded to Incomplete or worse still Restricted Title Deeds) may prove a socially disruptive measure that will introduce further confusion and injustice into an already confused and unjust system.

Normally legislation is built on the principle of what is and what should and ought to be in future as from the date of application of the new rules.

It is always a very regressive and dangerous precedent for legislation to put under its ambit the past and its social relations (whether in the property market or elsewhere).

Such retrospective powers are bland instruments that maim instead of healing, pull asunder rather than binding together, divide rather than reconciling and cause broader conflict. Furthermore, they collapse, on application, under their own weight.

The new legislative changes, to be fair and just, ought to apply from the date of implementation of the new laws and anything past should be left in the past.

If our earlier comment holds true that most of Cyprus’ Title Deeds are somewhat adulterated by some means or other, then half of Cyprus will end up with Incomplete or Restrictive Title Deeds should officials become overzealous.

What a prospect for the political, social and economic context of the country and for a government that is at the helm of such proposals.

Conclusion

Our critique is about broader ramifications. It is not about every single positive or negative aspect in the proposed laws. There are some parts, in the proposed amendments, and independently of others, which are good and welcomed.

However, the whole is more than its parts and we are looking here at the overall implications of the changes that seriously concern us and ought to concern others too. We are surprised therefore that the Minister of the Interior in a recent statement has castigated comments and criticisms levelled against the proposed amendments by brushing them aside as irrelevant “complaints” (Neoclis Sylikiotis, 2009, “Working together for better Title Deeds law”)

Furthermore, for him to imply that as the proposals are legally vetted by his own experts other people’s views are not worth considering points to a very sad and sorry affair about the level of understanding of how a democratic government ought to function and how to accommodate diverse and conflicting views on this or any other subject.

Such a posture has no place in an open society. He ought to remember that “…working together…” is not about forming elites of experts who pretend they know best because if they had done their job well in the first place we would not be in the current mess – and not just with regard to Title Deeds.

Knowledge is not about anonymous inner circles of advisers who manage to establish a monopoly of opinion and decision-making powers. It is not about telling everyone how wrong and pedestrian they are and how right, clever and privileged the minority of bureaucrats and oligarchs who take control of citizens’ lives are.

Rather, it is about encouraging as many people from diverse social, economic and cultural backgrounds and professions to participate on matters which affect their lives. It is about knowing and practising the art of listening and learning something from it. Besides, it is the constitutional right of all citizens to express themselves freely and without intimidation and be allowed to feel a sense of pride for their involvement in and contribution to socio-legal, political and economic affairs.

He (the Minister) ought to applaud broader participation and opinion instead of trying to stamp it out as inappropriate.

Given our critique we will probably fall foul of the Minister too for daring to criticize the intended amendments.

In response, we maintain with a similar measure of arrogance that the new proposals are less about receiving ownership and Title Deeds and more about political and economic expediency. They are about creating new and irresponsible social dimensions in social relations which will be dictated by what kind of Title Deeds people have and the social category they are placed in which will define and determine their positive or negative position in the economic structure.

The proposals will create social divisions based on prejudice and unequal opportunities which will have serious personal and interpersonal ramifications for a lot of people.

On a macro level, these proposals and the resultant consequences on property ownership, will lead to a disastrous effect on the economy by exacerbating the current instability in the construction industry and property market.

Deep down on a structural level, what transpires from these proposals is that no social or legal prosthetics and general plastic surgery can alter or camouflage the fact that the body underneath – the basic legal structure and framework – is rotten.

If indeed the proposals were prepared and vetted by his legal experts, our bold suggestion is that the Minister should sack each and every one of them for incompetence, shelve the proposals and start all over again to avert a national social and economic disaster.

The proposals should not reach the statute book in their present form. The proposals are hype and much of the hype is of little useful practical relevance to resolving or disentangling the problem of Title Deeds. They are not progressive but regressive.

The proposals should be dropped. Otherwise, suffer the little children or should we say, suffer the poor purchasers, sellers and with them the demand for property and thus the economy as a whole.

© Prof. Dr. Andonis Vassiliades, December 2009.  No part of this article may be used or reproduced in any form or by any means without prior written permission from the author.

Dr. Andonis Vassiliades is Professor of Law, Criminology & Penal Justice, an Academic Consultant and a Clinical Psychotherapist.

He is with Maria Chimonides, an experienced Lawyer and a Legal Consultant, at:

The Law Office & Research Centre:
Main Office, Larnaca: Kalogreon 16, Ria Court 19, Office 101, 6016 Larnaca
Branch, Oroklini: George Griva Digeni 16, Office 3, 7040 Oroklini (Close to the Bank of Cyprus)

Tel.: +357 24624449, +357 24654011
Fax. +357 24621336
E-mail. [email protected]

We are grateful to Dr. Andonis Vassiliades for his permission to publish this article, which is printed in In Touch, issue 36, Dec 2009