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Navigating property ownership

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Evi Pilavaki takes a closer look at what is needed for the Council of Ministers to approve immovable property ownership for third-country nationals.

To determine whether a company falls under the definition of an alien-controlled company, issues must be looked into concerning the control of the company. Cyprus offers great opportunities for home ownership, but the process of aliens acquiring immovable property involves a meticulous journey through procedural requirements, including certain limitations. The Council of Ministers is entrusted with safeguarding national interests, and is the body that will eventually approve or reject an application for the transfer of immovable property to the name of a foreign purchaser.

Before delving further into the current legal framework, it is important to provide some insight into the right of a state to regulate property acquisition by third-country nationals.

A state’s right to impose conditions on the acquisition of immovable property by aliens is recognised by International Law, and is directly related to a country’s economic and foreign affairs policies. Uncontrolled ownership of immovable property by aliens might have adverse effects on competition, to the detriment of local businesses and could also cause an irregular rise in prices, both in terms of sales prices and associated development costs.

Regarding the latter, it could be argued that controlling the percentage of property ownership by aliens may adversely affect foreign investments and the principle of an open market. Most certainly, Limassol would make an interesting case study on this front. The legal framework regulating the acquisition of immovable property by third-country nationals is the Acquisition of Immovable Property (Aliens) Law, Cap 109. Article 4 grants the Council of Ministers authority to issue regulations, which come into effect once published in the official Gazette of the Republic. Reference will be made to Regulation No. 78/97, published in March 1997.

But first things first. Who is considered an ‘alien’? Alien means any person who is not a citizen of the Republic, and includes an alien-controlled company, a foreign company, and a trust in favour of an alien, but does not include:

  • i. an alien Cypriot
  • ii. an alien spouse of a citizen of the Republic, not being separated from their spouse
  • iii. a citizen of a member state that possesses European Union citizenship in accordance with the Treaty on the Functioning of the European Union, and citizen of a member state of the European Economic Area (EEA)
  • iv. a legal entity that has been incorporated in accordance with the legislation of a member state, and has its registered office, administration or main establishment in a member state of the European Economic Area (EEA)

To determine whether a company falls under the controlled company, issues must be looked into concerning the control of the company. If half or more than half of the directors are aliens, or if half or more than half of the voting rights are exercised by aliens, or half or more than half of the shares are owned by an alien, the company counts as alien-controlled.

Aside from definitions, Articles 3(1) and 3(1)(A) are the heart of the legislation. Article 3(1) solidifies that no acquisition of immovable property is allowed without prior approval of the Council of Ministers. Article 3(1) (A) makes a distinction of immense importance, as it provides that when the acquisition of the immovable property exceeds the area needed to erect a house or commercial property (for professional use), or if it exceeds area equal to approximately 2,674 sq.m., then approval will be subject to certain conditions, which are introduced by regulations.

This is where Regulation No. 78/97 comes into play, as it introduces some further restrictions. In accordance with said Regulation, permission for acquisition of immovable property can be granted only for:

  • i. Acquiring an apartment or a house that is already built or under construction. The area of the plot cannot exceed the total of approximately 4,011 sq.m., and is subject to the condition that no additional building will be constructed on said plot.
  • ii. Acquiring a plot of land which cannot exceed the total of approximately 4,011 sq.m. on condition that only one house or construction will be built, within reasonable time from the date that a permit is obtained (either by planning authority or any other relevant body), and that will only be used as the alien’s own residence.
  • iii. Acquiring land for the purpose of erecting commercial offices or property or purchase of already-built property or commercial property that is under construction. The above stated restrictions make it difficult for aliens to purchase agricultural land, i.e land classified as Γ3, because for such categories the issue of a planning permit is prohibited, except for some exceptions. This category will then need to be examined in conjunction with planning regulations, and the local plan issued for specific areas.

It is suspected that especially point (ii) above will create issues for United Kingdom nationals, who might have bought land located in agricultural zones, and who successfully transferred it onto their names, while the UK was still in the European Union. From the date Brexit came fully into effect, UK citizens have been treated as aliens for the purposes of immovable property acquisition.

Thus, the question that arises here is what will happen with UK citizens who might wish to transfer such agricultural land to their children by way of gift. As per current legislation, unless a permit for erecting a house, in which the child will need to reside, is issued, then no such acquisition is allowed. Notwithstanding the aforementioned, if the transfer is a necessity as part of inheritance due to the owner’s death, and subject to any other provisions or restrictions that may apply there, matters are simpler and transfer is permitted.

It is imperative, therefore, for any person considered an alien, as per the above definition, to seek legal advice first on the implications of the legislation discussed in this article, before entering into a sale agreement for the purchase of an immovable property.

The legislation makes specific reference to the fact that existence of a sale agreement does not automatically allow transfer of ownership, and that prior approval by the Council of Ministers is required. As with any regulatory process, opinions vary on the Council of Ministers’ approval procedure for third-country nationals acquiring property in Cyprus. Some laud the stringent measures, emphasising the need to protect Cyprus’ economy and society from potential adverse effects. Others argue for a more streamlined process, advocating for a balance that attracts foreign investments without compromising national interests.

The Council of Ministers, acting as the guardian body of the Republic’s interests, thereby navigates a somewhat challenging path, in order to strike a balance between attracting foreign investments and preserving local identity. Opinions swirl around the existing legal framework, and whether it is partly outdated in terms of addressing ownership issues in a fast-changing global landscape.

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