The Contract by which a Property in Cyprus is sold can be deposited (filed) to the Lands Registry Department of the Republic of Cyprus, after it is signed by the contracting parties and before the transfer of the Immovable Property to the Purchaser’s name.
The Contract of Sale, also commonly referred to as the Sale and Purchase Agreement of Immovable Property or “SPA”, can be deposited within a certain deadline imposed by law. If the above deadline passes a Court Order can be issued, allowing for the deposit of the Contract of Sale after the deadline. Either party in the transaction can deposit the Contract of Sale, but the Contract of Sale can only be withdrawn from the Lands Registry Office by the Purchaser.
Why is it important to deposit the Contract of Sale of Immovable Property to the Lands Registry Department?
It is not mandatory under the current legislation to deposit the Contract of Sale of Immovable Property, but it is generally speaking, a good practice to do as soon as it is concluded and stamped by tax department as, omitting to do so, might not safeguard the contracting parties’ interests adequately.
Even though it is a point in itself that the parties in an immovable property transaction are better protected when a duly drafted and structured agreement is concluded, we shall only be focusing on the main reasons that a written Contract of Sale would not only be better if concluded but also deposited to the Lands Registry Department:
- Creation of Encumbrance: The deposit of the Contract of Sale is considered an encumbrance on the Property in accordance with Sale of Property (Specific Performance) Law 81 (I)/2011, which in a way, safeguards the priority of the rights of the beneficiary of the Contract over other encumbrance holders. In some instances, and depending on the encumbrance, it excludes the placement of a further encumbrance on the Property i.e. the Seller cannot resell the Property to another party and deposit such Contract of Sale.
- Minimizing margin of breaches: Getting in front of the line over the priority of rights, becomes particularly important when, the terms of the Contract of Sale might have not been executed yet or not executed in full. Examples include depositing the Contract of Sale until the Property is constructed or instalments of the Purchase Price are provided in the Contract with the last instalment being upon transfer to the Purchasers name. In the above examples, due to the lapse of time and the uncertainty as well as the margin of breaches invariably getting bigger over time, the deposit of the Contract is particularly important.
- Specific Performance of the Contract of Sale: means the performance of the obligations arising out of the Contract of Sale by a Court Order. In the majority of cases, it means that the Court orders the transfer of the Property in the name of the Purchaser in case the Seller omits, neglects or otherwise fails to do so along with other obligations not met (i.e. Planning or Permit licenses), irrespective of the existence of a prior encumbrance. Of course, for the issuance of such an Order, certain requirements must apply, one of which, is the prior deposit of the Contract of Sale to the Lands Registry Department.
- Funding: Most people, do not have the totality of funds readily available and resort to loans from credit institutions. Most of credit institutions in addition to the mortgage (another type of encumbrance) request that the rights of the Contract of Sale are assigned to them, as an additional form of security. The assignment of the Contract of Sale is done to deposited Contracts and by the use of similar forms, as the deposit of Contract of Sale itself. Even though there is the consideration that the assignment of rights does involve another risk factor for the borrower, it does facilitate funding.
- Transfer fees: In case that transfer fees apply for the transaction, the omission of depositing the Contract of Sale within the time limit prescribed in the law, results in increased transfer fees.
For any further guidance regarding this procedure or if you require an initial consultation, please do not hesitate to contact our Law Firm at [email protected], +357 22 261 777 or +357 25 261 777 or please visit our office in Nicosia or Limassol.