THE SALE OF IMMOVABLE PROPERTY (SPECIFIC PERFORMANCE) LAW 81 (I) / 2011

1. INFORMATION BULLETIN THE SALE OF IMMOVABLEPROPERTY(SPECIFIC PERFORMANCE) LAW 81 (I)/2011 How to safeguard your rights arising from the purchase of immovable property under a Sale Contract. Republic of Cyprus Ministry of the Interior Department of Lands and Surveys

2. Are you planning to buy property? • It is useful to be informed on how you can safeguard your rights by reading parts A and B of this bulletin: Α. General information on the basic provisions of the Law. Β. Actions to be taken by the prospective buyer from the start of buying process to depositing the Sale Contract to the Land Registry.

3. Α. General information on the basic provisions of the Law. The Sale of Immovable Property (Specific Performance) Law 81 (I) of 2011) shall come into force on next August 1st, replacing the previous legislation regulating the specific performance of immovable property contracts. The repealing of the Law became necessary due to its inability to cover and provide adequate protection to immovable property buyers due to the rapid growth of the real estate market and the consequent diversity and complexity of real estate transactions. In addition, the new legislation was deemed necessary because of the increasing divergence of contracting parties (sellers and buyers) from the principle of good faith in transactions. The situation, as it stood, in many cases left the buyer exposed, especially when he did not seek legal advice so as to fully ensure the limited rights provided under the repealed Law. The new legislation introduces provisions which enhance and upgrade the protection offered to the buyer who deposits the Sale Contract in the Land Registry to ensure that the object of the sale will end up in his name, either through transfer by the seller or by specific performance. Specific performance means registering the property in the name of the buyer, upon order of the Court, if the seller refuses, fails or neglects to comply with his contractual obligations. An indispensable prerequisite for the buyer to enjoy the benefits of the new legislation, is to deposit the Sales Contract in the Land Registry.

4. Α. General information on the basic provisions of the Law. The innovative protective provisions can be summarized as follows: (a) Registration of the immovable property in the name of the buyer, regardless of a prior mortgage In most cases, the object of the sale is subject to a mortgage. Under the previous legislation, its transfer to the buyer could be made only if the seller repaid the mortgage debt, so that the lender may cancel the mortgage. On failure of the seller to fulfill his obligations to the lender, the buyer was prevented from exercising his right to specific performance because of the mortgage, unless the buyer paid the mortgage debt himself. With the new arrangement the option is given to the buyer when the object of sale is mortgaged, to pay the relevant amount under the Sale Contract to the mortgagee, i.e. the financial organisation and not the seller. When the buyer pays the financial organisation that part of the mortgage debt corresponding to the property he purchased, the Court may issue an order of specific performance, mandating the registration of the property in the name of the buyer, free of the mortgage burden. That part of the mortgage debt corresponding to the buyer, is determined by the value ratio of each piece of property in relation to the total value of all property mortgaged. Example: If an apartment under construction is worth € 150.000 and the value of all the apartments in the same building is € 1.200.000, then the amount corresponding to the buyer of this apartment is 150.000/1.200.000 or 12.5% over the mortgage debt. If the mortgage debt is € 800.000, then the buyer, upon payment of the amount of € 100.000 to the lender (bank) will have the right to ask the Court for an order of specific performance of his contract, regardless of the existence of the prior mortgage.

5. Α. General information on the basic provisions of the Law. It is the obligation of any seller,after securing the planning permit for the property under sale, to determine the value ratioof each portion of the building or land to be divided and deposit it in the Land Registry. A prospective buyer has the opportunity to know the value ratio of the property he intends to buy, either from the seller or from the Land Office of the District where the property is located, provided that the seller has deposited it in the Land Office. It should be emphasized that, for the determination of the value ratio it is necessary to have the planning permit for the specific development. It is important for the buyer to know that, despite the fact that the Sale Contract is accepted for deposit without requiring a planning permit, it is impossible to exercise his right to override the ranking in priority of the mortgage without the prior determination of the value ratio. Therefore, the public is urged to make sure that a planning permit exists before deciding whether or not to proceed to a sale agreement. It is clarified that this provision about the priority of the Sale Contract over a prior mortgage does not apply to contracts concluded before 1st August 2011 , unless the consent of the seller and the mortgagee is secured.

6. Α. General information on the basic provisions of the Law. (b) Safeguarding the amount paid for the time being by the buyer under the deposited Contract of Sale. A provision has been introduced in the new Law which safeguards the amount paid each the time by the buyer, if for any reason it is impossible to implement the Contract, either due to the failure of the seller to free the object of the sale from encumbrances, or due to forced sale of the property for other reasons. A similar safeguard is also given if the Court, instead of issuing an order of specific performance, issues an order for compensation. In both cases, the amount is safeguarded by the order of priority of the encumbrance created by the deposit of the Sale Contract and not, as was the case in the repealed law, by the subsequent deposit of the Court decision recognizing the demands of the buyer, which certainly takes place much later that the date of depositing the Contract. This differentiation is essential, because if in the period between the two deposits there are other subsequent encumbrances, the buyer is safeguarded from the date of depositing the Contract of Sale and is not exposed to risk of loss of his rights because of the existence of subsequent encumbrances. (c) Safeguarding the distribution of jointly owned property sold in parts by one or more joint owners. The distribution of jointly owned immovable property, sold in parts, i.e. a unit under construction or a building plot under division is safeguarded and acquires legal status. Henceforth, it is possible to deposit the Sale Contract in which not all joint-owners are sellers, and the seller is one or more of them, as long all joint-owners have reached agreement on the distribution of the immovable property and the object under sale corresponds to the seller, to whom the other joint-owners have given the right to possession, use and disposal of the specific property. Therefore, it is recommended that the buyer require the seller to show him a distribution agreement in the case of purchase of part of jointly owned property.

7. Α. General information on the basic provisions of the Law. (d) Adoption of the institution of assignment of rights and obligations arising from an existing Contract, by depositing the Assignment Agreement. The institution of assignment has been introduced in the new Law on specific performance with clear implementation rules. By this term, we mean the agreement made between the buyer - assignor, i.e. the beneficiary of the property under an existing Sale Contract and a third party - the assignee, by which the assignor gives to the assignee the rights and/or corresponding obligations of the buyer arising from the Sale Contract, either gratuitously or for consideration. Because the seller is not party to the Assignment Agreement, the assignee is advised to immediately notify the seller about the Assignment Agreement and, where possible, in the presence of the assignor, so to avoid potential problems when at a later time, the seller is asked to proceed with the transfer of the object of sale in the name of the assignee. The assignee must keep in mind that, for the deposit of the Assignment Agreement in the Land Registry, it is necessary to produce the certificate of settlement of the capital gains tax issued by the Inland Revenue Department, the payment of which is the sole responsibility of the assignor.

8. Α. General information on the basic provisions of the Law. (e) Securing buyers’ borrowing from financial institutions through the deposit of the Collateral Assignment Agreement. As the buyer has no title deed to mortgage, but only the Sale Contract, the Law introduces the possibility of borrowing, giving as collateral the Contract of Sale. That is, by agreement between the buyer (assignor) in a deposited Sale Contract and a third person (the assignee /lender), the assignor cedes to the assignee his rights, in order to secure the financial obligation of the assignor to the assignee. This provision, on the one hand, gives financial institutions the security of the repayment of the loan by the buyers of real estate and, on the other, strengthens the creditworthiness of buyers and facilitates their borrowing and by extension facilitates investments in real property. The buyer of immovable property, after depositing the Sale Agreement, may proceed to concluding a loan agreement with a financial institution, which safeguards the repayment of the loan by depositing the Collateral Assignment Agreement in the Land Registry. The deposit turns the object of sale into security for the repayment of the loan.

9. Α. General information on the basic provisions of the Law. (f) Depositing contracts which were not deposited under the previous Law. Sales Contracts which remain in force and were concluded before 1st August 2011, even though the deadline for their deposit had expired under the repealed Law, may be deposited within six months from 1st August 2011 under the same deposit requirements as set by the new law. Therefore, the public is advised to seize the opportunity given and deposit the Sale Agreement which for any reason has not been deposited, within six months from 1st August 2011 and benefit from the numerous protective provisions of this Law.

10. Based on the above provisions, as well as the other provisions of the Law, the prospective buyer should proceed with utmost diligence and preferably with the help of expert advisors to take, in turn, the following actions: Β. Actions to be taken by the prospective buyer from the beginning of the buying process until the deposit of the Sales Contract to the Land Registry. a) After choosing the immovable property that interests him, to apply to the Land Registry to investigate whether the property is subject to any encumbrances (e.g. mortgage, Court decisions etc.) or if the owner is subject to legal prohibitions (e.g. bankruptcy, injunction). The prospective buyer in order to be entitled to get this information, should request the written consent of the seller, so that the provision of the necessary information by the Land Registry may be legitimate. b) The prospective buyer, if the object of the sale is part of a building or a building plot under division, is urged to ask the seller to show him the planning permit, the building permit or the division permit, depending on the case. c) Subsequently, the prospective buyer should apply to the competent planning authority in order to confirm the existence of the above mentioned permits, or if the object of the sale is another type of property to be informed about its prospects and possibilities for legal use (residential, commercial, or other). d) After forming a complete picture of the condition of the property from the above investigations and after deciding that the property meets his needs and expectations, then and only then he should proceed to negotiate with the seller.

11. Β. Actions to be taken by the prospective buyer from the beginning of the buying process until the deposit of the Sales Contract to the Land Registry. e) If the object of the sale is mortgaged, then the buyer should request the seller to inform him of the value ratio of the property to be bought, so as to know the part of the mortgage debt which corresponds to property to be bought. Under the law, the buyer may pay the amount corresponding to such property, and in fact he is urged to do so, to the mortgagee and not the seller and the mortgagee has the obligation to accept it. After the buyer pays this amount and the seller refuses or fails to proceed with the transfer, the buyer is entitled to request the Court to issue a specific performance order and to register him as the owner, with his ownership free of the mortgage. f) The contract to be signed by the contracting parties should include, if it is part of immovable property ( i.e. a building plot under division or a separate unit in the building) , the planning permit, if there is one, and the cadastral plan, if it involves a building plot, or the architectural drawings, if it is a unit, which should specify the purchased part of the property. Where a planning permit exists it is preferable to use the approved plans. g) As soon as the contract is signed by the parties, and stamped by the Registrar of Stamp Duties, the buyer should proceed to deposit it to Land Office of the District where the property is located. Despite the fact that there is a six month deadline for depositing the contract, any delay may cause problems to the buyer, if in the meantime other encumbrances to be borne by the object of sale are deposited. The deposit of the Contract of Sale is made in the Land Office of the District where the property is located, by completing and submitting the form DE129 (copy of the form can be obtained from the District Land Offices or from the website of the Department of Lands and Surveys). The application for registration of the Sale Contract should be accompanied by the contract duly stamped.

12. Β. Actions to be taken by the prospective buyer from the beginning of the buying process until the deposit of the Sales Contract to the Land Registry. h) If there are the prerequisites for the prior deposit of the Contract, in the case of mortgaged property, the buyer, after informing the seller, may address himself to the mortgagee and expresses his intention to pay his corresponding part of the mortgage debt. i ) If a prospective purchaser buys property from a person who is not the registered owner, but a buyer on the basis of a deposited Contract of Sale , i.e. if he proceeds to an Assignment Agreement, then, in addition to the actions mentioned in paragraphs (a) - ( e) shall : (i) make sure that the Contract of Sale is deposited in the Land Registry , (ii) ask to be informed by the seller of the Sales Contract about the existence of any outstanding liability of the assignor to the seller of the Sale Contract, (iii) make arrangements for the method of payment of the Capital Gains Tax payable , and (iv) inform the seller of the Sales Contract about the Assignment Agreement. It is preferable that the information be made jointly with the assignor, or in an easily proven way, so that the seller may not raise obstacles or difficulties when asked to transfer the object of the sale in the name of the assignee. The deposit of the Assignment Agreement is made at the Land Office of the District where the property is located, with the completion and submission of the form DE130 (copy of the form may be obtained from the District Land Offices or from the website of the Department of Lands and Surveys). The signatures of the contracting parties on the deposit form of the Assignment Agreement must be duly certified, unless they were duly certified in the Assignment Agreement. The request for deposit must be accompanied by a duly stamped contract and a certificate concerning the payment of the of capital gains tax .

13. All forms are availableat the District Land Officesand the website of the Department of Lands and Surveys (www.moi.gov.cy/dls) This bulletin was prepared by the Department of Lands and Surveys July 2011 IMPORTANT NOTE: The contents of this bulletin do not replace the text of the Sale of Immovable Property (Specific Performance) Law No. 81 (I) / 2011. In case of discrepancy between the text of this bulletin with the above legislation, the provisions of the law prevail.