Feb 09 2024.views 122
Property is appreciated or valued the most when the entire process of buying or selling goes smoothly without any hassle. However, the most common of all issues is the legal hurdle pertaining to the property which can seriously hinder a smooth transaction. We interviewed Dhammika Welagedara Attorney- At- Law engaged in Civil and Appellate Practice to discuss some of these issues.
WHAT ARE THE FACTORS THAT MUST BE TAKEN INTO ACCOUNT WHEN BUYING AND SELLING PROPERTY? It is a buyer who takes a bigger risk than a seller. So long as the seller makes sure he gets the correct sale consideration (the amount he gets as money for the land/ house) he has nothing more to worry about. However, before agreeing on the price a seller has to make sure that it is not below the market price, by making inquiries and checking the prices of similar properties in the same area. However, a buyer of a property needs to check all possible aspects with regard to a property before he goes through the purchase. There is a Latin phrase in law called ‘Caveat emptor’ which means ‘buyer beware’.
It is the buyer who runs the risk of suffering financially if he doesn’t take all the precautions before going through a purchase. The services of an experienced notary have to be obtained to do a search in the land registry etc in order to satisfy yourself as to the title of the seller to the land. One must make sure that there are no encumbrances on the land (such as mortgages etc) and also the seller has clear title to the same. There can be more than one owner to a particular land (i.e. when it is co-owned) in such instances the purchaser must ensure that all such coowners transfer title to you.
The property proposed to be purchased can be subject to a servitude – such as right of way etc. A neighbour may have right of way over the land or a right to use a well situated within the land/ right to draw water. If the land in question is subject to such servitude the value of the land goes down as the utilisation of the whole land for purposes of putting up a building etc becomes restricted by the operation of such servitudes over it. These facts should be found out prior to committing oneself to purchasing such a property. In addition to the aspect of the title, one needs to check with the local authority as to whether all previous rates have been paid (the Local Authority will issue a ‘Certificate of Non-Vesting’ if there are no arrears in rates due to it in respect of the land or premises in question).
A local authority is entitled to take over any premises if rates are due to it. Also, it is advisable to obtain a street line certificate/ building line certificate from the local authority in order to determine how much of the land is buildable/usable. The buyer can request the owner (seller) to obtain the same from the relevant local authority. One can go further by checking with other government entities as to whether the property has been earmarked for future development activities (such as proposed roadways) and also whether there is a possibility of the property being acquired by the government for any purpose including any development project.
Q WHAT ABOUT WHEN RENTING A PROPERTY? When renting a property, which does not involve acquiring title, but is a short-term contract (for a couple of months or even a few years) one need not go to such lengths, as in the case of purchasing a property. A person satisfying oneself as to the right of the landlord to let out a property is sufficient. Even if a subsequent issue arises as to such landlord’s rights, the person renting a property will not be affected as much as in the case of a person who purchases a property from a seller who does not have rights to it. In any event, a person renting a property is entitled to terminate the tenancy and vacate the property early if such a person is affected by such an issue. Also, if one plans to make improvements to a leased property, a provision should be made in the lease agreement for the lessor to reimburse the cost of such improvements, in the event of early termination due to such an issue.
Q HOW DO YOU KEEP YOUR PROPERTY SAFE? If one owns a property in Sri Lanka, it is advisable that it be kept occupied. Unoccupied properties in Sri Lanka, especially bare lands, can be the target of fraudsters (who may execute fraudulent documents and deeds and sell them to unsuspecting third parties) as well as persons who go into occupation without the consent of the legal owner (either without having the knowledge of who owns it or even forcibly). It can take years and involves a fair amount of costs, to set aside such fraudulent deeds and evict unlawful occupiers through court cases.
As in most countries, litigation is not cheap. Thus, if one could prevent such an incident from occurring in the first instance, one would be able to avoid the hassle of protracted litigation and costs. In the event of coming to know of any such fraudulent deed being registered and/ or an unauthorised/unlawful occupation one must seek immediate legal redress as one’s action can be barred by the operation of the Prescription Ordinance (Ordinance No. 22 of 1871 as amended). In terms of this law, if one does not act within a prescribed time period the action gets barred by prescription.
In the case of deeds, this period is 3 years (generally the time starts to run from the date one comes to know of such a deed) and in the case of a third party going into unlawful occupation of your property, the period is 10 years. An action instituted after the lapse of the period of prescription is likely to fail. However, a tenant/lessee or a licensee cannot claim a prescription against the landlord/ owner so long as he remains in the same status. However, it is advisable to recover the possession (or seek legal help for such purpose) if such a person fails to pay rent repeatedly (in the case of a tenant) or acts in a manner which does not recognise the rights of the owner (in the case of tenants as well as licensees).
A ‘licensee’ would include a person allowed to occupy a property (generally rent-free) – such as an employee, a watcher or even a relative. It is best that one have someone look after such a property (by employing a watcher, a security person/firm or even a reliable neighbour) or have it occupied by a third party who enters into occupation through a valid agreement with the owner either as a lessee or licensee. It is advisable to have such properties properly fenced (or separated with a boundary wall) to prevent encroachment and trespass and also have such properties regularly maintained by having the grass/weeds pruned at regular intervals, maintaining it in a sanitary condition and preventing it being a breeding ground for mosquitos etc.
These steps would indicate one’s ownership to the rest of the world as well as avoid an owner being prosecuted by health authorities, for the property being a breeding ground for dengue mosquitos etc. The owner also needs to pay the relevant rates and taxes to the local authorities as well as the relevant charges to other government authorities (such as the Urban Development Authority – eg. the change of use fee for using residential premises for business purposes) to avoid being prosecuted or even the property being vested in the local authority for nonpayment of taxes.
Some owners go to the extent of registering a caveat in the folio maintained at the land registry relating to their own property so that the caveator (person who registers the caveat) gets notice of any instrument (such as a fraudulent deed or even a deed of declaration of ownership) sent in for registration by a third party. The caveator gets a period of one month to initiate action to set aside (and also get an order to prevent the registration of) such an instrument. This is an additional safeguard an owner can take.
Q WHAT ARE THE RIGHTS OF THE OWNERS OF THE PROPERTY? The rights of property ownership are explained in the Roman law maxim ‘ius utendi rutendi et abutendi’ which means the right of the owner to use, take fruits and dispose freely to the exclusion of every other person (non-owners). Thus, an owner is entitled to put a property to its natural use (such as cultivating, constructing buildings etc), take the produce from such properties and sell or dispose of the same. Abutendi or the power to dispose includes the power to completely destroy a property as well.
A property owner has absolute rights over a property owned by him, subject to the laws and regulations of the land as well as the local authorities. For example, a person can build on his property only according to the building regulations imposed by the Urban Development Authority/the local authority and needs to get prior permission for the same. Similarly, a person is not entitled to cultivate prohibited plants such as cannabis, although he has absolute rights to put the property to use. Another example would be an owner being prevented from filling up a paddy land by law.
Q WHAT ABOUT THE RIGHTS OF THOSE RENTING IT? The rights of a person who rents are restricted only to the use of the property and have further restrictions as to how it can be used as per the conditions imposed by the property owner (such as the conditions laid out in a lease agreement- for instance restricting premises to be used only for residential purposes, sub-letting etc). A lessee or a tenant has the right to use the property during the period of the tenancy or lease and during this period the rights of the owner/landlord in occupying the property are transferred to the person who is renting it (tenant/lessee).
Q WHAT CAN YOU DO OR WHAT ACTION CAN YOU TAKE IF THOSE TO WHOM YOU HAVE RENTED YOUR PROPERTY ARE NOT MOVING OUT WHEN REQUIRED? If a person who has rented a property does not vacate the premises/ handover vacant possession at the end of the period of tenancy or lease, then the owner/ landlord will have to file an action to eject such person and also recover damages from such person who is in unlawful occupation. These types of actions are generally known as ‘rent and ejectment’ cases. If the property in question is governed by the Rent Act (i.e. Act No. 7 of 1972 as amended) the process of ejectment becomes more complex as the Act provides a lot of protection to a tenant.
However, if the property is not governed by the Act or the premises are ‘excepted premises’ as defined in the Act, the process is much simpler. For example - if an action is filed in respect of premises governed by the Rent Act (i.e. rent-controlled premises) on the basis of non-payment of rentals and if the tenant subsequently deposits all the amounts which are in arrears prior to filing the Answer, then the Plaintiff cannot proceed with the action. Since the amounts chargeable as rent are considerably low and are set out in the Act (it is based on the assessment value of the premises) paying even several years of rent will not be a difficult task.
However, with the enactment of the ‘Recovery of Possession of Premises Given on Lease Act No. 1 of 2023’ recovery of possession of properties given on lease has become much simpler and it takes only a few months of litigation (as opposed to several years in regular actions) to get back possession as well as damages and arrears of rent. A lessee will not be able to ‘drag’ a case by using dilatory tactics such as moving for dates etc.
Also, unless a good cause is shown to the satisfaction of the court the Defendant (the lessee) will not be allowed even to file a response. Even in the event of the court allowing the Defendant to file a response the Court would order the Defendant (the lessee) to deposit in court all the monies claimed as arrears of rent and damages etc within a period of 2 weeks. However, it is a precondition that the parties should have entered into a valid Lease Agreement attested by a Notary (a registered lease) in order to be able to invoke the provisions of this act. The informal agreements (non-attested) agreements entered into by parties in order to save on Notary’s fees as well as stamp duty are not recognised by law (Section 2 of the Prevention of Frauds Ordinance) and do not afford a landlord the recourse to the above Act.
text Kshalini Nonis