General Meeting

02 May 2006

MINUTES

 

Chair:              Connie Larson

Steering Group: Peter Davis, David  James, Pat James, Marian Stokes, Nigel Watson

Minutes            Sheila Vango

Guest Speaker:  Akan Gürkan, Lawyer

 

The meeting was opened at 7.30 pm by Connie Larson, who welcomed all members and guests in attendance.  He went on to introduce the guest speaker for the evening Mr Akan Gürkan by saying that he was here to talk about the progress that he hopes to see within the legal profession regarding property law.  Connie emphasised that the progress being made in this area, albeit slowly, was down, in part, to the highlighting of members problems which have been collated from the personal histories, case studies and database of the HBPG. That once major areas of deficit are identified and the magnitudes of the problems are understood, remedies can be found to ensure these loopholes are closed. The HBPG was gaining credence, not from complaining, but from working with the TRNC shakers and movers to make a better future for us all. He then handed the floor to Akan Gürkan.

 

Hopes for the future by Akan Gürkan

Mr Gürkan started by saying that the TRNC was not geared up for the influx of foreign buyers who have come here to invest and live over the past 2-3 years and that the problems this was now causing were coming to the fore, not only via the HBPG database but via higher incidents of court actions, strains on the infrastructure and the destruction of many beautiful areas of the TRNC.  He has chosen tonight to talk about the current difficulties /issues for the homebuyer, what remedies are available in law now, and what remedies he would hope to see in the future.

 

He started by outlining the current barriers faced by those working in the property section – be it Estate Agents, builders, lawyers, buyers and sellers. All the areas involved in the process are understaffed, all the areas use manual systems, many are governed by different government departments, the law is not geared for foreign investors, the Permission to Buy process is outdated, there is no regulation of estate agents, builders or contractors. This must all change by legislation, but Rome was not built in a day and this would take time to implement and get right.

 

One of the major areas that many of the lawyers are pressing the government to change surrounds the legal instrument of Specific Performance, which at this time is NOT a tenable law in the TRNC (see clause 2 (d) of Chapter 232) as the current property purchase process takes up to 3 years from start to completion.

 

This was explained to us all by Talat Kürşat at our March meeting - extract from minutes 7 March 2006

 

Like all laws applicable within the TRNC, contact law is based on the law practiced in Cyprus in the 1950’s which were adopted from the times of British Rule and are based on British Law of the time. This situation applies on both sides of the Green line, but recent events have shown these laws to be outdated as they have not moved with the changing times. This is noticeable particularly with the changes that have taken place in the housing market. It must be borne in mind that the property laws were made to suit the local community and have done so successfully for many years. The recent development of new building to fulfil the need of foreign investors came swiftly and the system became overheated and unmanageable highlighting loopholes that have caused distress to the foreign community. He assured us that the legal community, in tandem with the new coalition government were working hard to address these issues but such fundamental changes take time to implement.

 

One of the main loopholes that has become evident is that sellers of land (usually a builder) cannot be forced to pass on the title deeds to a property to the purchaser. To minimise the risk taken by a local purchaser, the following should take place – a contract should be properly drafted by an independent solicitor, it should be signed by both parties and witness by two independent witnesses and that contract should then be lodged with the Land Registry Office within 21 days. The deeds should then be handed over within two months; if this does not take place then the remedy is to take the vendor to court under the rules of Breach of Contract via Specific Performance – i.e. the sale has not been completed and the court can enforce transfer of the deeds without the consent of the seller..

 

However the foreign community cannot lodge their contracts with the land office as they cannot obtain the deeds until such time as Permission To Buy (PTB) is obtained from the Council of Ministers. This is a procedure that was introduced many years ago, before the building boom, to ensure that the island was being populated with desirable new comers and was usually granted within months of application, this is one example of where a procedure has been overtaken by events. Although it is still a criterion for purchase, it is now taking years for applications to be processed due to demand.

 

Off plan purchases (before a house is built) with instalment plans is also a new development which does not facilitate the 21 day Land Registry contract lodgement requirement which safeguards the title deeds until final hand over.

 

To clarify things for our members I have taken the following definitions from the web. The definition of Specific Performance is as follows

 

specific performance
n. the right of a party to a contract to demand that the defendant (the party who it is claimed breached the contract) be ordered in the judgment to perform the contract. Specific performance may be ordered instead of (or in addition to) a judgment for money if the contract can still be performed and money cannot sufficiently reward the plaintiff. Example: when a defendant was to deliver some unique item such as an art- work and did not, a judge may order the defendant to actually deliver the artwork.

 

So in plain English this means that:

Most contracts are entered into by parties to fulfil certain things, but when the contracting parties neglect or refuse to fulfil their engagements – what happens? In such cases the party grieved has generally a remedy at law, and he may recover damages for the breach of the contract; but, in many cases, the recovery of damages is an incompetent remedy, and the party seeks to recover a specific performance of the agreement


In the law of Remedies, Specific Performance is a demand of a party to perform a specific act. While specific performance can be in the form of any type of forced action, it is usually used to complete a previously established transaction. In practice, specific performance is most often used as a remedy in transactions regarding land, such as in the sale of land.

 

BUT IT HAS TO BE AVAILABLE AS A REMEDY IN THE FIRST PLACE!

 

Obviously a change to the law to extend the time period for the fulfilment of a contract from 2 months to 2/3 years would help greatly as buildings would be completed, stage payments would have been made and Permission to Buy granted, happy builders, happy clients! Unhappy builders, unhappy clients would be able to fall back on the instrument of specific performance. Although the lawyers are calling for this, it is not as simple as changing some text in a law book. The legal infrastructure will have to be in place to enforce it. For instance, the deeds should not remain in the hands of the seller but be lodged with the land Registry Offices as they are elsewhere in the world, so that once the contract is fulfilled by both parties transfer of ownership is a straight forward procedure. So it is no good looking at a problem in isolation instead one must look at the wider picture and fit the pieces together. Other areas under discussion are as follows;

 

·         One of the first proposals to be implemented will be the registration of all Estate Agents, there is a new bill being drafted to ensure that they register every contract of sale. This will be governed by the Home Office (Ministry of the Interior) but will be self regulating; provision will be made so that defaulters can be punished by imprisonment. However, the current laws says that all contracts – regardless of their content  - should be registered, but this does not happen even though they carry the same penalties , so what will actually change?  It is a civil offence not to register a contract, not a criminal offence, so who will police the system and enforce punishment?

 

·         Currently payments are made to Estate Agents for property but the industry is not regulated, what happens to the money, how is it accounted for, there are large sums of money coming into the country and being distributed that the government is not aware of for taxation purposes.

 

·         Another problem lies with the Land Registry Office and the time it takes to complete a search on a piece of land. The government is investing a lot of money in computerising the procedure which should speed things up considerably. But at the moment they are drowning in paperwork, files are mislaid, incomplete, sometimes two files exist, none of which helps the lawyers or the purchaser. The same office is involved in lots of different procedures, land searches, the registration of deeds, the recording of mortgages on land, injunctions on land, final approval and valuations. It all needs to be streamlined.

 

·         Permissions to Build should be obtained by every builder prior to work commencing – but who checks?  Permissions to Build are granted by each Municipality as they are responsible for the infrastructure in their own areas, this allows them to plan for the extra strain on existing services and plan work to provide services to areas where they do not exist. If a builder builds without getting permission first, where are these services to come from? In practice, at the moment, the first a buyer is aware that Permission to Build has not been granted is when they find themselves without essential services and approach the Electric Board to ask for supply – only to discover that no work has been scheduled to supply them with service.  Even if a builder gets Permission to Build – he has to pay for such work to be done and often this is not done either in good time to allow the work to be done in line with completion or he has neglected to pay at all.  Quite often, contrary to contractual obligations the purchaser ends up paying for the service to be installed as there is no specific performance to fall back on – and it is most probably cheaper to pay oneself than drag things through the court. In a perfect world, you would have kept back a retainer to be paid once satisfied with your purchase, but in reality this rarely happens.

 

·         Permission to Buy is the major stumbling block to the contract being completed in a timely manner – the backlog at the Ministry of the Interior is huge – covering up to, in some cases, four years permissions. The process is laborious and hugely manual with many places that the process falls down. To begin with the file is lodged and letters written to the police, army and Interpol. How do they know if those letters are received, how do they know when they are answered, who follows up on late return – what time period is allotted to a late return – and what does it actually achieve? It is supposed to be a formality that very few fail – because after all, if people had something to hide – they would happily rent here and remain undetected! Simple solution – abolish the procedure or have a default time period when automatic acceptance prevails.

 

·         Mr Gürkan advocated another simple change to the law which would simplify the procedure and protect buyers – split contracts. By this he means there should be one contract covering the purchase of land and another to cover the building process and the registration of the build on the land. If contracts of sale were on the land only and Permissions to Buy were abolished or speeded up, transfer of ownership would not have to wait until a housing project was finished. Taxes would be collected earlier which would help finance some of the proposed changes.

 

Mr Gürkan appreciated that some of the things he spoke about were only the tip of the iceberg, but changes would have to be made as the flaws in the system became more and more evident, there are lots of areas under discussion in the corridors of power and lots of these cross over many areas of responsibility, the climate for change is gathering momentum, so it is a case of watch this space. The measures being discussed are a good start and the government is listening to the lawyers and this is in part due to pressure from the Homebuyers Group. The government is still fairly new and have many areas that need attention, it is only by keeping the pressure up and focusing attention on the issues that impact the group that they sit up and take notice.

 

He then went on to say he would answer questions from the floor.

 

Open Questions

Q.    What happens if a builder cannot pay his taxes due on transfer of deeds?

This is a collection matter, but if the taxes are not paid, the deeds will not be transferred, no matter how willing the builder is to put them in your name. So what can you do – you could keep a retention payment equal to, or more than, the projected taxes to be collected and use this money to pay the builders taxes.

Failing that you could pay his taxes for him.

 

Q – Why can’t the tax be deducted from each stage payment to avoid this situation?

This is something that is being looked at with the Estate Agents Bill as monies collected will be regulated and lodged with a state bank, this is a possibility.

 

Q – Why are these cases not looked on as theft or fraud?

To prove fraud or theft – you would have to prove that the seller intended to commit fraud or theft – the contract is evidence of his intent to pass the deeds to you, regardless of what happens in the future. Some sellers have been caught out as properties are being valued higher than anticipated and the % of tax to be paid has risen also.

 

Q – Would you advise anyone to buy here?

Yes – you can place a monetary charge (as opposed to a promise from the seller not to use the asset as a clause in your contract - as you cannot enforce that) similar to a mortgage on the property for the full value. This will be lodged at the Land Registry as a interest in the property to £X value – this means the seller cannot sell, mortgage or transfer the property to anyone else as you have first call on it. Your permission would be required for any legal dealings to do with that land.

 

Q – Two Greek couples (European) bought properties near to me recently – their PTBuy have come through before mine why?

Don’t know – there is no rhyme or reason to how PTBuy are processed.

 

Q – Is the contract worth the paper it is written on?

Yes, but both parties need to adhere to it. If the law changes to include specific performance, the honesty of both parties would no longer be relevant.

 

Q – As a lawyer do you advise clients how long the buying process may take?

I advise my clients 2 -3 years. However, this could be speeded up with the changes that are being discussed.

 

Q – What can individuals do about poor quality workmanship, or non completion of builds?

This is a particularly frustrating situation that many of you face. If after repeated requests a builder does not complete outstanding works, I tell my clients to get the work finished, obtain a receipt and deduct this sum from your final payment. If full monies have been paid, you will have to sue for breach of contract and get your money back – but you cannot sue until you have your title deed as the seller could evict you, renege on selling you the house, or refuse to sign over the deeds.

 

Q – If your build is complete but main services are not connected  - can a property be considered completed from the point of view of penalty clauses?

If Permission to Build has been granted, provision of main services is guaranteed by a by-law. This is an area outside the control of the builder as although he pays for the work, he does not schedule it. Doubtful

 

Q – Is there a formula to help calculate the taxes that are to be paid on transfer of deeds?

Yes – there is a contract tax of 1.5% (e.g. 100k valuation = 1.5K)

There is VAT of 5% to be paid on the valuation of the property. ( e.g. 100k valuation = 5K)

Property tax is set at 6.25% of valuation (e.g. 100k valuation = 6.25K)

Total = £12750

 

Q – What can you do, if after waiting 3 years for your Permission to Buy your seller refuses to transfer the deeds to you?

You will have to go to court to ask for damages/consideration. This is usually the monies you have paid, plus any additional value added to the property, plus an element of lost interest. He/She cannot be forced to hand the deeds to you due to the lack of specific performance being inherent as a remedy for breach.

 

Q – If your property valuation appears high compared to others in your area – can you appeal?

This is a grey area. Should valuation be calculated on building costs, contracted price or market value? At best it is an educated guess - you can try if you feel it is unfair.

 

Q – If you are suing a seller can you place a charge on any of his/her property?

You can place an injunction on the sellers property if you are taking a civil action against a seller.

 

There were no further questions from the floor, so Mr Gürkan closed his presentation and the meeting recessed.

 

Connie thanked Mr Gürkan for his talk and asked once again that everybody present who had not yet joined the group did so and completed the usual forms. He also asked if anyone felt they could assist the group in any way, maybe by distributing forms to neighbours or friends, would they do so.

 

Administration

Nothing new to report.

 

Request for Case Studies for the website.

In light of the threat to Kate Smith (see minutes 2nd April 2006) and the reaction of the law society earlier this year whilst the group was ‘naming and shaming’ it has been mooted that many of these case studies could be published using A Purchaser, A Builder, A Estate Agent and A Solicitor – after all if one of these people recognise themselves form your ‘story’ they are hardly going to shout about it!  It is sad that the public cannot know the names of those involved, but we can assure the public that these experiences are no less true and it is up to new buyers to be vigilant and be aware of what may happen. If anyone is happy to have their experience published under this complete anonymity, please let the Marian or Sheila know.

 

As there was no other business the meeting drew to an end at 9pm after the public forum.