A recent judicial ruling declared unconstitutional the provisions contained in the articles 44IH – 44KB of the   Transfer and Mortgage of Real Estate Law of 1965 (9/1965). The abovementioned articles regulate the process of issuing title deeds to “Enclaved” buyers through elimination or discharge of previous encumbrances, such as a mortgage.

Cyprus law on Transfer and Mortgage of Immovable Property (No. 9/1965), as amended by Law with No.139(I)/2015 (the Law), allows for the compulsory transfer of immovable property in the name of the “Enclaved” buyers when the seller fails to do so. Articles 44IH – 44KB of the Law regulate this procedure by addressing the elimination or discharge of previous encumbrances, including  mortgages.

However, the Cypriot Court of Appeal, in its recent judgment Bank of Cyprus Public Company ltd v. The Director of the Department of Lands and Surveys in Paphos and others, Civil Appeal No. 285/2018, 20/06/2024, found these provisions to be unconstitutional, citing conflicts with Articles 23 and 26 of the Constitution.

Background

The Bank of Cyprus (the Appellants) provided loans to a developer (the Defendant 2), who pledged two mortgages as security. The case also involved an “Enclaved” buyer (the Defendant 3) who purchased an apartment from Defendant 2 which would be built on two properties that were secured by the abovementioned mortgages. The contract of sale between Defendant 2 and Defendant 3 was deposited on 05/02/2004 within the Land Registry Office for specific performance.

Later, on 27/09/2016, Defendant 3 initiated proceedings under the Law to transfer the apartment into his name with the application AEA 1744/16. Defendant 3 exercised his right under the Law and filed an objection against the decision of the Director of the Department of Lands and Surveys (the Defendant 1), concerning the transfer of the property and the deletion of the existing mortgages (the Decision). After the objection was rejected, Defendant 2 filed an application before the District Court to annul the Decision and to declare the Articles 44ΙΗ – 44ΚΒ of the Law unconstitutional.

The Judgment of the District Court

The District Court ruled in favour of Defendant 1 and Defendant 3, rejecting the application without considering the alleged non-conformity of Articles 44ΙΗ – 44ΚΒ of the Law with constitutional provisions.

The Judgment of the Court of Appeal

Defendant 2 appealed the District Court’s decision, arguing, among other points, that the District Court erred in failing to assess the constitutional compliance with the Law’s provisions.

The Court of Appeals upheld Defendant 2’s arguments, overturning the appealed decision of the District Court.

Findings of the Court of Appeal

    • The examination of the constitutionality of Articles 44IH – 44KB was essential for the diagnosis of the case before the District Court.
    • That Articles 44ΙΗ – 44ΚΒ of the Law contradict Article 23 of the Constitution, which guarantees the right to property. Specifically, the Court highlighted the following points:
    1. Article 23 of the Constitution provides that the deprivation of property rights is justified under specific circumstances, namely after compulsory acquisition accompanied by fair and reasonable compensation.
    2. The discharge of the registered mortgage from the property, which benefited Defendant 2 and was registered before the deposition of the Contract of Sale, clearly results in the abolition of Defendant 2’s property rights.
  • The Court of Appeal found that Articles 44ΙΗ – 44ΚΒ of the Law contradict Article 26 of the Constitution, which guarantees the right to freely enter into contracts. Specifically, the Court stated the following:
  1. Allowing the Director of the Land Registry Office to eliminate or discharge a property purchased from an “Enclaved” buyer from any encumbrances without ensuring compliance with the terms of the mortgage as chosen by one for the contracting parties violates the rights protected under Article 26 of the Constitution.
  • The Court of Appeal found that Articles 44ΙΗ – 44ΚΒ of the Law are not conflicted under the circumstances of this case with the provisions of Articles 25 and 30 of the Constitution.

Conclusion

The Court’s analysis sheds light on the legislature’s attempt to protect both the rights of an “Enclaved” buyer and the rights of mortgage lenders. However, it was concluded that Articles 44ΙΗ – 44ΚΒ of the Law exceed the constitutional framework.

The judgement can be found here.

Authors: Chariklia Thedoulou, Evi Chalkidi

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