Enclaved buyer at loss

Enclaved buyer at loss

by George Coucounis

Due diligence before buying a property is necessary to protect the buyer in his choice regarding both the property and the seller. Through this, the potential buyer obtains the relevant information and becomes aware of any issues or risks, in order to decide whether to proceed with the purchase of the property. In particular, when the property does not have a separate title deed and the buyer is interested in purchasing it, due diligence is required so that to obtain a copy of the title deed of the seller, a search certificate from the Land Registry showing whether there are any encumbrances or a sale contract deposited for the property and in the event of co-ownership, whether a distribution agreement was lodged. At the same time, in the case of a property that has been erected or will be erected, it is necessary to obtain a copy of the approved architectural plans and the permits issued to determine if it was built in accordance with them. If the property or the land upon which it was built is mortgaged or affected by any charge or encumbrance, a waiver is required from the secured creditor that he will release the property when the separate title deed is issued.

A buyer purchased an apartment in 2011 which would be erected in Larnaca by a land development company and deposited his sale contract at the Land Registry. However, it seems that he did not care to enquire whether the land upon which the building would be built was mortgaged. The company erected the building to the frame, but did not complete its construction and was put under receivership on the basis of a floating charge. The beneficiary bank, for the benefit of which the property was encumbered with a mortgage, proceeded with the sale of the property by auction. The relevant notices were served to the buyer, who became aware of them, including the auction notice. After receiving the auction notice, the buyer submitted an AEA application to the Land Registry. It should be noted that he had already paid a sum in the region of €130.000 on account of the price.

The property was sold at auction and the bank submitted an application to the Director of the Land Registry for the transfer of the property to the buyers who bought it at auction. During the examination of the application, the Land Registry found that the buyer’s AEA application was pending and the Director issued a decision to set it aside and informed the buyer that in view of the fact that there is no separate title deed and the property was sold at auction by the mortgage creditor under the provisions of Part VIA of Law 9/1965, the AEA application would be set aside, unless within 30 days the buyer submitted a Court order to the contrary. The buyer filed an appeal to the Court, seeking the annulment of the Director’s decision.

The District Court of Larnaca, in a judgment issued on 15.6.2021, examined the buyer’s appeal, noting that the Director informed the buyer that he would proceed to set aside the AEA application for two reasons, one of which was that no separate title deed was issued. The position of the buyer was that based on the provisions of article 44IΘ(2) of L.9/65, when an AEA application is submitted, any pending procedure under Part VI and VIA of the Law is suspended until the completion of the examination of the application. The Court pointed out that this article lays down specific conditions for such a suspension and in particular there is a reservation that in the event that no separate title deed has been issued for the property subject of the contract, the balance of the sale price will be paid into a special provisional account and the issuance of a separate title deed is possible.

In the particular case, the Court noted that indeed no separate title deed has been issued for the apartment and the sale price has not been paid in full. The buyer in his appeal did not provide any evidence that at the time of the submission of the AEA application he had stated in writing that the balance would be paid in accordance with his contractual obligations. Furthermore, as it was clear from the Director’s objection, the issuance of a separate title deed for the apartment is not possible, as the apartment has not been erected and there is no possibility for the vendor company to build it. In addition, the Court emphasized that the buyer had not taken any action to suspend or stop the auction process following the service of the notices and consequently, it dismissed the appeal with costs against the buyer.

It is obvious that if the buyer carried out due diligence, he wouldn’t have found himself in this position to lose the amount he paid on account of the purchase price, plus the costs, without receiving anything.