/

Pitfalls of sharing real estate

2404 views
6 mins read

For the local population, it has been normal and acceptable over decades, if not centuries, to own a stake or part of a freehold property mainly through inheritance; thus, the parents’ share is transferred in parcels or joint ownership (if not capable of being divided) to their children or relatives.

Registering real estate in part or shares is allowed only for Cypriots and E.U. nationals and not for other citizens.

So, you might enter into a contract to buy a share of real estate, but the transfer will not be allowed (if you are not from an E.U. member state) by the Land Registry Office unless a separate title deed is issued.

The alternative to real estate transferred in shares, as opposed to a “proper” whole share title, has increased over recent years, emanating from the lack of titles.

So, in a 10-unit project with no titles, some buyers are convinced by the developer to get the property transferred to them in, say, 1/10th share, with the co-owners agreeing on which unit is whose.

In such an event, the co-owners must sign what is known as a “distribution agreement”, which makes clear which share belongs to whom and such an agreement is submitted to the Land Registry Office.

Of course, it is better than nothing, and at least a shared ownership is better than a deposited contract

A share can be sold to others, passed on to children, and secured for a mortgage to get finance.

It is a way out for those stuck in this unhealthy and no-titles situation, but it entails problems that might outweigh the lack of titles (be it of a temporary nature).

  • Once you have agreed to have a share transfer and notwithstanding the obligation of the seller/developer to proceed with the title issue (whole share) stipulated as such in the contract, 99% of the time, it does not happen, with unwilling buyers, developers and sellers choosing to ignore it.
  • If you decide to sell your share, you must first offer it to the other shareholders under the same terms/price you find from a prospective buyer for your share (there are some ways to bypass this, but it is not a clear situation).
  • Since the ownership is in an undivided share, in the event of a mortgage foreclosure of another share for which you have nothing to do, you might find the “new” buyer having a claim against your property if there is no distribution of share agreement (it rarely happens).
  • Any buyer who wishes to carry out additions to his property must secure the signing of the application for a permit from all the other shareholders (imagine if they are deceased, their share is mortgaged, numerous beneficiaries). So, most co-owners carry out their extensions/alterations regardless, making the issue of the title deeds more difficult.
  • If one shareholder does something without approval, all the other shareholders cannot secure the final certificate of approval or title. So, it takes one of the “10” to mess up the whole procedure – be it that under the new laws, a partial certificate of approval and title issue can be secured, leaving behind the unit with the illegal works.
  • Of course, a shared value is worth less than the value of the whole title. Usually, the banks and valuers adopt a 10% reduction from the value with a full title. However, this is indicative since it could be much more depending on the circumstances and share percentage.
  • Nationals from non-E.U. states can buy land up to 4,000 sq.m. Hence, avoid buying a share in a property of, say, 6,000 sq.m. as half or part share thinking that you own less than 4,000 sq.m. Of course, it is not so, and at the end of the day, one must weigh the pros and cons.
  • If you are afraid that your developer or seller will go under, it will be better to have the shares transferred and undertake the responsibility and cost towards the title issue rather than insist on waiting.

It is not a healthy situation, but as I have said before, it is better to have a share rather than nothing registered in your name.

Antonis Loizou F.R.I.C.S. – Real Estate Valuer, Estate Agent & Property Consultant