Real Estate Guide
Principles of ownership
Freehold/Ownership - freehold ownership is unlimited in time. Freeholders hold property titles in their name and the titles are issued by the Land Registry of the Department of Lands and Surveys. Such a title deed affords the registered owner absolute ownership of the property. The registered owner of the property may dispose of it at will, for example by transferring it to another person (either by sale or gift), by mortgaging the property or otherwise charging it, or leasing it. Only the registered owner can transfer title to immovable property or otherwise dispose of or charge it. A transfer or charge may only be effected through the Land Registry, whereas a lease is the subject of private agreement.
Leasehold - leasing in Cyprus is governed by the Contract Law, subject to restrictions introduced by the Rent Control Law. The law aims to protect tenants against eviction (those who are statutory tenants cannot be evicted), to control the adjustment of rents and to regulate relations between landlords and tenants. Non-citizens of Cyprus and legal entities controlled by non-residents are not covered by the rent control provisions. Leases exceeding 15 years may be registered with the Land Registry, and registration should be effected within three months of signing the lease. Registered leases afford the tenant certain advantages, including the right to trade the lease. Third country nationals (i) may not take a lease of immovable property for a period exceeding 33 years without prior permission from the Council of Ministers, and they are not allowed to let their premises to Cypriots or foreign tenants. However, this restriction does not apply to EU nationals.
- (i) ‘Third country’ is a term used by European Union (EU) institutions to mean states outside the current 27 members of the EU. ‘Third country nationals’ means people who have the nationality of a state outside the current EU membership.
Common hold/Usufruct - not applicable
Condominium ownership - commonhold in Cyprus is regulated by Part IIA of the Immovable Property Law, which contains provisions for the ownership, possession and enjoyment of the various flats or storeys of a building by their respective owners, as well as the relations between them, their rights and obligations. Under commonhold, owners of the flats/storeys of the building have freehold ownership over their properties and common ownership of the common parts, the administration of which is usually run by an administrative committee elected or appointed by the various owners, who contribute to the relevant expenses pro rata according to the extent of their properties.
Utilisation right - not applicable
Joint/Co-ownership - not applicable
Registration - sale agreements for immovable properties and lease agreements for terms exceeding 15 years may be deposited with the Department of Lands and Surveys. If they are deposited, they afford the buyer or the lessee the benefit of specific performance of the agreement. To be accepted for deposit, the agreements should be properly stamped. The time limit for the deposit is two months for sale agreements and three months for lease agreements.
Restrictions on foreign ownership
Under the Immovable Property Acquisition (Aliens) Law, third country nationals wishing to acquire immovable property require prior permission from the Council of Ministers. Although it may take up to 12 months for the Council of Ministers permit to be obtained, buyers are entitled to occupy the property in the meantime.
After the permit has been granted and the property registered in the name of the foreign buyer, no further restriction is imposed and the buyer may sell or dispose of the property by will or other instrument.
Following the end of a five year transition period following Cyprus's accession to the European Union, all remaining restrictions on the acquisition of property in Cyprus by citizens of other EU member states were removed with effect from 1 May 2009. Citizens of other EU member states and companies registered and based in EU member states (regardless of the nationality of their shareholders) may now acquire immovable property in Cyprus on the same terms as Cypriots.
Title to real estate
Investigation of title - A prospective buyer should always, before entering into a contract for the purchase of immovable property, conduct (personally or through an agent or lawyer) a search at the Land Registry to make sure that the property is free from any encumbrances, charges or burdens. It is also advisable to carry out an environmental survey.
Transfer of title - beneficial title passes immediately when the sale agreement is deposited with the Land Registry, but freehold title passes only on registration of the property into the name of the buyer through the Land Registry procedures.
Registration - sale agreements for immovable properties and lease agreements for terms exceeding 15 years may be deposited with the Department of Lands and Surveys. If they are deposited, they afford the buyer or the lessee the benefit of specific performance of the agreement. To be accepted for deposit, the agreements must be properly stamped. The time limit for the deposit is six months for sale agreements and three months for lease agreements.
Information on the register - the register in Cyprus is maintained by the Department of Lands and Surveys, part of the Interior Ministry. The Department of Lands and Surveys has exclusive responsibility for, and provides the means and instruments for:
- establishment of rights of ownership of immovable properties
- survey and cartography of Cyprus
- registration, transfer or mortgage of immovable properties
- land tenure
- property valuation
- administration of government land.
The rights in land are defined and secured by the Department of Lands and Surveys, and all transactions related to immovable properties are protected. The register also provides information on immovable properties, including ownership, legal status and any burdens. The information can be provided, on application for a search certificate, to registered owners or their agents, heirs, executors or judgment creditors, as well as to prospective buyers of such properties. The certificate contains exclusive and definitive evidence on the information and facts.
Commercial leases - not applicable
Structure of a real estate transaction
Negotiation of terms/Agreement - commercial terms are usually negotiated between the parties, or their estate agents or lawyers. Once agreed, the terms are passed on to the parties' lawyers to be drafted into a formal contract of sale.
Heads of terms – Whether any heads of terms are legally binding or not will depend on all the circumstances of the transaction, including the conduct of the parties themselves. If they amount to an agreement between the parties meeting the requirements of the Contract Law they will be binding. It should be noted that there is no requirement for a contract for the sale and purchase of land to be in writing, though the overwhelming majority are.
Investigation of title - a prospective buyer should always, before entering into a contract for the purchase of immovable property, conduct (personally or through an agent or lawyer) a search at the Land Registry to make sure that the property is free from any encumbrances, charges or burdens. In some cases, it is also advisable to carry out an environmental survey.
Purchase deed - not applicable.
Contracts - the contract of sale or lease is the most important document in the process. Once the parties sign and exchange a formal contract, whether for lease or for sale, they are committed to fulfilling their obligations at a specified future date as the contract requires. Completion may sometimes be conditional on other events, such as obtaining a building permit or completing building works.
Completion/closing - while formal completion is as defined in the contract, for all practical purposes completion takes place when the buyer deposits a signed, duly stamped copy of the sale contract at the Land Registry within two months from the date of its execution (three months for a lease). Once the contract has been deposited, the seller is not allowed to transfer the property elsewhere or charge it for as long as the contract is valid and legally effective. If the seller refuses to transfer the property, the buyer may apply to court for the remedy of specific performance, ie for a court order to transfer the property into the buyer's name.
Post completion - once a separate title deed is issued, and all the terms of the contract of sale have been fulfilled, the parties transfer the property at the District Lands Office. The transfer fees are paid by the buyer, whereas the seller, to be allowed to transfer, will have to pay all property taxes connected with the property, as well as capital gains tax accruing from the sale.
Leases - not applicable
Transfer of ownership of leased property (alienation) - holding on trust or dealing with part of the building is usually prohibited. Assignment of the whole is also usually prohibited unless otherwise agreed with the landlord, on special conditions. Subletting of the whole or part, sharing with group companies and charging of the whole are typically permitted with the landlord's consent, subject to conditions.
Language requirement – The official languages of Cyprus are Greek and Turkish. Documents in English are also accepted by the authorities.
Governance of lease signature/administration – Leases of immovable property for longer than one year are valid and enforceable only if they are in writing and signed by or on behalf of the parties at the end in the presence of at least two witnesses, who are also required to sign. Contracts also need to be stamped (see below under taxes).
Usual commercial lease terms
Summary of available lease types - not applicable
Alterations/modifications - alterations are usually permitted with the landlord’s consent. Assignment and sub/under letting - holding on trust or dealing with part of the building is usually prohibited. Assignment of the whole is also usually prohibited unless otherwise agreed with the landlord, on special conditions. Subletting of the whole or part, sharing with group companies and charging of the whole are typically permitted with the landlord’s consent, subject to conditions.
Destruction/reinstatement - usually, the contract provides for the reinstatement of the premises to the same condition as at the beginning of the lease term, unless the landlord accepts any conversions or improvements. It is not normal for tenants to receive any compensation for conversions or improvements that they have carried out themselves.
Duration of lease - this is a matter for agreement between the parties and can range from months to many years.
Insurance - there are no legal obligations on tenants for insuring the leased premises. The matter is freely negotiable between landlord and tenant.
Rent review - the length of the initial rental term and the provisions relating to review are defined in the lease.
Repair/decoration/furnishing - where the lease is for a whole building, repair and decoration are usually the tenant's responsibility. If the lease is for part of a building, the tenants are usually liable for internal repair and decoration of the parts they occupy. Landlords are usually liable for external and structural repairs of the whole building and repair and decoration of the common parts. Landlords are entitled to recover the costs of such work from tenants via a service charge.
Service charge - if a landlord repairs the structure and common parts, the lease will usually provide a service charge regime under which certain costs can be recovered by the landlord from the tenants. The proportion of service charge payable by each tenant is usually calculated by reference to the area occupied by the tenant as a proportion of the building or estate as a whole.
Tenant's duties - see "repair/decoration/furnishing" as relevant to the type of lease
Termination/break clauses - it is possible to negotiate early termination rights, and sometimes a landlord may require a break clause.
Increasing covenant strength
Lease deposit - the most common form of security is the holding, by the landlord, of a sum equal to two months’ rent. The deposit is usually released when the tenant satisfies a specified financial test, upon assignment or upon the determination of the term.
Surety - a company or individual may be required to guarantee the tenant’s performance of its covenants and also be required to take a lease on identical terms in lieu of the tenant if the tenant defaults. On assignment, a surety may be required to guarantee the performance of the incoming tenant until the lease is further assigned.
Warranty - not applicable.
Rent deposit/bank guarantee - bank guarantees are unusual, whereas private guarantees are common.
Security of tenure
Security of tenure is governed by the Rent Control Law. According to this, a business tenant remaining in possession of the premises after the tenancy agreement has expired becomes a ‘statutory tenant’. Such a tenant may not be evicted from the premises, except under grounds specified in the law. The ‘statutory tenancy’ protection does not cover foreigners or tenants of premises situated outside municipal town boundaries. When this protection applies, rent increases may not exceed 14 per cent every two years.
Stamp duty must be paid on contracts as follows:
- For transactions with a consideration up to €5,000 no stamp duty is payable;
- For transactions with a consideration in excess of €5,000 but not exceeding €170,000, stamp duty of €1.50 for every €1,000 or part thereof is payable;
- For transactions with a consideration in excess of €170,000 stamp duty of €2.00 for every €1,000 or part thereof is payable.
- Where no amount of consideration is specified in the contract the stamp duty is €34.
- For a transaction which is evidenced by several documents stamp duty is payable on the main contract and ancillary documents are charged at a flat rate of €2.
- The maximum stamp duty payable on a contract is capped at €20,000.
Stamp duty must be paid within 30 days from the date of execution of the relevant documents or, if they are executed abroad, within 30 days after they are received in Cyprus. If stamp duty is paid late, a surcharge of approximately 10% of the unpaid amount is payable if payment is made within six months after the due date; otherwise the surcharge is twice the unpaid amount. Stamp duty tax must be paid for the Land Registry to accept a contract for deposit, or for the document to be used in court proceedings.
Transfer fees payable by the buyer on the registration of the property in the buyer’s name are calculated according to the value of the property at the date of the contract. The first €85,000 is charged at 3%; the next €85,000 is charged at 5% and any excess above €170,000 is charged at 8%.
Immovable property tax - is charged annually on the immovable property registered in the name of the taxpayer on 1 January of each year and is based on the aggregate market value of the property owned by the taxpayer as assessed on 1 January 1980, as follows:
|First €40,000||0.6% (minimum charge €75)|
Most private residential properties are likely to fall within the first band, or the first and second bands. For owners who have properties with a total value below €12,500, no tax is imposed. Owners of immovable property are also subject to minor taxation under other laws, such as municipal or village rates, sewerage fees and refuse collection charges. Costs are generally lower than in the rest of Europe.
Income tax - not applicable
Land tax - not applicable
Lease tax - not applicable
Local tax - not applicable
Mortgage - not applicable
Other taxes - capital gains tax is paid by the seller and is 20% of the profit made on the sale (or on the gain compared with the value at 1 January 1980, if the property was owned at that date) adjusted for inflation and any costs of renovation or improvement. The first €17,086 of the profit is exempt on a first sale. This exemption increases to €85,430 if the property has been the seller’s main residence for the five years preceding the sale. The exemptions are given once only and not for each disposal.
Property lease tax - not applicable
Value added tax - (VAT) is payable at 19% on the sale, by a VAT-registered trader, of properties in respect of which a building permit was applied for after 1 May 2004. First-time buyers who are Cyprus nationals may apply for a reduced VAT at a rate of 5% for the first 200m2 of the property purchased from the VAT authority. Letting of immovable property is exempt from VAT.
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