The conundrum of law

North Cyprus, with its miles of unspoilt coastline and breathtaking backdrop of rugged mountains, has in the last few years attracted those looking to buy a cheap holiday home in the sun. But, this islands troubled history still casts long shadows and so it is a place where one needs to step carefully. With its complicated land issues and ever changing laws, the advice of a good independent lawyer is a must. We once more meet up with the lawyer Naomi Mehmet from Naomi Mehmet and Partners, to talk about the current situation and to find out what advice she can offer would-be property buyers.

By Camilla Kaas Stock

Since we last spoke to you in the spring of 2008, there has been a change of government and the ongoing talks are now entering a crucial phase, has this brought about any changes that people wanting to invest in property here should know about?

"There have been some improvements which makes the whole buying process safer. A new system for registering contracts of sale at the land-registry has come into force, while in the past this wasn't possible and that put buyers in a vulnerable position. This resulted in a few incidences where people signed the contract and handed over money, and then while waiting for their permission to purchase and transfer of title, some unscrupulous builders took out mortgages on the land. When the financial crises hit they couldn't pay the mortgages back and the banks are now trying to repossess the properties."

But what if there already is a mortgage on the land?

"We do a land-registry search to make sure everything is in order, but it is only valid at that exact minute, which means it is still possible for somebody to immediately go and put an encumbrance on it. So, to give our customers maximum protection under the new law, we first get the contract signed by both parties, then we take it to the land-registry to register it and at the same time we get them to do a search. We don't release any money before all this has been done."

So does this mean that you shouldn't under any circumstances buy a property if there is a mortgage on it?

"Not necessarily. If there is a mortgage on a big development of lets say 200 apartments, as long as there is a lot of value in the development and the mortgage isn't too big in relation to the remaining value of unsold units, this doesn't have to be a problem. Some developers will then offer a Mortgage Exclusion Letter, which will protect the buyer. This means that if the developer defaults on the mortgage, all the sold properties will be safe as the bank can only repossess the unsold properties."

Now, I have heard of people waiting 5 years to get their deeds, is that true?

"Yes, that's right. There is a delay in getting title-deeds, but the government has promised to get this down to three months. So far they haven't managed to achieve this, but you have to take into account that there is a huge backlog which they need to clear first. In some ways the financial crises might help them speed up the process, because there aren't so many properties being sold. But, as per today, you still have to wait at least two years."

What happens if, after taking possession of the property, you are refused permission to purchase?

"The advice of the government is that you should get permission to purchase before signing the contract and handing over any money. Of course in practice this doesn't work as you won't find a developer who is willing to wait over two years. So it is not possible to follow the advice of the government. In other words, if you buy a property in North Cyprus you have to accept that there is a small risk that you will be refused permission to buy."

But what happens then?

"A lot of people are under the misconception that the government then will come and take the property away. That is not the case. You still have your contractual rights to the property. This means you still have the right to live in it, rent it out or sell it. The only difficulty is that you need to find other means of taking title. In some cases you can appeal the decision, otherwise you might have to find a Turkish Cypriot to hold the property in trust for you. Many law-firms have got their own trust-company that provides this service for their clients. There is also a new piece of legislation where people now can apply to buy a 99 year lease, but so far this hasn't been very popular as most people prefer to have freehold ownership of their property."

We have been advising people to buy Pre-74 Turkish Title Deeds, but now we hear of people being refused permission to purchase. Is that right?

"Yes, lately there have been speculations that the government has some secret policy of rejecting permission for non-citizens to purchase on Pre-74 Title land. There is no official legislation or ruling that states any restrictions on this land and when we, or other colleagues, ask the government they say that every application is evaluated on its own merits. But, there is a trend in the application that are being refused and it seems that most, if not all Pre-74 Title Deeds, are being rejected. The only reason given is that it was rejected by the military. This is a very broad reason which doesn't explain anything. We know that some of the big developers here are trying to challenge the government on this, as of course it is having a big effect on them. They have invested heavily in Pre-74 Title, thinking that it would be a much safer and attractive title to sell. They have paid a premium for this land, but are now finding that the value is decreasing because of all these speculations. If this was an open policy we could advice clients accordingly, but to just refuse the applications by the back door like this, especially after they have given building permission, is very wrong and it doesn't make economic sense for the country. Especially now with the Orams case going through The British Court of Appeals and many buyers feeling that Pre-74 land is safer to buy."

So, what would your advice be?

"I am sure this issue will be sorted out in the future and the land can still be placed in a deed of trust. So, for people who are worried about possible claims from Greek Cypriots, this might still be the way to go."

What about TRNC Title land, with the possibility of future claims being made, do you think that is safe to buy?

"Well, my property is on TRNC land and I wouldn't advice anybody to do something I wouldn't do myself. But this is a political question, not a legal one and nobody knows what type of agreement, if any, the two sides will reach. With regards to the Orams case, we won't know until November which way that will go.
All we really have to go by is the United Nations Annan Plan, but it is uncertain how it will be changed as a result of the current negotiations. Personally I don't see how a system of exchange is going to work. I don't think Turkish Cypriots will want to live on their land in the south and vice versa. The whole Cyprus issue is very complicated and most people now believe that a reunion of the island is unlikely. I think it will have to be a two state system and the property issue will mainly come down to compensation. Whether that compensation will be paid by individuals or by the government, I don't know, but if it comes back on you then you would have a claim against the TRNC government for issuing that title in the first place. We will just have to wait and see what the future brings", says Naomi.

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