HOMEBUYERS PRESSURE GROUP

 www.hbpg-trnc.net

 0533 876 3780

 marian@ayza.net

 Permission to Purchase

Process Review and Recommendations

  02 June 2008


 INTRODUCTION 

This document has been produced by the Homebuyers Pressure Group (HBPG) and it’s intention is to review the current way that the Permission to Purchase” (PTP) process has been operating and to make recommendations on how it can be streamlined and improved to the benefit of all parties. 

As a result, it is solely targeted at the PTP regulations and operational procedures and affect on sales agreements.  No attempt has been made within this document to address the many other problems that have and are continuing to occur within the property sector. 


BACKGROUND 

All foreigners are required to obtain a PTP from the Council of Ministers prior to purchasing property or land within the TRNC.  The land area including any building is restricted to a maximum of one donum per family unit.  Unfortunately, the time to process PTP applications can take many years and the problems this has caused has been exacerbated by the construction boom since 2003. 

Both the Government and HBPG have made it clear that no prospective buyers should proceed with any contractual commitments prior to receiving an approved PTP.  Clearly, if this law had been followed to the letter, the construction boom could never have taken place and prospective buyers would most likely have looked elsewhere for their property purchases. The impact of this would have had a severely detrimental affect on the TRNC economy which is heavily dependant on the construction sector for its revenues. 

Over the years the advice given to prospective buyers by a significant number of estate agents and lawyers is that the PTP “is only a formality” and that the prospective purchaser is safe to go ahead with the contractual commitment to buy. 

An approved PTP is also a mandatory requirement prior to receiving the Koçan for the immovable property. As a result, the delays in the PTP process has also meant that a large number of people have not been in a position to receive their Koçan and pay their taxes to the government at the time of taking possession of their properties. 

Of the significant number of applications submitted to date, a relatively small number have been rejected.  In general, the problem has been that the approval being sought was in relation to a security protection zone or on pre-74 Turkish land.  With the delays in the process, the majority of the purchasers have already paid all their money to the vendor and taken possession of the properties in question. 

In summary, the current process is clearly unworkable if the TRNC is to have a vibrant construction sector.  The delays in reviewing and approving PTP submissions are undoubtedly contributing to the negative opinions amongst existing and potential buyers outside of the TRNC. This is already having a negative impact on the property market which is further compounded by the many other problems currently besetting this sector. 


Recommended Changes to PTP Process 

Introduction

The prime objective must be to reduce the timescale for the review and approval/rejection process.  To do this, the main steps of the current process need to be “challenged” as to whether they are absolutely necessary in their current form or whether there are sensible alternatives that will streamline the process thus meeting our primary objective. 

The main steps within the current process after submission of the request for the PTP are as follows: 

1)       Tapu Office
2)       Police report
3)       Military review
4)        Council of Ministers approval 

·        The longest lead time outside the control of the TRNC authorities is the requirement by foreign nationals to obtain a police report, which is a maximum of 40 Days.  

·         If the processes within the other elements of the process could be streamlined and fine tuned so that reviews can be undertaken and recommendations be made to the Council of Ministers before that period then we could target a 30 day approval process from start to finish.  This target needs of course to include the Council of Ministers review.  

Applying for permission to purchase  

The HBPG believe that the actual initiating of the required PTP paperwork is essentially a simple one.  Lawyers are currently charging up to a £1000 for carrying out that task.  Many of the Lawyers do nothing else to progress the application after the initial application is submitted which on many occasions is not correct. 

It is hoped that the TRNC government agree to streamline/refine the process in line with the recommendations made in this document.  In the event that this does happen we would be confident that we will be able to encourage prospective buyers to submit the approval requests themselves thus saving the significant expense incurred by employing lawyers to carry out what is essentially a simple task. 

In order to provide the additional funding required, in streamlining the activities of the PTP management office in the Interior Ministry, it is recommended that a charge of say 250TL to 300TL be made for application for approval to purchase. Applicants, if encouraged by all sides will save a lot of money by avoiding the necessity of going through their lawyers.


Review/Approval Process Recommendations 

In accordance with the Real Estate Agents Record and Transactions law all agents selling properties in the TRNC must ensure that properties being marketed by them are legal in accordance with TRNC laws.  Therefore they must ensure that: 

·       There is a valid and unencumbered Koçan held by landowner

·       A full building permit has been granted for the project

·       An electrical project has been approved by Kibtek

·       There is water and sewage connection approval

·       Full parselisation or sub-division has been approved with a separate Koçan for each property

·       Properties being marketed to foreigners are not in a security protection zone

·       The construction company / individual is registered with the Construction Contractors Union

·       The construction company / individual has sufficient resources to complete the project 

Review Option 

All property related documents should be submitted to the relevant authorities by the estate agent for validation prior to marketing the property. 

The ultimate check would be the buyer’s character reference from the Police Force of their last place of residence. 

The original Koçan is submitted as part of the build permit application and held in the government controlled project file until time of transfer to new owner. 

OPTION 1 – Permission prior to viewing 

The buyer submits the Police Character Reference to the Interior Ministry for validation and approval.  This process should not take any longer than 30 days. 

A Permission to Purchase Certificate is issued to buyer indicating approval to purchase any property within the restrictions of the TRNC law.  A copy of this certificate is given to estate agent who then shows prospective buyer appropriate properties. 

The original PTP Certificate is later attached to the Sales Agreement, which is registered with the District Land Office. 

OPTION 2 – Permission prior to proceeding 

The buyer selects a property, pays a deposit to secure his interest, and submits a PTP application which includes the validated documents from the estate agent and the Police Character Reference. 

The approval process should not take any longer than 30 days and, if successful, the buyer can enter into a Sales Agreement.  The PTP approval number should be indicated on this agreement and, if applicable, the PTP Certificate should be attached as an appendix.


PROCEDURES 

Sales Agreements – Parcelled Land with property being sold off-plan

For off-plan properties that are marketed with separate title and have no common areas the original land should initially be parcelled into the separate parsels with it’s own separate Koçan issued. The sales agreement could then be in two parts - sale of land and property build. 

When the buyer has paid the land price in full the Koçan can be transferred to buyer’s name which completes part of the agreement.  This should be organised in order to be covered by the Specific Performance law. 

As the property is usually paid for in build stages the buyer would pay for each stage in advance and subsequently own that stage (as the titled land owner).   This would greatly reduce the risk for all parties – the constructor would have the necessary funds to build and the buyer would have the security of owning what he has paid for. 

If at any later stage in the build either party was in breach of the sales agreement terms the contract could be terminated with minimal consequences. 

Sales Agreements – Parcelled Land with property completed

For properties that are ready for occupation and are marketed with separate title and have no common areas the original land should initially be parcelled into the separate parsels with it’s own Koçan issued, and with property registered on it. 

The sales agreement would state that the property must be paid for in full within two months of signing agreement and would cover both parties under the Specific Performance Law.  If the buyer abides by the agreement then the Koçan would be transferred immediately either voluntarily or via a Court Ruling.  If the buyer refused to pay the full sales price then the vendor would be under no obligation to transfer the Koçan. 

Sales Agreements – Sub-divided Land with shared common areas 

Sites should be divided into phases each consisting of no more than 10 properties with no off-plan selling

When the first phase is fully completed and a separate Koçan issued for each property it can be marketed and sold with buyers entering into two separate sales agreements – one for the property and another for the land share. 

The sales agreements would state that the property must be paid for in full within two months of signing agreement and would cover both parties under the Specific Performance Law.  If the buyer abides by the agreement then the property Koçan and separate land share Koçan would be transferred immediately either voluntarily or via a Court Ruling.  If the buyer refused to pay the full sales price then the vendor would be under no obligation to transfer the Koçans. 

The profit from phase 1 would then be used to fund phase 2 and so on, thereby reducing the risk for all parties.


Specific Performance Law 

Many buyers, including Turkish Cypriots, are currently not covered by the limited time frame of Clause 2 (d) of the Chapter 232 Sales of Land (Specific Performance) –To provide for the Specific Performance of Contracts for the Sale of Immovable Property, which states: 

“if an action has been instituted within two months from the date when the contract was made to compel the specific performance thereof” 

As it is currently taking in excess of two months to complete the contractual obligations this clause should be amended from two months to allow sufficient time to adequately provide for the specific performance of contracts.


 

CONCLUSIONS AND SUMMARY 

In conclusion, the HBPG very much appreciate the opportunity to assist and work with the government of the TRNC to find a solution in the area of the PTP process.  We confidently believe that, if our recommendations are implemented, it will encourage prospective buyers to the TRNC and will also have a significant knock-on effect in providing important safeguards for property purchasers.  This is particularly relevant in the whole area of building permission approvals and electricity utility connections. 

The direct financial benefits for the government are very significant.  It is estimated that there must be, in excess of £100 million of unpaid tax due to the government in respect of both buyers and sellers tax that becomes due on the transfer of the Koçans to the buyers.  The prerequisite for this event is of course the PTP. 

In addition, adopting these recommendations including the fee for applications, will fund the necessary improved infrastructure required. 

Finally and most importantly, this will be a major element and a step forward in rebuilding confidence in the TRNC construction industry