Cyprus: Real Estate

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This country-specific Q&A provides an overview to real estate laws and regulations that may occur in Cyprus.

It will cover the most pertinent issues including ownership structures, restrictions, transfers, taxes and environmental contamination.

This Q&A is part of the global guide to Real Estate. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/real-estate

  1. Overview

    The right of ownership is protected by the constitution of the Republic of Cyprus. The registration, transfer, mortgaging and generally the dealings that relate to immovable property are determined by Acts of parliament. Furthermore, regulations are issued by the assigned Authorities. The Courts also play an important law since Cyprus’s legal system is common law. The Supreme Court, issues decisions and the interpretation of the law by the Supreme Court is binding on all lower courts.

    Moreover, Cyprus is an EU member, hence EU regulations and directives apply.

  2. How is ownership of real estate proved?

    The land registry office keeps a register of all freehold title of immovable property. Each owner of a freehold right in immovable property is issued with a title deed. This serves as definite proof of ownership of the freehold right in the immovable property.

    There is a land registry department for each town. All the departments are interconnected and are using the same computerized system. Furthermore, files in relation to various processes that have taken place or are taking place, in relation to all the freehold immovable properties are held in the land registry departments.

    New registrations (titles) are being created very often. For example, a plot may be divided into smaller plots in which case new separate titles are issued for the smaller plots and the first original title ceases to exist. Another example is when a block of apartments and shops is built in a plot. At the end of the process, new separate title deeds will be issued for each apartment and shop and the original title deed of the plot will cease to exist.

    The purchaser of a property that does not yet have a separate title deed (for example while the process of issuing separate title deeds for the apartments and shops is still pending), ensures that the right to become the freehold owner of the property is protected by filing the contract at the land registry for “specific performance” purposes. With this filing of the contract at the land registry, an encumbrance in created which burdens the title deed of the original title until the separate title deed for the property is issued. A reference number is given and again the land registry keeps a record of these “specific performance” registrations.

    The contracts of purchase can be assigned to third parties. The assignee is entitled to file the assignment at the land registry for specific performance purposes and the encumbrance created with the original contract benefits the assignee. The land registry keeps records of such filed assignments.

    Furthermore, the land registry keeps record of leasehold interests in immovable property and of trusts connected with immovable property.

  3. Are there any restrictions on who can own real estate?

    Every citizen of Cyprus and the EU can become the registered owner of immovable property of Cyprus. The same applies for legal entities controlled by a majority of Cypriot or EU citizens.

    There are restrictions with regards to non-EU citizens. In accordance with Cap 109 in order for an “alien” to acquire immovable property in Cyprus, the Council of Ministers’ permission must be sought. An “alien” is defined as a non-EU citizen or a company controlled by non-Eu citizens.

    When the size of the immovable property exceeds the absolutely necessary size for the erection of a building to be used as a house or as business premises and in any case when the size exceeds 2675.60 square meters, the Council Ministers can grant a permit to an “alien” to acquire such immovable property, on terms, requirements and criteria that shall be determined in Regulations issued by the Council of Ministers and approved by the Parliament.

    A contract of purchase shall be signed by an “alien” purchaser and is capable of being lodged at the land registry for specific performance purposes. However, the immovable property shall not be registered in the name of the “alien” unless the Council of Ministers grants a permit.

    The same restriction applies to trusts, where the beneficiary is an “alien” as defined by the law.

    Moreover, the restriction applies to acquiring a leasehold interest which exceeds the period of 30 years or when there is a right to renew for a period which together with the period of the original lease will exceed the period of 30 years. In the case where the lease is for a property which exceeds the absolutely necessary size for the erection of a building to be used as a house or as business premises and in any case when the size exceeds 2675.60 square meters and the lease exceeds the period of 10 years, Council of Ministers permission must be sought by an “alien”.

    The restriction applies to the purchasing of shares of a company registered in the Republic of Cyprus, when such company owns immovable property in Cyprus and when such purchase will mean that the company will be controlled by “aliens”.

  4. What types of proprietary interests in real estate can be created?

    Absolute ownership is enjoyed by the owner of freehold property. A freehold owner is entitled to possess, use, exploit and enjoy the immovable property free of interference from third parties. A title deed is issued by the land registry in the name of each owner of freehold property. A person can own the whole of the freehold property or an undivided share of such property. The right of ownership granted by such title of freehold property lasts in perpetuity. When and if the title of a freehold property is conveyed in any way (sale, donation, inheritance etc), the right passes to the new registered owner of such title.

    A leasehold owner enjoys a lot of the rights of a freehold owner with certain limitations. Such limitations and generally the terms that govern the agreement between the lessor and lessee, are provided in the lease agreement. The immovable property is leased for a fixed period of time. In certain lease agreements, one of the terms of the agreement may be the right of the lessee to renew the lease for another period of time. A lease can be registered at the land registry when the period of such lease exceeds 15 years and the land registry keeps a record for this purpose. The registration of the lease must be completed within 3 months from the signing of the lease agreement. The lessee has the right to sublease as long as this is not expressly prohibited in the original lease.

    Certain rights are registered at the land registry and become part of the title of the immovable property. Those rights are “rights in rem” which means rights enforceable against everyone. Such rights are “the life interest”, which means the right conferred to a person other than the registered owner of the immovable property, to use and enjoy the property until his/her death, the right of easement etc.

    Some “rights in personam” can be created in relation to immovable property. These rights are enforceable only against the counterparty in a contractual relationship.

  5. Is ownership of real estate and the buildings on it separate?

    The buildings on real estate are part of the ownership of the owner of such real estate and pass to a new owner when the real estate is conveyed. No separate title is issued for the buildings on immovable property. If buildings are erected on land, the owner applies for the update of the title deed of the land so as to properly state the existence of buildings.

  6. What are common ownership structures for ownership of commercial real estate?

    It is common for both individuals and legal entities to own immovable property. Also, partnerships and joint ventures are made for the purpose of owning and or developing immovable property.

    Usually, limited companies are used for the purchase of immovable property when such property is being purchased to be re-sold or to be developed. A company that is a dealer of land or a developer pays tax at 12.5% when selling an immovable property at a profit. When an individual who is not a dealer of land sells immovable property at a profit, 20% capital gains tax is charged. Whether it is beneficial for an entity to purchase the immovable property instead of an individual depends on several factors like the value of the property, the intended future use of the property, the prospect of selling the property, the number of persons involved the purchase etc. Each case depends on its own facts.

    Furthermore, trust structures may be used for the purchase of property. This is usually the case when there is a reason to keep the legal title separate from the beneficial title. Such trusts are registered at the land registry.

    A new trend in Cyprus is the investment in immovable property through funds.

  7. What is the usual legal due diligence process that is undertaken when acquiring commercial real estate?

    The lawyer of the purchaser carries out an initial investigation for due diligence purposes.

    On the title of the immovable property, the basic information is stated, for example the location and position of the immovable property, its size, the name of the registered owner, the rights and burdens associated with the title etc.

    The name of the registered owner must match the name of the seller, unless the registered owner has a special legal relationship with the seller which enables the seller to proceed with such sale. In such a case documentation and information describing such legal relationship must be provided to the purchaser’s lawyer by the vendor’s lawyer for examination. Furthermore, if the registered owner of the immovable property is a legal entity a search is carried out the registrar of companies for information in relation to the entity.

    In case that the Vendor is the registered owner of an undivided share of the immovable property and not of the whole share of the proeprty, the vendor’s lawyers will be asked to clarify whether there is a division and distribution agreement between the Vendor and the co-owners.

    Once the identity of the registered owner is known and the right of the Vendor to sell has been proven, the purchaser’s lawyer requests the vendor’s lawyer to obtain a search report from the land registry which will show any encumbrances on the immovable property.

    When there are or there will be buildings on the immovable property, the purchasers’ lawyers request from the Vendor’s lawyer to provide copies of the planning permit, the building permit, the certificate of approval and the official plans of the buildings. Some purchasers choose to appoint a civil engineer or an architect to inspect the buildings and check whether the permits and official plans correspond to the actual buildings on the immovable property. When the building is under erection, some purchaser appoint a civil engineer or an architect to observe the building works and give them reports.

    The Vendor has also the obligation to provide the purchaser with “the energy performance certificate” in relation to the building.

  8. What legal issues (if any) cannot be covered by usual legal due diligence?

    The due diligence process aims to gather the basic information and to discover possible risks associated for the transaction. These risks may be very serious in which case the purchaser is advised that it is dangerous to proceed with the transaction. Some less serious risks are dealt by inserting certain protection clauses in the contract or by requiring from the Vendor certain waivers and guarantees. Although, the contract will aim to protect a purchaser against the risks, the Vendor may breach the contract in which case the purchaser may have to resort to Court proceedings.

  9. What is the usual process for transfer of commercial real estate?

    Transaction Steps

    Seller

    Buyer

    Comments

    Pre-agreement

    · Provision of information about the title

    · Provision of a search report from the land registry showing encumbrances

    · Provision of the energy efficiency certificate

    · If there are buildings, provision of permits, plans and of the certificate of approvalal

    · Due diligence process for anti-money laundering purposes

    · Due diligence process and advice

    · Drafting of the contract

    · Due diligence process for anti-money laundering purposes

    Each case may differ from the other and advice is given on its own facts

    Signing to Closing

    · Satisfaction of any conditions to closing

    · Submit the relevant forms to obtain releases from the tax Authorities, local Authority, sewerage board and arrange the payment of utilities

    · Satisfaction of any conditions to closing, including payment of the price

    · Stamping of contract at the tax Authorities

    · Lodging of contract at the land registry for specific performance purposes

    · A deposit between 10%-30% is paid on signing which will be forfeited if the buyer fails to complete sale

    Post-closing

    · Provision of all the releases from the tax Authorities, local Authorities, sewerage board and receipts of payments of all utilities

    · Transfer the title deed to the purchaser

    Transfer the utilities to the purchaser

    · Completion payment

    · Accept transfer of the title and pay transfer fees at the land registry

    · Accept transfer of the utilities

    ·

    When the immovable property which is being sold is covered by a title deed the conveyancing process is more straightforward. A contract which formulates the rights and obligations of the seller and the purchaser is signed. The contract includes a basic and accurate description of the property, a term in relation to the purchase price and the payment schedule and several other terms determining the time of delivery of possession of the immovable property, the time of transfer of the title of the immovable property, the rights and obligations of the parties and certain warranties, guarantees and representations given or made by the parties. The contract is stamped at the tax Authorities. On the stamp the amount of the stamp duty and the date of stamping the contract is indicated. Then, the contract is lodged at the land registry for specific performance purposes, an encumbrance is created burdening the immovable property and a reference number of the encumbrance is clearly written on the receipt given to the purchaser. The Vendor obtains all the relevant releases from the land registry, the local Authority and the sewerage board. The Vendor also pays any outstanding utility bills. On the date determined on the contract, the parties meet at the land registry, they submit a specific form by which they declare the transaction. The form is accompanied by the various releases. The land registry’s valuation department estimates the transfer fees which are based on the value of the property on the date the contract was signed. The transfer fees are paid by the purchaser and the title is transferred and registered in the name of the purchaser.

    In some cases there is no separate title deed covering the property being sold. For example a land may be under division and one of the parts that will arise from the division is being sold or a building complex may be under construction on the immovable property and the purchaser may only be buying a unit of the complex. Usually, the Vendor undertakes to issue separate title deeds for the divided plots or the units (whatever the case may be). The transfer process described above takes place after the separate title deed is issued.

    A leasehold interest can be transferred as long as the lease document does not prohibit the lessee from entering into subleases. The transfer takes place by registering the sub-lease at the land registry.

  10. Is it common for commercial real estate transfers to be effected by way of share transfer as well as asset transfer?

    When the immovable property is owned by a company, the conveyancing process can be effected by transferring the shares of the company instead of transferring the assets itself. This way, the purchaser saves the transfer fees payable at the land registry upon tranfer and registration of the property into the purchaser’s name. However, the risk involved with this process is that the purchaser is acquiring a company with all its past obligations. In such cases thorough checks must be performed to make sure (as much as possible) that the company is not burdened 0with obligations.

  11. On the sale of interests in land does the benefit of any occupational leases and income automatically transfer?

    When the immovable property being sold is occupied by a tenant, the Vendor has the obligation to inform both the tenant and the purchaser about this fact. If the tenancy is a tenancy protected by the tenancy tribunal law or if the tenancy period has not expired at the time the property is transferred to the purchaser, the purchaser will be obliged to respect the tenant’s rights under such tenancy.

  12. What common rights, interests and burdens can be created or attach over real estate and how are these protected?

    A lot of specific rights may be attached over immovable property. Rights of easement may benefiting or burdening an immovable property. Morever, a person other than the registered owner may have the right to use and enjoy the immovable property until his/her death (life interest). A title of a unit in a commonly owned building will define the owner’s right in the common areas. Another example is the right attached on certain titles allowing the owner of the title to erect more buildings on the roofs of the building. Sometimes, exclusive rights of use of garages and/or yards and/or stockrooms and/or roofs may be attached on a title. Such rights are protected and cannot be deprived as long as they are properly registered in the land registry’s books.

  13. Are split legal and beneficial ownership of real estate (i.e. trust structures) recognised

    Trust are recognized in the republic of Cyprus. Specifically, Cap224 allows the creation of trusts. A trust can be declared in a trust deed or by will. If the trust relates to immovable property, it must be registered at the land registry. When a person is selling immovable property which is held under a trust, such a trustee is obliged to reveal the existence of the trust. If the trust is properly registered at the land registry and/or properly revealed to the purchaser, the latter has to enquire about the beneficial ownership and whether the trustee is entitled to sell the property. If the trust is not properly registered and the existence of the trust is not revealed to the purchaser the latter shall be considered as “bona-fide” purchaser, which means purchasing in good faith.

  14. What are the main taxes associated with commercial real estate ownership and transfer of commercial real estate?

    When the agreement of sale of immovable property is signed the agreement is stamped at the tax Authorities. It is usually the purchaser’s obligation to pay the stamp duty. The stamp duty is calculated as follows: when the purchase price is less than Euro5.000,00 no duty is paid. Duty of Euro1,5 for every 1000 euro on the first 170.000,00 euro is charged and for any amount above €170.000, the duty raises to Euro2 for every thousand euro. The stamp duty does not exceed the amount of Euro20.000,00.

    Upon tranfer and registration of the title into the name of the purchaser, the latter pays tranfer fees at the land registry. These fees are calculated on the value of the immovable property on the date of signing of the contract of sale. The value is determined by the valuation department of the land registry. The method of estimation is 3% on the first Euro85.000,00, 5% on any amount between Euro85.0001,00 to Euro 170.000.00 and 8% for any amount above Euro170.000,00.

    Up to the end of 2016 an annual tax referred to as immovable property tax was payable on properties. This tax was being estimated on the 1980 value of the property. There is no such tax after 1/1/2017. Furthermore council tax or Municipality tax in accordance with the location of the property is charged by the local Authority. Furthermore, the sewerage board charges an annual charge on immovable properties. Usually, the Vendor pays these taxes and charges up to the completion date and from completion onwards they are paid by the purchaser.

    If the Vendor sells the immovable property with a profit, capital gains tax is imposed. The capital gains tax is calculated by deducting from the selling price the cost of acquiring the property when the Vendor acquired it. Inflation is taken into consideration. The balance is the profit and is taxed at 20%. If the Vendor is a physical person, the first Euro25.629,00 of profit is exempted from tax in case of agricultural land and for other immovable property the first Euro17.086,00 of profit is exempted from tax. Euro85.430,00 of the profit is exempted from tax, when the private residence of the Vendor is sold. If the vendor is a dealer of land (developer, estate agent etc) income tax or corporation tax is charged instead of capital gains tax.

    Value added tax is charged when the immovable property, which includes the land and the building, is sold before its first habitation. Vat is also charged on non-developed land when the sale transaction is considered as a financial activity. When the purchaser intents to use the property a main permanent residence in Cyprus, the Vat rate can be reduced to 5%.

  15. What are common terms of commercial leases and are there regulatory controls on the terms of leases?

    The notion of “the protected tenancy” is part of the legislation of Cyprus. When the property which is the subject of a tenancy is in certain areas as specified by the council of Ministers, the Tenancy Tribunal Act applies. In order for the Act to be applicable the property must have been built before 31/12/1999. For the Act to apply, the property must be used as residence or as shop. Furthermore, for the Act to apply the tenancy period must be longer than 6 months. The increase of the rent, the right to evict and several other issues are formulated by the Act in such cases.

    For all tenancies other than protected tenancies, the terms of the tenancy agreement govern the tenancy

    It is standard practice to include in the tenancy agreement the names of the parties, the amount of the rent and the frequency of payments, the period of the tenancy, the rights and obligations of the tenant and the rights and obligations of the landlord, the payment of the guarantee deposit, the responsibility for the payment of utilities and other charges arising out of the possession of the property, the obligation to effect repairs, the right to modify the property, a prohibition on subletting, the permitted use of the property, the rights of termination etc

    Subletting the property is permissible if not expressly prohibited in the agreement.

    If the right to renew is included in the tenancy agreement, a provision is usually made as to the amount of increase of rent. If the tenancy is a protected tenancy, the increase cannot be higher than 14% every 2 years.

    Termination of the tenancy is possible upon expiry of the tenancy or when one of the parties commits a serious breach which is of the essence of the agreement. In protected tenancies the right of the landlord to evict is limited in specific situations. When the rent is overdue for 21 days after a notice to pay is served, the landlord can start eviction proceedings. If the tenant pays within 14 days from the service of the eviction proceedings to him the eviction process stops. Other breaches by the tenant can justify eviction, for example when the tenant causes nuisance or causes damages or sublets when this is expressly prohibited or uses the property for illegal purposes. If the landlord wishes to use the property to reside in it or for his/her immediate family to reside in it, eviction may possible under certain circumstances and conditions. The same if the landlord is going to demolish the building or carry out major construction works at the property.

  16. How are use, planning and zoning restrictions on real estate regulated?

    The use, planning and development restrictions that apply depend on the zone where the property is located. Cyprus is divided into zones, for example commercial, residential, touristic, agricultural, archeological, industrial etc. The Acts of parliament empower certain Authorities to issue regulations and guidelines in connection with such use, planning and development in each zone. The number of floors, the density factor, the coverage factor and other issues in connection with the design of the building to be erected, are determined for each zone.

    Whenever a building is to be erected on immovable property or a modification is going to be made on an existing building on immovable property, the registered owner of such property submits an application to obtain planning permission. The application is accompanied by designs that show the construction to be made. After the planning permission is granted, the registered owner applies for the building permission. Once the building permission is granted construction works start.

    The owner and the contractor appointed are obliged to follow the various conditions imposed in the building permit such as the provision of part of the land for the creation of green areas, the constructions of roads, pavements etc. Furthermore, conditions of departments like the electricity authority, the water supply department etc must be met. Upon completion of the construction, the supervising architect or engineer shall apply for the completion certificate. Not complying with the issued permits is a criminal offence. The court shall order the demolition of any illegal constructions.

  17. Who can be liable for environmental contamination on real estate?

    The owner and the occupier of immovable property can be held responsible for environmental contamination. Liability is not limited to the polluter.

  18. Is expropriation of real estate possible?

    Ν/Α

  19. Is it possible to create mortgages over real estate and how are these protected and enforced?

    Mortgaging of property is possible under Law9/1965 (Tranfer and mortgaging Act). In addition to the basic loan agreement and any other accompanying agreements (guarantees etc), a mortgage agreement is signed. When the loan is approved and the loan amount is to be granted to the borrower, the lender and the borrower (otherwise the mortgagor and the mortgagee), meet at the land registry and submit a declaration of the mortgage. The mortgagee pays the mortgage fee and the mortgage is officially registered. With the registration of the mortgage an encumbrance is created over the property. Encumbrances take priority in accordance with the time they have been registered at the land registry.

    Only the registered owner of the immovable property is able to mortgage the property.

    Where the borrower’s obligations are more than 120 days overdue, the lender has the right to proceed with the sale of the property. The lender will send some Notices as prescribed by the law. If the borrower fails to comply with the notices, a notice will be sent by the land registry informing the borrower that the immovable property will be put into auction. The borrower can appeal such a decision of the land registry within 30 days from the service of the notice.

    If the Court decides that the auction should go ahead or if the borrower does not appeal, a notice is sent to the borrower to appoint a valuator of his own choice. The lender will also appoint a valuator of his choice. For the first 3 months after the auction procedure begins, the bit cannot be lower than the 80% of the value.

  20. Are there material costs associated with the creation of mortgages over real estate?

    The loan agreement, the mortgage agreement and any other guarantee must be stamped at the tax Authorities. The stamp duty is estimated on the amount of the mortgage and is paid by the mortgagee. It is calculated as follows: when the amount of the mortgage is less than Euro5.000,00 no duty is paid. Duty of Euro1,5 for every 1000 euro on the first 170.000,00 euro is charged and for any amount above €170.000, the duty raises to Euro2 for every thousand euro. The stamp duty does not exceed the amount of Euro20.000,00.

    When the mortgage is registered at the land registry, mortgage fees are payable which are the 1% of the mortgage amount.

  21. Is it possible to create a trust structure for mortgage security over real estate?

    N/A

  22. What is the main legislation relating to commercial real estate ownership?

    The constitution of the Republic of Cyprus has an important law in relation to real estate ownership. The right to ownership is protected by it. Furthermore, there are several acts of parliament which determine issues in relation to immovable property. Cap224 which includes provisions about ownership, registration, rights attached to immovable property, leaseholds, trusts, common owned buildings etc is one of the most basic Acts. Furthermore law8(I)/2011 which provides about the lodging of contracts of sale of immovable property and assignment at the land registry for specific performance purposes is very important. Moreover, law9/1965 which provides about the transfer and mortgaging of immovable property is considered basic. There are several other Acts that relate to immovable property issues. Furthermore, there are regulations and guidelines which govern specific processes in relation to immovable property. EU law is applicable in Cyprus.