Real Estate 2020

Last Updated April 14, 2020

Cyprus

Law and Practice

Author



Christos Georgiades & Associates LLC offers expertise across a broad range of disciplines and industries, with a particular focus on commercial and investment matters. The lawyers specialise in international business transactions, commercial litigation, international arbitration and ADR, construction and engineering, property, investment and estates, intellectual property, immigration, and corporate and insolvency matters. The firm’s Cypriot and international clients include some of the leading businesses and professionals in their respective fields. Importantly for international clients, the firm enjoys close links and associations with reputable law firms in a plethora of jurisdictions, as well as with accounting, audit and fiduciary providers of excellent standing.

The constitution of the Republic of Cyprus and several acts of parliament formulate the law in relation to real estate. The acts give powers to various Authorities to issue Regulations that regulate specific areas of law and provide for specific processes. In Cyprus, the applicable legal system is common law, so case law plays an important role as a source of real estate law. The decisions of the Supreme Court are binding over lower courts, and the decisions of the lower courts have persuasive effect. In addition, Regulations of the European Union are binding without the enactment of local legislation to enforce them.

The latest trend is for foreign investors to invest in real estate investment projects for the purpose of acquiring Cypriot citizenship. The government of Cyprus announced an investment plan which enables investors in real estate who invest more than EUR2 million to apply for and obtain Cypriot citizenship. This led to increased interest from foreign investors to proceed with further bigger investments, such as joint ventures with local developer companies for the development of projects with residential and commercial units. There are also several transactions of a significant size, such as the conveyancing of private hospitals, private universities, shopping malls, etc.

These technologies are not applicable to the real estate market in Cyprus.

No proposals for reform which would impact real estate are currently contemplated. 

The freehold owner of a property is characterised as the absolute owner of the property, and has the absolute right of ownership, possession, use and enjoyment of the property without interference from third parties. The ownership of the freehold property lasts until the title is conveyed to another third party by virtue of sale, donation or inheritance. The Land Registry keeps books in which the freehold properties are registered. At the land registry, information about each freehold property is recorded, including the identity of the property’s owner. The Land Registry issues titles with the details of the freehold properties, including the name of the registered owner of the freehold property.

The leasehold owner of a property has the right to use and enjoy the property for 15 or more years. The lease document contains the terms that formulate the relationship between the lessor and lessee. Amongst other terms, the lease agreements define the period for which the property is leased. As with freehold properties, the Land Registry keeps a record of the leasehold properties. The lessee ensures that the lease is registered at the Land Registry, in order to secure the interests that derive from the lease.

Certain specific rights can be registered at the Land Registry and form part of the title deed of the immovable property – for example, a right of way through another immovable property (easement). Such rights are attached to the title, which means that when the property is conveyed those rights are conveyed together with it. These rights are referred to as 'real rights' and are binding against everyone – not only against one specific person with whom there is a contractual relationship.

In common-owned buildings, each unit has its own title. Except for the right of ownership of the unit, the title provides for the percentage that the owner of the unit holds in the ownership of the common areas and, in some cases, exclusive rights attached to the title, such as the exclusive right of use of a specific roof.

Apart from the "real rights" that are registered at the Land Registry, personal rights on a property can be created ("rights in personam"). Such rights arise from various legal relationships, usually between the owner and one or more third parties. Legal relationships include tenancies, licences and other contractual relationships, and are usually governed by a written agreement. The parties to the agreement enforce these rights against each other.

The same law applies for the transfer of all kinds of freehold property, whether it is residential property, property for commercial use, hotels or other property for tourism use, property for agriculture use, etc.

When a title deed is available for the freehold property, the parties enter into a contract and the vendor agrees to transfer the title of the property to the purchaser, and the purchaser agrees to accept the transfer of the title of the property. The contract makes provisions for the various aspects of the transaction (eg, the purchase price, the schedule of payments, the delivery of possession of the property, the transfer of the titles) and at the same time contains clauses for the protection of one or both of the parties. The contract is stamped at the tax authorities, after which it is submitted by the purchaser to the Land Registry for specific performance purposes. The filing of the contract at the Land Registry for specific performance creates an encumbrance (a charge over the property) that secures the interests of the purchaser in the property. The charge of the purchaser takes priority over any subsequent charge. In accordance with the provisions of the contract, the delivery of possession of the property takes place on a specific date. Furthermore, a specific date is usually set for the transfer of the title deed into the purchaser’s name. This transfer takes place at the Land Registry and it is recorded. The parties, meaning the vendor and the purchaser, submit a declaration of the transfer together with evidence from the vendor that all the relevant taxes have been paid. After the transfer is completed, the books of the Land Registry are updated and the new registered owner is recorded. The Land Registry issues a title deed in the name of the new owner. The purchaser pays the transfer fees on the date of transfer, which are calculated on the value of the property based on the market values applicable on the date that it was purchased.

Sometimes, the title deed of the property is not available at the time of entering into the agreement. In some cases, a piece of land that is covered by one title deed is divided into smaller plots and the purchaser is buying one or more of the plots that will result from the division.

In other cases, the purchaser is buying a unit or a number of units in a building complex and the separate title deeds for the units of the project have not yet been issued. At the beginning of the project, there is one or more titles covering the freehold land where the project is going to be erected. The vendor in such cases is usually the developer of the project, and usually undertakes all the necessary processes in relation to the issuing of separate title deeds for the units of the project. These processes include the issuing of the necessary planning, building and division permits, and several applications at several Governmental departments. Such processes may take a long time to be completed

In cases where the title deed of the property is not available at the time of entering into the sale agreement, the conveyancing process is as follows. A contract is drafted regulating the transaction and setting the rights and obligations of the vendor and the purchaser. The contract is stamped at the Tax Authorities and is lodged at the Land Registry for specific performance purposes. This results in the creation of an encumbrance (a charge) over the title of the land, which has the effect of protecting the purchaser’s right in the property over any subsequent charges or encumbrances. The “specific performance” encumbrance that is created with the lodging and registration of the contract at the Land Registry protects the purchaser’s interest in the property that is being purchased until the separate title deed for the property is issued and transferred into the purchaser’s name. In order to be able to lodge the contract at the Land Registry for specific performance purposes, the division plan or the site plan of the project must be deposited at the Land Registry as part of the contract, and the property that is being purchased must be clearly marked. The delivery of possession of the property takes place on the date set on the contract. The transfer of the title of the property into the name of the purchaser takes place when the separate title deed is issued, in the same way as when the property has a separate title deed (described above).

A leasehold interest can be transferred by selling and transferring the encumbrance that has been created when the lease was registered at the Land Registry; another way is to sublease the property, provided that this is permitted in the original lease.

The due diligence process concentrates on the examination of the title of the properties, including the information it includes, the rights attached and any burdens it may bear. Furthermore, the ownership of the property is examined and the owner is investigated. In addition, if the object of the sale includes buildings, the permits for the buildings must be checked and the buildings must be inspected.

First of all, the title is examined so as to gather the information on the property, including the distinctive numbers of the property, the location and/or address of the property, the area of the property, the registered owner, the rights attached, the position of the property on the official topographic plan on scale, etc.

Secondly, the ownership of the property and the right of the vendor to sell the property is examined. The circumstances may be different in each case.

When the vendor is the registered owner of the freehold property that is the object of the sale, the process is as follows. The title deed of the freehold property is examined in order to establish the name of the registered owner. If the registered owner is a legal entity, a search is performed at the registrar of companies to check the status of the entity and the signatories, and generally to get details about the registered information of the entity. 

If the separate title of the property has not yet been issued, it is checked whether the vendor is the registered owner of the freehold land where the property has been erected or will be erected. If the vendor is the sole registered owner of the freehold land and is a legal entity, the search at the registrar proceeds, as above. If the vendor is not the registered owner of the land where the property has been or will be erected, the vendor’s right to convey the property needs to be checked. If the registered owner of the land granted the vendor the right to develop the land and sell the units, the agreement between the vendor and the registered owner must be examined. It must also be checked whether the agreement between the vendor and registered owner has been lodged at the Land Registry. Both the vendor and the registered owner need to be part of the sale contract. If the registered owner has granted a power of attorney to the vendor, the power needs to be examined and again it must be checked if the power of attorney has been lodged at the Land Registry.

If the vendor is the registered owner of part of the property and the rest is owned by other persons (co-owners), it needs to be examined whether there is a distribution agreement between the vendor and the co-owners, and whether this agreement has been lodged at the Land Registry. If it has, the vendor is entitled to sell the property or part of the property that corresponds to the vendor’s share, in accordance with the distribution agreement. However, if such an agreement has not been lodged at the Land Registry, the vendor needs to obtain written consent to the sale from the co-owners. If the co-owners do not give their consent, they will be sent notices informing them of their co-owner’s (vendor’s) intention to sell the property at the specific price, and they will have a deadline within which they will have the right to interfere and purchase the property themselves at the same price. If the co-owners do not exercise the option to purchase, the sale will proceed as intended. This process only applies if no distribution agreement between the co-owners is lodged at the Land Registry.

If that the interest to be purchased is leasehold, the right of the lessor to lease the property needs to be examined. If the lessor is the owner of the freehold, then a lease can be created. If the lessor is not the owner of the freehold, but instead is the lessee and wishes to proceed with a sublease, the original lease needs to be examined to check if the lessee has the power to sublease. Also, it needs to be checked whether the original lease has been registered. If the lessor is a legal entity, a search at the registrar must be performed, as described above.

After ownership and the right to convey is established, a search must be performed at the Land Registry to establish if there are any encumbrances burdening the property. The common practice is for the vendor to provide the purchaser with an up-to-date search. The purchaser then evaluates the content of the report.

If there are mortgages burdening the property, the purchaser needs to ensure they will be eliminated before the transfer and registration of the property into the purchaser’s name. It is common practice for the purchaser not to release a specific part of the purchase price until the mortgages are removed. Another option, which is less common, is to pay the party in whose favour the burden exists directly and deduct the payment from the purchase price. 

In some cases where there are no separate title deeds and there are mortgages burdening the whole or an undivided share of the land, it may not be possible or desirable for the vendor to release the burdens from the whole of the land. It can be agreed between the parties that the vendor releases the undivided share of the land that corresponds to the property being sold from the mortgages. In such a case, the person in whose favour the mortgages were imposed needs to confirm in writing that the undivided share that was released corresponds to the specific property being sold, and needs to declare that the lodging of the sales agreement at the Land Registry takes priority over the mortgages. The beneficiary of the mortgages also needs to declare that the separate title deed that will be issued for the property will not be burdened with the mortgages.

Encumbrances other than mortgages may burden the property. Any such encumbrances must be made known to the purchaser, and the parties need to agree if they will continue burdening the properties or whether the vendor will have the obligation to take the necessary steps to remove them.

If the object of the sale includes buildings, the permits for those buildings need to be examined. If the construction has not started and the permits have not yet been issued, a term must be included in the contract putting the obligation on the vendor to obtain the necessary permits. If the building has already been erected, it needs to be checked whether the terms of the existing permits have been complied with and whether there are any deviations from the approved plans or other violations of the permits. It is common practice to appoint an architect or a civil engineer to undertake this investigation. A civil engineer or architect may also perform an inspection of the building itself and report to the purchaser.

The vendor has an obligation to provide the title and the permits, and to reveal if there are any burdens on the titles or hidden defects of the property. The vendor has also the obligation to provide the purchaser with “the energy performance certificate” relating to the building.

There are no typical representations or warranties that apply to real estate in Cyprus.

This is not applicable to Cyprus.

The owner of a property is responsible for soil pollution or environmental contamination of the property, and has the obligation to maintain it in a condition that does not cause public or private nuisance. After possession of the property passes to the buyer, he or she must take measures to prevent any nuisance.

An architect or a civil engineer is employed to ascertain the permitted uses of a parcel of real estate under the applicable zoning or planning law. The expert will ascertain the applicable zone, in accordance with which they will be able to determine the permitted uses of the property. The expert will also be able to advise on the density and coverage factors, and to advise generally on the area of the part of the property that can be developed, the number of floors that can be built, etc.

It is common for the building permit for a building or a development to contain terms for the compulsory granting of part of the property to be used as a public road, pavements, public parking or a public green area.

In certain specific cases, compulsory acquisition by the government for a specific public purpose is possible. Since the right to property is protected by the Constitution of the Republic of Cyprus, in such cases the government offers sufficient compensation to the owner. It is advisable for the owner to appoint a valuator to establish the market value of the part of the property that is being compulsorily acquired and the impact on the rest of the property, so as to be able to check if the compensation offered by the government is adequate.

The contract between the vendor and the purchaser needs to be stamped at the Tax Authority after it is signed. At this stage, the stamp duty is paid. Although there is no rule as to who pays the stamp duty, it is common practice for the purchaser to perform the stamping of the contract and to pay the relevant stamp duty, but it may be agreed otherwise. The stamp duty is estimated on the amount of the transaction and is payable at the Tax Department. If the contract is not stamped within one month of the signing of the contract, penalties are imposed, which increase with time. The stamp duty is calculated as follows:

  • no duty on contracts when the amount of the subject matter is under EUR5,000;
  • EUR1.5 for every EUR1,000 on the first EUR170,000; and
  • for any amount above EUR170,000, it raises to EUR2 for every EUR1,000. The stamp duty does not exceed the amount of EUR20,000.

A copy of the stamped agreement will be handed to the vendor so that he or she can issue the tax release. The issuance of the tax release may take more than a month, depending on how complicated the case is.

Where the vendor is not a dealer of land, he or she is responsible by law for paying the capital gains tax release (if any). The capital gains tax is calculated by deducting the cost of acquiring the property when the vendor acquired it from the selling price. Inflation is taken into consideration. The balance is considered to be the profit, which is taxed at 20%. If the vendor is a physical person, some lifetime exemptions are applicable. If the vendor is disposing of agricultural land, the first EUR25,629 of profit is exempted from tax. If the vendor is disposing of other immovable property, the first EUR17,086 of profit is exempted from tax. EUR85,430 of the profit is exempted from tax if the vendor is disposing of his or her private residence, provided that conditions are met and provided that evidence the property was used as the vendor’s private residence is submitted to the Tax Authorities.

Where the vendor is a dealer of land, income tax is paid if the vendor is a physical person, or corporate tax if the vendor is a company.

On the date of transfer of the property into the name of the purchaser, the latter pays transfer fees at the Land Registry. The transfer fees are calculated on the value of the property on the date of purchase, which is determined by Land Registry valuators on the date of transfer. The purchaser has the right to object to the valuation. In such a case, the purchaser pays the transfer fees on the value determined and states the objection. The objection may be accompanied by the valuation determined by a private valuator. Subsequently, a revaluation is performed by the Land Registry. If the value is found to be the same as the first valuation, the transfer fees remain the same. If the value is lower than the first valuation, the transfer fees are recalculated and the appropriate amount is refunded to the purchaser. If the value is higher than the first valuation, the transfer fees are recalculated and the purchaser makes an additional payment. The recalculation can be challenged at the Administrative Court.

The transfer fees are calculated as follows: 3% on the first EUR85,000; 5% on any amount between EUR85,001 and EUR170,000; and 8% for any amount above EUR170,000.

There are some annual taxes payable on properties. Municipal tax or council tax, depending on where the property is located, is payable at the local Authority (Municipality or Council). Also, the local Authority charges for the collection of garbage and for water consumption. Sewerage charges are imposed by the Sewerage Board (again, depending on location), and electricity consumption is payable at the Electricity Authority.

In accordance with Cyprus legislation, non-EU citizens need to apply to the Council of Ministers for permission to acquire property in Cyprus, and must submit the details of the purchaser, the nature and intention of the transaction, the details of the property and supporting documentation – eg, copies of identification documents if the applicant is a physical person or the registration documents and the articles of association and Memorandum of the legal person, the contract, the title of the property in the name of the vendor, the planning and building permissions of the property, etc. After the permission is granted, the title of the property in the name of the purchaser can proceed. Before permission is granted, the purchaser is able to register the contract at the Land Registry for specific performance purposes so as to create an encumbrance over the property in the purchaser’s benefit. Usually, a specific clause is inserted in the contract to state that the vendor will provide the purchaser with any document that is necessary for the purposes of the application. A clause is also inserted to cover the situation if the application is not successful (usually by giving the purchaser the right to transfer to a third party that does not need this permission). A company needs to obtain permission if 50% or more of its shares are owned by non-EU citizens.

It is common for acquisitions of commercial real estate and of companies holding real estate to be financed through banking institutions. Usually, the banking institution asks for the purchaser to contribute to the payment of the purchase price by paying a certain percentage, and finances the balance of the price.

It is common practice for the banking institution to insist that the property that is the object of the transaction is mortgaged in the banking institution’s benefit, as a condition of the financing. It is also common practice for the purchaser to assign the contract of purchase to the banking institution that is financing the transaction, as additional security. The banking institution usually requires other additional securities as well – for example, guarantors, etc.

Another option is to purchase through a financing lease. Legislation was enacted in 2016 in Cyprus to formulate this process.

There are no restrictions on granting security over real estate to foreign lenders. A foreign lender can register a mortgage on property in the foreign lender’s benefit.

Stamp duty is paid on the various agreements that need to be signed for the financing to take place (loan agreements, mortgage agreements, guarantee agreements, etc). The stamp duty is calculated on the amount of the transaction. Furthermore, for the registration of the mortgage at the Land Registry, mortgage fees are payable at the Land Registry, of 1% of the mortgage amount.

Only the registered owner of the immovable property is able to mortgage that property as security for the purposes of finance (loan, etc). Before the mortgaging of immovable property, the consent of the beneficiaries of other existing securities on the same property needs to be obtained. The mortgagee must be an existing person or entity, and proof of the mortgagee’s identity is submitted at the Land Registry. The financing agreements are also submitted at the Land Registry.

Where a borrower is in default, the lender will take measures to enforce the lender’s security over the real estate against the defaulting borrower. If there are any encumbrances that were filed at the Land Registry prior to the filing of the security, their enforcement will take priority over the security. If the real estate is sold, the beneficiaries of the encumbrances will be compensated in accordance with the time of filing the encumbrance. The first encumbrance filed will be compensated first, the second encumbrance filed will be compensated second, and so on.

The process of enforcing the lender’s security over real estate against defaulting is as follows.

Where the borrower’s obligations are more than 120 days overdue, the lender can start the process for the sale of the immovable property. Notice in the form specified by the law is sent to the borrower, asking them to inform the lender whether there are any financial difficulties and whether restructuring of the loan is desirable. Another notice follows, with the statement of account of the borrower attached, where the capital of the loan, the interest and any other costs or charged are stated. This second notice requests the borrower to pay the amount shown on the statement attached, within 30 days of the service of the notice. If the borrower does not comply with this notice, a third notice is sent, asking for payment within 30 days and informing the borrower that if the amount is not paid the property will be put into auction. Within this 30-day deadline, the borrower has the right to go to court and show reasons why the auction should be prevented and get an order preventing it.

If the auction is not prevented, another notice is sent to the borrower so as to appoint a valuator within ten days, and inform the lender of the name of the valuator. The lender appoints a second valuator. If the borrower fails to appoint a valuator, the lender appoints both valuators. After the valuations are prepared, a notice is sent to the borrower informing him of the reports. If the higher valuation is lower than the lower valuation plus 25% of the lower valuation, the value is set to be the average of the two valuations. If the higher valuation is equal to or higher then the lower valuation plus 25% of the lower valuation, the borrower can request a third valuation. The value is the average of the two closer valuations or, if they are equally close, then the average of the three valuations is the value. During the attempts to sell the property within the first three months, the price cannot be lower than 80% of the value, but can be reduced after the three months.

Another option for the lender is to file a civil action in court and get a court order for the sale of the immovable property.

If the lender and the borrower agree to amend the terms of their agreement, the agreement may be restructured and the securities may change to correspond to the new agreement. In such cases, the amount of the mortgage may increase or decrease, or more or other securities may be given.

A lender holding security or enforcing security over real estate is not liable under environmental laws for pollution of the real estate unless the lender has legal possession of the property.

The security interests over real estate created in favour of a lender against the borrower and their enforcements do not become void if the borrower becomes insolvent. If the liquidator of the insolvent borrower starts the sale process before the lender, the proceeds of the sale of the property will be used by the liquidator to honour the encumbrances in accordance with the priority order (the first encumbrance filed is the first to be honoured).

The expiry of the LIBOR index will have no consequences for borrowers or for risk-management mechanisms in Cyprus as LIBOR does not apply in Cyprus.

Each district is divided into zones (residential, agricultural, tourism, commercial, industrial, archeological, etc). In accordance with the zone, several legislative and governmental controls apply with regard to the permitted use and/or development of the immovable property. 

Detailed regulations, guidelines and plans are issued in order to determine the design, appearance and method of construction of new buildings, the refurbishment of existing buildings and the division of land and/or buildings in accordance with the location, the zone and the character of the area. The density and coverage factors are determined for each zone, as well as the number of floors, the material to be used, etc.

The main departments and authorities involved in the process from obtaining the initial permissions until the full update of the title of the immovable property so as to describe the new development or project include the planning Authority, which is subject to the Municipality or the Ministry of Interior (depending on the location); the District offices, which are again subject to the Ministry of Interior, the Electricity Authority, the Water Supply Authority, the sewerage department, the fire brigade department, and the topography and land registry department.

The owner of the immovable property applies for the planning permission. It is common practice for the owner of the immovable property to appoint an architect and/or a civil engineer to prepare the plans of the development or refurbishment, or a topographer to prepare the plans of the division of the land. The plans are submitted together with the application for the planning and/or division permit. A supervising architect and/or engineer must be appointed for the project. If the plans comply with the regulations that apply in the specific area and zone, the permit is approved. Sometimes, the Authorities may request modifications to the plans. After the planning permission is approved, an application for building permission needs to be made. Once the planning and building permissions have been granted, the construction of the building can begin. Upon completion of the construction, the supervising architect or engineer submits a confirmation of completion of works at the District offices of the District where the property is located, and requests the certificate of final approval. The various relevant Governmental and local Authority departments carry out the necessary checks and, provided the permits have been complied with, the certificate of final approval is issued. The owner can then submit an application to the Land Registry, together with the permits and the certificate of final approval, and request the issue of titles or the issue of updated titles, with the constructions legally erected by virtue of the permits to be described therein.

A party with a direct interest in the application can appeal the Planning Authority’s decision to the Administrative Court, within 75 days of the authority’s decision. The appellant will have the burden of proving that the decision was mistaken, unlawful and/or unjustified. If the appeal is successful, the decision of the Planning Authority will be cancelled.

The developer of a project is obliged to follow the various conditions imposed in the building permits and/or division permits. These conditions may include the creation of green areas, the constructions of roads, pavements, etc, and the compliance with conditions of various departments, such as the fire brigade department, the electricity authority, the water supply department, etc.

Any deviation from the planning and/or building permission is an offence, as is failure to obtain the necessary permissions and/or the certificate of final approval. The local Authorities and the district offices of each district prosecute offenders privately, asking for fines and other penalties to be imposed and requesting court orders for the demolition of illegal constructions.

It is common practice for investors to hold real estate through limited liability companies. Sometimes, when more than one investor is involved, a joint venture of limited liability companies may take place.

The Memorandum of the Company must state that actions connected with dealings in real estate are within the purposes of the foundation of the company.

There is no minimum amount of capital required to set up an entity that is to be used for investment in real estate.

There are no governance requirements which apply to any entities that are to be used to invest in real estate.

A limited company has the obligation to submit an annual report with the registrar, together with audited accounts. Also, limited companies pay the registrar of companies an annual fee of EUR300.

A tenancy agreement will allow a physical or legal person to occupy and use real estate for a limited period of time.

The council of ministers decides from time to time which areas are covered by the Tenancy Tribunal Act, which contains special provisions that are applicable to the tenancies of immovable properties that are within these areas. The law is applicable to immovable properties that include buildings built before 31 December 1999 and are rented for the purpose of being used as residences or shops. Tenancies of land to be used for agricultural purposes, parking spaces, hotels or hotel apartments are not covered by the Act. Also, tenancies that do not exceed the duration of six months are not covered by the Act. The standard contract law principles are applicable for all tenancies that are not covered by the Act.

The concept of different types of commercial leases does not apply in Cyprus.

Rent is freely negotiable, and the amount agreed is binding. 

However, in cases where the Tenancy Tribunal Act applies, after the first tenancy period is over the increase to be agreed must not exceed the maximum allowed under that Act (currently 14% every two years). In such cases, the rent cannot be increased before two years of possession of the property by the tenant have elapsed, or before two years have elapsed since the previous increase.

Furthermore, again where the tenancy is covered by the Tenancy Tribunal Act, the landlord or the tenant can apply to the court for the determination of fair rent. Any such application is not possible before two years have elapsed from the delivery of possession of the property to the tenant. For the purpose of determining fair rent, the court takes the average of rent paid by similar neighbouring properties into consideration. Also, the age, character, size, location and condition of the property and the available facilities are taken into consideration.

Where the tenancy is not covered by the Tenancy Tribunal Act, the contract can provide the circumstances in which the tenancy can be renewed and define the increase (if any) in the rent that will take place if such a renewal takes place. The standard principles of contract law apply under these circumstances.

The tenancy usually contains the necessary terms to formulate the relationship between the landlord and the tenant. Generally, the landlord agrees that the tenant may quietly hold and enjoy the property during the tenancy period without disturbance from the landlord or his or her agents if the tenant pays the rent and other money payable under the tenancy and complies with all the obligations arising from the tenancy.

The period of the tenancy, the amount of the rent, the method of payment of the rent and the frequency of rent payments are stated. The right of each of the parties to renew the tenancy can also be included, and the rent applicable in the case of such a renewal is usually defined.

It is common practice to include a term for the provision for the payment of a deposit by the tenant, which will be used to cover damage caused to the property by the tenant, unpaid rent or other unpaid obligations of the tenant in connection with the property.

Furthermore, provision is made regarding who is responsible for the payment of all charges for water, electricity, telecommunications and other services supplied to or used at the property, and for the fees for the removal of rubbish and any other expenses, rates, fees, taxes, assessments, duties and charges arising out of the possession of the property during its occupation by the tenant. The tenancy agreement may provide that the tenant shall compensate the landlord in full on demand for any liability for such charges, etc.

Moreover, the tenancy agreement allocates responsibility between the parties with regard to the maintenance and repair of the property, and defines the permitted use of the property. Where permissions are necessary so as to use the property for specific business activities, the tenancy agreement provides whose responsibility it is to obtain such permissions.

In certain cases, a prohibition on subletting may be included in the tenancy agreement.

The carrying-out of alterations, additions or improvements at the property that is the subject matter of the tenancy is also usually regulated in the tenancy agreement.

Furthermore, it is common practice to regulate the circumstances under which the tenancy can be terminated, and the right of the landlord to access the property.

The amount of the rent payable, the method of payment of the rent and the frequency of rent payments are stated in the lease. If the tenancy is renewed, the rent applicable in the case of such a renewal remains as stated.

The rent payable under the terms of the lease will not change and cannot be increased before two years of possession of the property by the tenant have elapsed, or before two years have elapsed since the previous increase.

Since Cyprus' EU accession in 2004, a standard VAT rate of 19% is required to be paid when buying a new property. However, following a recent VAT Amendment Law, a reduced VAT rate, starting from 5%, is applicable for the acquisition of new residential properties.

At the start of the tenancy, it is common practice for the tenant to pay an amount as a deposit, which can be used to rectify damages to the property caused by the tenant or to cover unpaid rent or other unpaid obligations of the tenant in connection with the property.

In common-owned buildings, a committee of the residents is usually formed, which arranges the maintenance and repair of the common areas (swimming pools, garden areas, private streets, parking areas, etc). The landlord usually imposes a term in the tenancy agreement which provides that the tenant pays the common expenses.

The utilities and telecommunications can be put in the name of one or more tenants. However, if several persons are in possession of one property, the Authorities will not divide the consumption of utilities and telecommunications amongst them: all the tenants will be jointly liable for the consumption. If the tenants wish, they can enter into an agreement defining how the bills for the utilities will be divided amongst themselves.     

It is common practice for the tenant to insure the real estate that is subject to the tenancy, but there is nothing to stop the parties agreeing that the landlord will be obliged to insure it. The tenancy agreement usually provides whose responsibility this will be.

The landlord can impose restrictions on how a tenant uses the real estate, by inserting them in the tenancy agreement. Furthermore, the tenant can only use the property as permissible by the laws and regulations of the republic of Cyprus. For example, a property in the residential zone cannot be used for commercial purposes.

The tenancy agreement usually states whether the tenant is permitted to alter or improve the real estate. It is common practice to provide the conditions under which any such alterations or improvements can be carried out, whether the consent of the landlord is required, whether the real estate will be put back to its original condition at the end of the tenancy, and who will be the owner of the alterations/improvements.

Leases exceeding 15 years may be registered with the Land Registry, provided that this is specifically provided for in the lease. Registration should be effected within three months of signing the lease. Registered leases give the tenant certain advantages, including the right to trade the lease. Non-EU citizens 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. However, this restriction does not apply to EU citizens or companies incorporated in an EU or European Economic Area Member State.

The tenancy agreement usually provides for termination in case the tenant goes bankrupt. If there is no provision, the landlord must deal with the liquidator.

The landlord sometimes requests a guarantee from a third party that the tenant will comply with his or her obligations under the tenancy agreement. This is common practice when the tenant is a legal entity.

If the tenancy is covered by the Tenancy Tribunal Act, then the tenant can continue the tenancy after the expiry of the tenancy agreement.

In all cases, if the landlord lets the tenancy continue after its expiry and continues to receive rent, it can be taken that a verbal agreement for the renting of the property is in place.

If there is no clause in the original lease prohibiting the assignment of the lease or the subleasing of the premises, the tenant is permitted to assign its leasehold interest in the lease or sublease all or a portion of the leased premises, on conditions to be agreed between the sublessor and the sublessee, as long as the inclusion of such conditions is not prohibited by the original lease.

Only the tenant has the right to terminate the contract. The notice period should be specified in the contract - typically, one or two months' notice is required. If the renter must leave prior to the expiry of the contract, they are obliged to find another tenant or pay the full rent for the period, provided that the flat remains un-rented. If the landlord rejects three potential tenants presented by the departing renter, the renter has the right to terminate and leave within the regular notice period. Rent Control Laws make the eviction of a statutory tenant difficult, except in the following three cases:

  • where the tenant has failed to pay the rent;
  • where the landlord needs the house for themselves, family members or dependant parents; or
  • where the landlord intends to demolish and reconstruct the house, or conduct substantial alterations or reconstruction.

A lease can be submitted at the land registry provided that:

  • it is in writing;
  • it is signed by the lessor and the lessee;
  • the lessor is the registered owner of the property that is the subject of the lease;
  • the lease provides the right to the lessee to register it at the land registry;
  • the duration of the lease must for 15 years or more.

The result of the registration of a lease at the land registry is the creation of an encumbrance over the immovable property in favour of the lessee.

Where the tenancy is covered by the Tenancy Tribunal Act, eviction is possible in the following cases.

First of all, if the payment of rent is overdue for 21 days or more after a notice claiming the rent is served on the tenant, the landlord can apply to a court for the eviction of the tenant. If the tenant pays within 14 days of the application for eviction being served on him or her, the application for eviction must be withdrawn. However, if the tenant persistently does not pay the rent, the application can proceed.

Furthermore, if the tenant causes a nuisance to the neighbouring properties or if he or she uses the property for immoral or illegal purposes, the landlord can apply for eviction. If the tenant is causing the destruction of the property with his or her actions or through his or her negligence, the landlord can also apply for eviction. However, if the tenant rectifies the damage within two months of being served with a notice, he or she will not be evicted.

If the tenancy contract contains a prohibition on sub-letting and the tenant sublets the property, the landlord can apply for eviction. Furthermore, where the tenant is subletting the property or part of it for an amount that is disproportional to the rent he or she is paying, an order for eviction may be issued, provided that the court decides it is fair and reasonable to do so.

Eviction can be ordered if the landlord wishes to use the property as his or her own residence or as a residence for his or her spouse, child or dependant parent, provided that the court decides that this is reasonable. Eviction will not be ordered under these circumstances if the nuisance to be caused to the tenant is much greater than the nuisance that would be caused to the landlord if the order is not issued. The same applies for a property that will be used for the carrying out of the landlord’s own business.

Furthermore, the landlord can apply for eviction so as to be able to demolish the building and/or carry out significant construction works.

The landlord may also apply for eviction where it is required by the Authorities because of compulsory acquisition of the property, or for the carrying out of works by the Authorities if the building is listed.

In all the above cases, the landlord must give one month's notice to the tenant

Where the tenancy is not covered by the Tenancy Tribunal Act, then the terms of the contract indicate when eviction is possible, and standard contract law principles are applicable. Under general contract law principles, the landlord will be able to terminate the agreement if the tenant is in breach of the agreement and the breach is of a term that is of the essence of the agreement. The landlord will give notice to the tenant to rectify the breach; if the tenant does not comply with the notice, the landlord will terminate the agreement and request possession of the property. If the tenant does not accept the termination, the landlord will have to file a civil action for breach of contract and claim an order of eviction of the tenant and compensation for damage suffered because of the tenant’s breach.

There is no precedent for a lease be terminated by any third party in Cyprus.

It is common practice for quantity surveyors and/or civil engineers to be appointed to determine the cost of the construction. However, when a purchaser is buying a property with buildings already constructed, usually a valuator of immovable property is used to assess the value of the subject-matter of the purchase.

An owner that is assigning the construction of a project in the owner’s immovable property usually enters into contracts with the architect, who will produce the design of the project, with the civil engineer, the electrical engineer, the mechanical engineer and the topographer, who will do the various necessary studies, and with the contractor, who will carry out the building work. Usually, the contractors employ subcontractors for the different building jobs that need to take place, but it is not uncommon for the owner to enter into an agreement with one developer who will undertake all the tasks (design, studies, building, etc). In such cases, it is the developer who enters into agreements with third parties (architects, engineers, subcontractors, etc).

The contracts usually contain terms, indemnification clauses, warranties, limitation of liability, waivers, etc, to formulate the parties’ responsibilities. However, it is illegal for a contractor, architect or engineer, etc, to undertake projects that do not correspond with planning regulations and the law.

If time is of the essence in the agreement, it must be clearly stated in the contract. Penalty clauses do not offer additional security. If there is a delay in performance by the contractor, the owner must prove his or her damage before being entitled to compensation. The damage cannot be pre-estimated in the contract; any such pre-estimation can only serve as a ceiling for the amount to be awarded as damages.

In many cases, owners seek additional forms of security to guarantee a contractor’s performance on a project – eg, letters of credit, guarantees, escrow accounts, etc. However, it is common practice to secure the contractor’s performance by relating the various instalments of the price to the progression of the construction.

Generally, a lien is a creditor’s right to retain possession of his or her debtor’s personal property until the debt is paid. It confers no power of sale. Liens can arise from statute (the Contract Law) or from a contract (including the articles of association of a company). A lien is founded on possession - that is, the creditor must obtain possession by lawful means, not for a purpose that is not consistent with a lien. Assets subject to a lien cannot be seized by third parties claiming against their owner, nor can the owner’s successors in title obtain possession without paying the debt. The lien thus provides the debtor, and in the event of insolvency or bankruptcy, the debtor’s receiver, liquidator or trustee in bankruptcy, with an incentive to pay the debt in full. This incentive is enhanced where the property is worth significantly more than the debt in question. The unpaid seller’s lien arises under the Sale of Goods Law, Law 10(I)/1994 (SGL). Even if the property (title/ownership) has passed to the buyer, and even if the seller is in possession as the buyer’s agent, the seller may retain possession of goods until the seller is paid the price of the goods, provided that the seller has not sold on credit, or, if that is the case, either the period of credit granted has expired, or the buyer has become insolvent.

Upon completion of the construction, the supervising architect or engineer submits a confirmation of completion of works at the District offices of the District where the property is located, and requests the certificate of final approval. The various relevant Governmental and local Authority departments carry out the necessary checks and, provided the permits have been complied with, the certificate of final approval is issued.

Value-added tax is charged when the immovable property – which includes the land and the building – is sold before its first habitation. Non-developed land was not subject to VAT until recently (the end of 2017). Following the VAT (Amending Law) of 2017, VAT is charged on non-developed land that is intended to be developed with one building or more, and for which the sale transaction is considered to be a financial activity. The seller pays the VAT to the Authorities, and charges it to the purchaser. The VAT rate is 19%. However, under certain conditions, if the purchaser intends to use the property as his or her main permanent residence in Cyprus, the rate can be reduced to 5% after an application from the purchaser.

The tax treatment of cross-border mergers and acquisitions (M&A) has remained mainly unchanged since 2009; however, anti-avoidance provisions were introduced into the M&A provisions in 2015 that aim to combat abusive use of restructurings as a means to avoid the payment of tax.

Municipal taxes or council taxes (depending on the location of the property) are charged on the occupation of business premises on an annual basis. The amount differs in accordance with the type and size of the business.

Physical persons who receive rent must declare it as income and, depending on the total amount of each physical person’s income, they may be charged with income tax. The rate of the tax depends on the size of the income. Legal persons that receive rent must declare it in their books. Companies pay corporation taxes. Rental income from listed buildings is exempted.

Residents of Cyprus are taxed on worldwide income. Certain income, such as bank interest and dividends, is taxable in the form of "defence contributions". Rental income is subject to both income tax and defence contributions.

The first EUR19,500 of income is tax-free. Tax rates then start at 20% and rise progressively to 35% for income over EUR60,000.

Christos Georgiades & Associates LLC

Office 102, 1st Floor
52 Griva Digeni
8047 Paphos, Cyprus

+357 26 443111

+357 26 443112

info@georgiades-law.com www.georgiades-law.com
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Christos Georgiades & Associates LLC offers expertise across a broad range of disciplines and industries, with a particular focus on commercial and investment matters. The lawyers specialise in international business transactions, commercial litigation, international arbitration and ADR, construction and engineering, property, investment and estates, intellectual property, immigration, and corporate and insolvency matters. The firm’s Cypriot and international clients include some of the leading businesses and professionals in their respective fields. Importantly for international clients, the firm enjoys close links and associations with reputable law firms in a plethora of jurisdictions, as well as with accounting, audit and fiduciary providers of excellent standing.

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