Deposit Agreements for Real Estate in Cyprus
Deposit Agreements for Real Estate acquisitions in Cyprus. Although the agreements for the sale and purchase of a real estate in Cyprus are a topic to be discussed in a separate post this article covers the preliminary stage.
The preliminary stage of a real estate acquisition can be described as the time which the buyer has identified the target real estate, the buyer is very keen on it and would like to carry out due diligence on the real estate before the deal is closed.
2020 Contracts for Sale of Cyprus Real Estate
2019 Copntract for Sale of Cyprus Real Estate
Why would you need to enter into a Deposit Agreement?
Most often than not potential buyers are coerced to sign a sale and purchase agreement with the seller from the misinformation thrown at them by the agents and other intermediaries.
But if you would like to secure the real estate and take it off the market it would be best to come to terms not to negotiate with any other party – rather than agreeing to buy the real estate in Cyprus.
YES you can agree with a third party that they will not negotiate with any other person a specific deal hence excluding the competition.
Avoid sale and purchase agreements until your due diligence is finalized and you are ready to acquire the said real estate
What is a deposit agreement?
A deposit agreement is an agreement whereby one party (Party A) agrees with the other party (Party B) that Party A will give Party B an amount of money and Party B will not sell the property to another until a pre-agreed:
- Time has been reached. For example 31st of January 2022; or
- A condition has been met. An example of this would be the receipt of a construction license; or
- A review of the asset particulars is completed. This might be a review of the ownership structure from the department of land and surveys, reviewing the construction license, evicting tenants, or anything else which the parties agree; or
- A combination of the above.
The above is significantly different from signing a sale and purchase agreement between Party A and Party B for the sale of a real estate in Cyprus which creates a binding obligation to complete at a latter time.
Arguments Supporting a Deposit Agreement
- The exclusivity period is secured and negotiations may go ahead without interruptions;
- No legal obligation to buy or sell the Cyprus real estate is created on either party;
- No obligation to cover the other parties costs;
- Clearly specify the fate of not completing a deal:
- Withholding of deposit;
- Partial return of the deposit;
- Full return of the deposit;
- In case of breach of the exclusivity period then the breaching party is liable to compensation;
- Eliminating the risk of entering into a deal which is too good to be true
- Amounts received might fall outside the definition of services for accounting and vat purposes however this is something to be discussed with the accounting and audit team (and the tax office)
Arguments Against a Deposit Agreement
- Buyers will not be able to force the seller to sell if they decide to not follow through with the sale. Because the sale and purchase agreement is not submitted to the Department of Land and Surveys;
Cyprus Court Cases regarding deposits
I will include in this article a few cases which relate to deposit in real estate and commercial transactions and how those cases ended up
ΑΡΙΣΤΕΙΔΗΣ ν. ΚΤΗΜΑΤΙΚΗ Μ.Λ. ΜΙΧΑΗΛΙΔΗ ΛΤΔ. (1996) 1 ΑΑΔ 1017
The payment of a deposit as part of a sale and purchase agreement was considered as valid and enforceable action by the parties and the agreement was enforced by the court. The seller could not back out of the agreement afterward. Full text of the case.
ΦΟΙΝΙΚΟΥ ΓΕΩΡΓΙΟΥ ΝΙΝΗΡΙΔΟΥ,v ΘΕΟΧΑΡΗ ΣΑΒΒΑ (1993) 1 ΑΑΔ 589
The parties agreed to the sale and purchase of an apartment in Nicosia. The amount of CYP 5.000 was deposited to the seller and thereafter monthly instalments of CYP480 until the issuance of the title deeds. The seller changed their mind and could not terminate the said agreement. Full text to the case.
ΝΙΚΟΣ ΟΔΥΣΣΕΩΣ,v ΧΑΡΙΤΟΥ ΧΑΡΙΤΟΥ, (2004) 1 ΑΑΔ 1061
The buyer requested a refund of a deposit given. The seller argued that they never agreed to a refund and that the completion of the sale and purchase would be subject to the completion of a due diligence exercise by the civil engineer.
The court of appeal decided that since the agreement was breached due to the fault of the buyer remedy should not be granted.
The courts in Cyprus have supported unwary buyers of real estate and enforced the sale and purchase however in my personal view this is not the only way. No one should agree to something they are not 100% sure about and carrying out proper due diligence and being able to secure the negotiation of a deal until that check is performed is of paramount importance for a healthy commercial ecosystem.
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For many years he has worked and devoted his skills and efforts towards building a successful career as a leading executive. From humble beginnings, his aim has always been to yield results; with a keen focus to attention to detail and client satisfaction. His experience has always been varied and not specific, at times he preferred it. With that in mind, he has dealt with CySEC on licensing and ongoing regulation, international private equity and credit fund managers, NASDAQ and NYSE listed companies occasional millionaires as well as self-made millionaires. His passion though is difficult transaction work organizing and deploying people for a common goal. Harris enjoys reading and studying the Cyprus law and sharing that information on this website.