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Tips Guide On Developers Contracts

Information for Cyprus Expats on dealing with Cyprus Developers Contracts

This document is produced to guide you and to provide pointers for questions that you should ask the developer and points to look out for in your contract.

REMEMBER : A Contract is a LEGALLY BINDING DOCUMENT and should not be entered into lightly or without careful thought of the consequences of signing. Failure by you to adhere to the conditions in the contract could result in legal action being taken against you by the developers for non-performance of the contract. You should take legal advice before signing ANY document. 
 

GENERAL POINTS FOR CONSIDERATION FOR ALL CONTRACTS

1. Planning Permission and Building Permits.

As in England before building can take place Planning Permission from the relevant authorities needs to be obtained. If not, then the construction of your property will be illegal and could be demolished. Although you might have a claim for negligence against your builder, do you really want to have all that trouble – and expense !

However, in Cyprus it is often the case, because of the vast amount of building that is taking place here at the moment, that Planning Permission is only granted after building work has commenced (or even after the building is finished!) due to the overwhelming amount of work the local planning officers have. It is therefore essential that in your contract you have a clause that indicates that the granting of ALL necessary planning permissions and Building regulation approvals is a Condition Precedent to your contract and that if permission should be refused or if any restrictions should be placed on the planning permission granted that will materially alter the size or style of property that you have been promised by the builder, (for example you may be expecting a house of 300m2, but permission is only given for a house of 200m2), then any money handed over by you to the developer will be refunded in full together with interest at 3% over the Bank of Cyprus Base Rate.

2. Ownership of the Land.

Perhaps even more fundamental than ensuring that the builder / developer has or will obtain planning permission for the construction of your property, is ensuring that he actually owns the land that your property is to be constructed upon ! (NEVER EVER EVER EVER BUY IN THE NORTH OF CYPRUS, NO MATTER HOW CHEAP OR ATTRACTIVE THE PROPERTY OR LOCATION SEEMS. The recent “Orams” case illustrates this.)

This should be an easy fact to establish as, unlike in England and Wales, all land in Cyprus is registered at the Land Registries. YOU MUST ENSURE THAT HE OWNS WHAT HE IS SELLING YOU, and that it is not owned by his cousin’s brother’s uncle’s wife! You should ask for evidence that this is so (that the seller owns the land) and include a specific clause in the contract to that effect.

3. Mortgage on the land?

Has the seller of the land got a mortgage on the land? IT IS THEREFORE ESSENTIAL that you find out whether the seller of the land has a mortgage on the land already and if he has obtain specific confirmation by way of a clause in the contract that the mortgage will be discharged by the seller on or before the completion of your property and the hand over to you of the keys, otherwise you could be responsible for his mortgage!

That is the situation before you sign the contract. However, there is nothing stopping the seller obtaining a mortgage on the land after you have signed the contract. To prevent this, all contracts MUST be deposited with the Land Registry within 2 months of them being signed and stamped one month from deposit. Once it has been deposited, the seller cannot then mortgage the land, at least not without your written consent, or deal with the land in any way. If you do not have a Cypriot lawyer acting for you, you will need to deposit the Contract yourself, or appoint an agent to handle this for you, and an agent who you can trust to do it!

4. Build Percentage

All land in Cyprus carries a build percentage and this percentage is lower the further out into the countryside you go. In the middle of a city, the percentage could be as high as 90%; in the countryside as low as 10% - 20%. That means that if you have a plot of land that is in size 1000m2 and the build percentage is 20%, the maximum size your property would be 200m2. Before you sign the contract, check with the developer the permitted development percentage – there is no point in the developer showing you magnificent houses that he has built for other people if he is not allowed to build that size on your chose piece of land! Again, a clause in the contract should be inserted confirming the permitted build size and the size of your property.

5. Other Developments

Any reputable developer or builder will be more than happy to show you other properties that he has constructed. If he offers you this, then most certainly take him up on his offer, and if possible ensure that the owners of the properties are present when you call so that you can talk to them and find out what his after sales service is like, how quickly he comes to fix snagging matters etc. If he does not offer to show you other properties, then ask to see them. If he refuses or seems reluctant, THEN THINK VERY VERY CAREFULLY about proceeding. Why would he not want to show you his other developments?

6. Project Management

The construction of new properties in England and Wales are guaranteed either under the N.H.B.C. (National House Building Council); Zurich Insurance or an Architects Certificate. Surveyors from one of this companies (depending upon whom the developer is registered) will inspect the property at regular intervals and at specific stages of development and will issue a certificate at each stage saying that the work to date is satisfactory and the developer may proceed. At the end of the construction when the property is finished a final certificate is issued and the property is guaranteed for 10 years.

In Cyprus there are no such schemes and there is no independent supervision of the construction process. If you have agreed to purchase a property in Cyprus and you live thousands of miles away, what assurances can you have that the property is being built correctly? For example, the writer has seen many instances of soil pipes from upstairs bathrooms running directly into living accommodation downstairs, rather than being piped on the outside of the property! So unless you want to hear all the activities of those in the bathroom when you are watching Eastenders or Coronation Street, you would want this to be moved. Unless you are there to observe the construction on a daily basis, you may want to consider the appointment of a Project Manager to supervise the construction of your property.  This will not be inexpensive, typically a project manager will charge on the basis of the price that you are paying for your property, usually about 3% or thereabouts, but if you weigh that up against the cost of (a) having to live with unsightly pipes or other structures etc in your dream home and (b) the cost of flights, accommodation etc if you were to fly over to Cyprus every few weeks (and are you qualified to know what to look for anyway..?) it is a price worth paying.

7. Surveys

These are very rare in Cyprus as most properties bought are new properties and the second hand, or re-sale, market in Cyprus is not as strong or as busy as in England. If however, you are purchasing a second hand property you may want to get it surveyed, for the reasons as explained above; i.e. no one is likely to have supervised the original construction of the property in the first place! How do you know that it has been built correctly or indeed safely? For example, Cyprus does not have earthquakes that often, but they do occur from time to time. All properties should be built with earthquake measures but has yours? If you decide to have a survey undertaken, the report should at least:

• Confirm whether or not the value of the property equates with the price agreed to be paid for it;
• Point out any structural defects which exist (including outside structures such as swimming pools and out buildings.
• Confirm whether or not the boundaries on the ground correspond with those shown in the title deeds.
• Confirm what the land was used for before your property was built upon it – did it used to be the local village dump or even the old cemetery!
• Ensure that the property was built with Earthquake measures in place.

8. Investigation of Title.

As well as ensuring that the seller actually owns the land he is selling to you (and ALL of the land) you should find out whether:

• The land is subject to any incumbrances, e.g. does anyone have any rights of way over the land that you are purchasing.
• Any consents from any third parties are required – for example, is access obtained directly from your property to a main road or does it have to pass over any other land to get to that road? If so, has written and legal permission been obtained from that person for such access, and is the right of way at all times and for all purposes with or without vehicles? Who will be responsible in the future for the maintenance and repair of such access; will there be insurance taken out in case of personal injury on the road etc.
• Is the name of the developer the same as the name as the owner of the land? If not, why not?

9. General Matters for Consideration.

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  1. Most contracts in Cyprus have provision for stage payments by the buyer to the seller. When you agree to purchase a property a reservation deposit of about 2% of the contract price is paid. NOTE THAT THIS IS NORMALLY NON-REFUNDABLE IF YOU CHANGE YOUR MIND. When you then sign the contract, a deposit of 30% (Thirty percent) of the contract price is paid to the builder (in England the maximum you have to pay is 10%).The frequency and number of the stage payments are a matter of negotiation between you and the builder. Make sure that you are happy with how these payments have been structured in the contract and that you will have sufficient funds to meet them as and when they fall due. Get written and signed receipts for all payments made.

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  1. All prices are quoted in Euros and not Pound Sterling. Make sure that you take this into account as the Euro has strengthened over the last few years as against Sterling and therefore you get less for your money. It is worth considering opening a Bank account in Cyprus, both Sterling Account and Euro account as the exchange rates offered by the Banks in Cyprus are usually better than that offered by Banks in the U.K.

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  1. Remember also when you send money from the U.K. to Cyprus, commission is usually charged by the Bank in England and the receiving Bank in Cyprus. Make sure that you take this into account when remitting funds to Cyprus.

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  1. Unless you are purchasing a second hand property, it is likely that the construction of your property will take up to 18 months from when it is still a field to when you collect the keys. Make sure in the contract that there is a penalty clause on the builder if he does not deliver the property within, say, 18 months from when you sign the contract. If this is not in the contract, you will have no control over the builder and if he takes 5 years to build the property, there will be very little that you can do about it! Such penalty clause takes the form normally of a financial penalty for each week / month the builder takes in excess of the agreed completion date.

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  1. The contract MUST also include a retention by you (normally about 5 – 10 percent) of the purchase price for 12 months, if you can agree it, but certainly not less than 6 months, against any problems with the property that become apparent after completion. There will of course be settlement of the property for up to 3 years after it has been built and most decent builders and developers will come and rectify minor cracks and problems after such time. 

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  1. Make sure that the builder contracts with you to provide the usual services – mains electricity, mains telephone, mains water and if applicable mains sewerage, although many properties have their own private sewerage system. As regards the sewerage system, make sure that you know which you will have and if a private sewer whether it is of the soak away variety (which should therefore rarely if ever need emptying) or a septic tank (which stores the waste and requires emptying by a specialist contractor once a year or so).

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  1. The contract should have a specification list attached to it as to what the builder is providing for the price. It should indicate, inter alia, how much he has allowed for tiles, for bathrooms, for sanitary ware etc. If you wish to upgrade, to, say, gold taps in the bathroom, then you will have to negotiate this with the builder and pay him the difference between what he would allow you and the cost of the extras. You may also want to have extras included in the property like marble staircase, air-conditioning installed, shutters for the windows. Although not strictly necessary in the contract now, the builder may be able to provide these as a package deal now at a discounted rate; depending upon your negotiating skills, you may be able to get some of these included at no cost to you, depending upon how anxious the builder is to secure your signature on a contract ! If so, make sure that this IS reflected in the contract.

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  1. Also attached to the contract should be:
     1. an architects scaled plan to the property showing not only the size and location of each rooms, but the location of electrical sockets, telephone points, computer and T.V. points; the route of the services and conduits in the property;
     2. an architects scaled site plan (about 1:1250) of the property (especially necessary if on a complex);
     3. copy of the builders title deeds (this will be in Greek Cypriot and you are entitled to ask for a translation if you wish)

All plans should be drawn showing the compass point north. More than likely you are coming to Cyprus for at least some sunshine. You want to ensure that the garden and pool area will be where you want it to be in relation to the sun (normally south facing). All plans MUST be signed by you and the builder.

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  1. Normally, you will be allowed to choose the type and style of tiles, bathroom, fixtures and fittings etc. yourself, although the builder may have a selection to show you himself (he will have negotiated discount from his suppliers!) Be prepared to have to come to Cyprus at least once before the house is finished and spend a week at least choosing such items – even down to the colour of the grouting in the downstairs cloakroom (you would not believe how many different types of coloured grouting there are in the world!)

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  1. If the builder has agreed to include fixtures and fittings in the contract (for example as an incentive (see also (vii) above) he may agree to provide a carport or a cooker, hob and fridge freezer in the price) make sure that these are written into the contract as extras part of the purchase price. If he has agreed external extras, like a carport, also make sure that he has planning permission for this. [As an aside, DO NOT export from England a fridge/freezer – the ones in U.K. are not designed to work in the heat of Cyprus and will quickly break. ALWAYS buy one out here].

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  1. If you are purchasing a property on a complex, it is likely that there will be an annual service charge imposed. You need to find out exactly how much this will be and what you are getting for your money – what is included and more importantly what is not included. If this property is going to be a holiday home for you and your family, rather than a home you are going to live in year round, you do not want to spend your well earned holiday sorting out problems and clearing up messes!

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  1. Again, if on a complex what facilities will be available for you and your guests if you intend to rent out the property (check that there is nothing in the contract or deeds which forbids this). Make sure that they are available all year round as many people like to come to Cyprus in the dull dreary English winter! If the pool is closed and other facilities are not available, it will not make for a happy time.

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  1. If you are buying on a complex, make sure that all the units and the common areas are insured. If not, and problems occur, it could be that you have to stump up the costs of repair yourself. Ask to see a copy (in English) of the insurance for the whole complex.

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  1. Make enquires at the local council office as to what other development plans there are for the area where your property is situated. You would not be very happy if the property was sold to you on the basis that it has unobstructed sea views only for you to return 12 months later to find that those sea views have been replaced by a Club 18 – 30 Holiday Complex!

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  1. Make sure that the contract makes no restrictions on you, your surveyor or any other person having the opportunity to visit and inspect the property during the course of construction, especially important if you have appointed a Project Manager to act on you behalf.
  2. Insert a clause into the contract which states that within so many number of days post-completion the builder will remove all his rubbish from the site, that he will leave the property in a clean and tidy condition and if appropriate have carried out all landscaping of gardens and surrounding areas.

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  1. Does the builder intend to impose any conditions (known as Restrictive Covenants) upon the use and enjoyment by you of your property? If so, what are they and are they acceptable to you?

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  1. Whether you are buying a new property, a second hand property or a property on a complex, visit the site at night as well as during the day. In Cyprus, most people only come to life after the sun goes down and you do not (unless this is for you) want to find that the total teenage population of Cyprus hangs around at night outside your property, admiring each others cars, bikes and girlfriends (and boyfriends) and the road by your property turns into an unofficial race track!

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  1. Also, leave your car at the property and walk. How long does it take you to get to the local shops, supermarket, bakery etc? Although you may never do it, your car many not be available one day and you will have to rely upon your legs to get from A to B. Not much fun if it takes to 30 minutes to get to a local shop in the midday heat of August! [As an aside, if you can avoid it, DO NOT bring your car to Cyprus. The hassle to getting it through customs at Nicosia is not worth it, unless you happen to own a Ferrari or Rolls Royce! Cars here in Cyprus are cheap and plentiful].

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  1. Is there a local bus available? How frequently does it run? Could a taxi driver find you if you gave him your address?

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  1. If you do not have someone here representing your interests (Paragraph 6) it is best for you to be present on the day of completion in Cyprus when you hand over the balance of monies. This is because if there are snagging items present, it is best to agree them BEFORE you pay the balance. If there are such items, write them down and get them signed by both you and the builder and agree a timescale for rectification.
  2. Once you have collected the keys from the builder / site office, change the locks. You do not know who, during the course of construction, the builder has given keys to.

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  1. However unlikely it may be, you may decide that between the signing of the contract and completion you do not want to own a property in Cyprus, or your personal circumstances may change so that it is no longer possible. Make sure in the contract that there are no clauses which forbid the assignment of the contract to a third party.

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  1. Be aware that in addition to the purchase price you will have to pay transfer taxes and stamp duty which are based upon the price of the property.

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  1. You will eventually get the title deeds to your property but be aware that unlike in England and Wales where it takes only a few weeks to deal with the registration process and provide fresh title deeds, in Cyprus it can take up to 4 years! This harks back to the point made in paragraph 3 above as once the contracts have been deposited with the Land Registry, no-one can deal with your land without your permission.

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  1. In addition, you will also eventually get a completion certificate from the local authority confirming that the property has been built in accordance with the plans submitted to them by the builder.

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  1. The Builder will have in place insurance to cover problems with the property during construction (ask to see a copy if you wish but unless to read Greek you are unlikely to understand it and he will not provide you with a translation anyway! In any event, during construction any problems are his not yours) but be aware that from the moment keys are handed over to you, you need to have adequate Buildings and Contents insurance in place.

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  1. If the builder is not a company but an individual you will need to consider what would happen to the construction of the property if something were to happen to the builder – if he was to die before the property was finished. Who would be available to complete the property? This is clearly a delicate matter to raise and hopefully will not happen to you, but if it did……………….

  © Mark Tilden B.A. ( HONS )  P.G.C.E. ( CANTAB )

Email mark11cyprus@hotmail.com   Mobile 00357 96 549 826

This information is meant for guidance purposes only.

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