Where there is inequality in the value of shares, the obligation to compensate is a legal imperative

The issue of how a co-owner can release their share in a jointly owned property often arises. A separate title deed adds significant value, in contrast to a co-ownership deed that remains fragmented among two or more people. For this reason, division and distribution should take place, so that each owner obtains their own title.

In Cyprus, it is particularly common for family members to co-own land, on which they build houses or other buildings without arranging the necessary division. Over time, this inaction leads to disputes, with owners trapped and unable to utilise their units or proceed with joint development.

When physical division is not possible, the remaining solution is the sale of the property and the distribution of the proceeds. In any case, legislation provides an institutionalised way out through the Land Registry, via the process of compulsory partition and distribution.

Legislative framework

The distribution of property among co-owners is based on three main pillars: Article 27 of the Immovable Property Law, Cap. 224, which prohibits distribution if any undivided part remains, thus ensuring completeness, Article 29, which regulates the procedures, paragraph (8) which grants the director of the Land Registry discretion to decide on a distribution when conditions are met, and Article 65KG, which gives the director the power to act ex officio, for the modernisation of records or distribution.

The discretion granted to the director is not unlimited. It requires justification and reasoning so that the legality of the decision can be subject to judicial review.

Court decision

The recent decision of the Nicosia District Court in Application/Appeal 470/2017, dated July 16, examines precisely these issues, setting the boundaries of the director’s authority and their obligations.

The ruling is important, as it clarifies that the obligation to compensate, when there is inequality in the value of the shares, is not at the director’s discretion but a legal requirement.

The appellant and the respondent were co-owners of property with buildings erected on it. The director, taking into account building permits and technical reports, proceeded with distribution, concluding that the new plots were functional and lawful. The appellant challenged the decision, arguing that her own plans were disregarded and that the allocation created inequality.

The court held that the distribution itself was in line with the law. No undivided part remained, the plots were usable, and there was sufficient evidence to justify the decision. However, the court found a deficiency regarding equality, since one plot was larger by 14m², which affected its value.

In the absence of provision in the director’s decision for compensation, it was found that he had failed to restore practical equality, and the court awarded compensation in favour of the appellant.

The court accepted that the 14m² difference constituted a real material inequality and noted that equality in distribution is not confined to numerical percentages. Where physical division creates disparity in value, equality is restored through the payment of fair compensation, as required by Article 65KG.

It further stressed that the director’s omission to award compensation violated the essence of the legislative provision and rendered the distribution defective, since it deprives the co-owner of the full benefit of their share.

Legal significance

The decision contributes to shaping a clear framework for distribution procedures by strengthening the position of co-owners, who now know they can challenge a director’s decision if it does not ensure substantive equality, reminding the director that his decisions must be justified and achieve fair allocation and setting a practical precedent that, while a distribution may be legally correct, if not accompanied by compensation where necessary, it results in inequality that the court will remedy.

The court’s decision enriches Cypriot property law jurisprudence and reaffirms that the authority of the director of the Land Registry, though extensive, is not unchecked. Distribution must serve the essence of equality and, where this is not achieved, financial balancing is essential.

The decision is useful, as it prevents injustice, reinforces legal certainty, and promotes fair solutions to one of the most common realities in Cyprus, the complexity and disputes arising from co-ownership.