London November 2010
Healys' international law partner Chris Christofi discusses Cyprus property law.
International law – Cyprus property problems
The provisions of The Unfair Commercial Practices Directive 29/2005/EC, which was introduced into Cyprus law as Law 103(I)/2007 on December 12, 2007 has recently come under scrutiny.
Is this a remedy for buyers who have unwittingly purchased property subject to developer mortgages?
On the face of it this law states that it is a violation for a business to omit or hide material facts from buyers, which if had been made known, would have influenced the buyer's purchasing decision. Some would say that it is confirmation that it makes it illegal for developers to market a property and complete a sale where that property is subject to mortgage.
The intention of the Directive is to protect consumers from sharp or unfair practice.
In the case of Cyprus, The Commerce Ministry's Competition and Consumer Protection Service ("CCPS") is the correct body which is empowered by this legislation it seems. It is similar to the Department for Business Enterprise and Regulatory Reform (formerly DTI ) or Office of Fair Trading in the United Kingdom
The Directive allows the CCPS power to impose an administrative fine of up to 5 per cent of the turnover of the person or company responsible for being in breach; a fine of up to CY£150,000 (€256,290). In certain rare cases imprisonment is a possibility. The fine has to be fair and proportionate it appears.
Once a claim has been lodged with the CCPS, they are obliged to investigate. However this does not necessarily translate into a remedy for an individual
It is possible that some persons may seek to apply to court in Cyprus to have a contract declared void (i.e that in effect the contract has been made illegal by the UCPD legislation) – however no one has tested this. It will be interesting to see whether the courts of the Republic rise to this.
As the purpose of this legislation is that it is there to empower the local authority (CCPS), it is arguable that it cannot lead to a direct remedy for an individual if it were likely to be investigated by OFT or BERR in the UK. However a Cypriot court may decide to have regard to this in making any decision, as is common for instance, in the UK courts where current legislation is often quoted as part of the reasoning for any judgment.
A developer of a bank faced with such a challenge at local level might seek to apply to have such a case stuck out by the local court - the effect of the regulations is not to avoid the contract or make the contract voidable, after all, he would argue; and the remedy is one which is reserved for the CCPS
But it would still be open for a sitting judge to make a reasoned decision based on the intention behind the legislation.
In fact the Directive positively encourages the member state to go beyond its legislation to create further protection.
The notion, therefore, that this is a remedy for unwitting homebuyers is therefore possibly a long way off the mark, unless the courts of Cyprus can be encouraged to apply this to individual cases as a matter of policy. That remains to be seen and may be a long way off. Certainly it would be an opportunity for the Republic of Cyprus to put right the issue of properties without title deeds, a matter which it may feel it has unwittingly been embroiled in through no making of its own.
Developers and Banks may also cite the fact that many buyers receive “independent” legal advice on their purchase. Developers and Banks may argue the point of buyers having taken independent legal advice prior to entering into their contracts – particularly where a buyer may be fixed with constructive knowledge where a solicitor attorney may have known about pre existing loans. Moreover, the effect of a developers liquidation may defeat any remedy sought unless the Courts of the Republic are willing to make sure that the effect of this legislation is extended to the Banks.
Interestingly, aside from the developers, there may yet be an argument raised that the “unfair practice” extends from the packaging agents who operate to sell these properties in the UK, through to the Cyprus attorneys who -wittingly or unwittingly- have succumbed to the practice of allowing their clients to purchase properties which are still encumbered by developer loans, and in deed the lenders themselves who have allowed sales to take place in such circumstances.
It seems to me that the question of whether this is a remedy for homebuyers will lay in the hands of the Cyprus courts. Inevitably any decision they make is likely to go all the way to Europe, and Cyprus will be in the uncomfortable position of having to decide whether to lay down the law – or risk Europe doing this for it.
Healys' international law solicitors in London and Brighton
To advise on international legal matters, we have strategic relationships with lawyers, accountants, tax advisers, fiduciaries, commercial and residential real estate agents, relocation agents and recruitment specialists in the UK, Europe and around the world.
International law solicitor Chris Christofi can be contacted in Healy's London office by calling 0207 822 4114, alternatively you can send an email to Chris.Christofi@healys.com
