Essential Due Diligence Checks for Cyprus Real Estate

Purchasing property abroad can be an exciting option and Cyprus stands out as a top location, whether you are seeking a new home for relocation, an investment opportunity, a peaceful retirement spot or simply a holiday retreat.

It is crucial to emphasise the importance of proceeding thoughtfully, ensuring thorough research is conducted before making any major decisions, especially when it comes to selecting the perfect property.

Buying a property in Cyprus, like anywhere else globally, can present various challenges. It is essential for a buyer to exercise caution both before and during the purchasing process to steer clear of these potential pitfalls.

The term “due diligence” typically refers to the comprehensive process undertaken by a property or business buyer. This involves requesting and acquiring information, documents, and assurances regarding the status of the property or business in question, as well as details about the seller.

This preliminary inquiry holds significant importance but often overlooked in the initial stages of negotiations. Prudent buyers are wise to conduct it diligently, aiming to avoid any unpleasant surprises or hurdles that could lead to prolonged and costly legal battles. The scope of the due diligence process is broad, encompassing a range of critical issues. These include, but are not limited to, verifying the legal status of the property, assessing the seller’s financial stability, identifying any tax obligations to governmental authorities, evaluating communal charges, considering tax implications, confirming the seller’s authority to sell the property, and determining whether the purchaser needs to obtain permits or consents from governmental bodies.

The widely recognised issues that prompted the enactment of pertinent legislation concerning the acquisition of real estate, its seamless registration in the buyer’s name without any encumbrances, the issuance of individual title deeds, and the legality of structures underscore the significance and benefits of rigorously adhering to the due diligence process.

Prior to acquiring an immovable property, it’s essential for prospective buyers to conduct due diligence to determine its current status, identify any obligations or encumbrances associated with it, and assess any tax liabilities owed by the seller pertaining to the property. Proceeding with caution is paramount to mitigate potential future complications. Additionally, when selecting a property for purchase, it’s advisable for the buyer to obtain a professional valuation of the asset and conduct a thorough search at the Land Registry to ascertain whether the property is encumbered by mortgages, liens, or any other restrictions. Furthermore, the buyer should also investigate whether any restrictions affect the seller, such as bankruptcy proceedings or interim orders, and ascertain if the seller has any outstanding tax obligations.

Acquisition of old houses

If the property in question is an older building, it could potentially be subject to a tenancy agreement with a statutory tenant. Additionally, land might be impacted by compulsory acquisition, requisition, or land consolidation measures. It’s advisable for the buyer to visit the Town Planning and Building Authority to assess the development potential of the property, check for any zoning regulations that may affect it, and determine its permissible building density.

Acquisition of property under construction

If the property being considered is a house or apartment currently under construction, it’s crucial for the purchaser to obtain copies of the town planning and building permits. In cases where the property lacks a separate title deed, it’s important to request copies of the aforementioned permits, the division permit, and architectural plans. Additionally, the buyer should conduct a search to determine if the property is subject to VAT.

Encumbered Properties

If the property is encumbered by a mortgage, lien, or any other restriction, the purchaser should refrain from proceeding with the purchase unless the seller demonstrates the ability to resolve these issues and ensure the property is unencumbered at the time of transfer. The signing of a sale contract should only occur after due diligence has been conducted, and the payment of the purchase price should be made only upon transfer. Depositing the sale contract at the Land Registry is insufficient and does not offer adequate protection for the purchaser. If the vendor fails to fulfil their obligations and transfer the property, the purchaser may find themselves in a precarious situation.

However, it remains crucial to promptly deposit the sale contract, as any delay could potentially lead to issues for the purchaser. Delays may allow for encumbrances to be registered in the interim, potentially taking precedence over the sale contract. When purchasing a property from someone who is not the registered owner but rather a purchaser under a sale contract, it is imperative for the potential buyer to verify that the seller has lodged their sale contract at the Land Registry. Additionally, the buyer should ensure that the seller has settled any outstanding payments with the original vendor and has made arrangements to pay any applicable capital gains tax. If the mentioned criteria are fulfilled and the necessary tax release certificate is acquired, the sale can proceed via an assignment agreement, requiring certification of signatures from both the assignor and the assignee.

In summary, the most crucial recommendation for any prospective buyer is to engage a trustworthy lawyer. It’s safe to assert that with precise legal guidance from the start, potential pitfalls can be circumvented when considering a property purchase in Cyprus. Adhering to the correct procedures can guarantee a seamless, efficient and successful transaction from start to finish.