The encumbrance created by lodging a contract of sale at the land registry is valid until its cancellation

The registration of a sale contract at the land registry creates an encumbrance upon the immovable property, in favour of the buyer. The right created by the encumbrance follows the chronological order of priority and it is valid until its cancellation or withdrawal from the land registry. Such deposition secures the right of the purchaser for the issuance of a separate title deed for the property purchased in case there is no separate title deed and the right to claim specific performance of the contract of sale seeking registration of the property in their name.

The encumbrance created by such registration, prior to the issuance of an order for specific performance of the contract of sale or the payment of compensation in accordance with the provisions of the Sale of Land (Specific Performance) Law, L.81(1)/2011, secures the amount paid by the buyer for the sale price or the consideration of the buy-back agreement. Withdrawal of the contract of sale may be made by the buyer as the beneficiary of the property or by an order of the court.

A question arises, when a company has purchased a property and filed the sale contract, which has been struck off by the registrar of companies. Article 328 of the Companies Law, Cap.113, states that when a company is dissolved, all property and rights which were accrued or held in trust for the company immediately before its dissolution, shall be deemed to be unencumbered and belong to the Republic as applicable to the property of a person who passes away without heirs.

This interesting point was examined and analysed in the decision issued by Judge Mrs Chr. Mitletton, dated February 2, in the context of a seller’s application for an order directing the land registry to cancel the encumbrance created by the filing of a sale contract regarding an apartment. Despite the absence of an objection by the land registry, the court sought clarification from the seller as to the legal basis on which such an order could be made, the appropriateness of the remedy sought and the reason why the seller did not prefer to reinstate the company. The sale contract was in force and had not been terminated or cancelled.

The court emphasised that a company may be dissolved after liquidation or deregistration by the registrar of companies. The property of a company which has been dissolved shall automatically be vested in the Republic as bona vacantia (unless the Republic prevents this legal consequence by disclaiming it, by notice of disclaimer) and shall belong thereto, mutatis mutandis to the property of a natural person who dies without heirs or in other similar cases. This is a property without an owner and the logic of these arrangements, is that the property must always belong somewhere. It does not exclude property, or any interest in immovable property held by the company, or another person for the benefit of the company (on trust) at the time immediately before the company is dissolved.

Furthermore, the court stated that the Republic by reason of the dissolution of the company, is not merely beneficial of the encumbrance, but also of the contractual rights in respect of the property. Consequently, the Republic has the capability as the purchasing company to withdraw the sale contract. The Republic may submit a request through the treasurer of the Republic and therefore, the court was not satisfied that it can issue the orders sought or any of them in the application of the vendor.

The court concluded that where the withdrawal of the registration of a contract of sale is not voluntarily made, the court’s intervention to delete the registration necessarily implies a determination of rights between the parties or their successors in title on the merits. Since it was held that there was a possibility of disposing with the irregularity which was considered curable, the court issued an order that the seller could proceed with the option of amending the application to become a writ of summons with the addition of the Republic as defendant. Thereafter, the writ of summons could be served to the attorney-general and the treasurer of the Republic.

George Coucounis is a lawyer practicing in Larnaca and founder of George Coucounis LLC, Advocates & Legal Consultants, [email protected]