Saturday, April 30, 2011

Purchasing property in Sinai

Legal Procedures to Purchase a Property in Sinai

Purchasing a property in Sinai is different than purchasing a property in any different location in Egypt, according to the difference in legal status. There was an administrative decree issued by the prime minister of Egypt in 2005, abrogating the context of the previous law issued in 1996. Despite the fact that originally an administrative decree is normally unable to nullify law, but this decree is currently the prevalent decree governing the foreigners? legal status when it comes to purchasing a property in Sinai.

The aforementioned decree states that foreigner purchasers in Sinai may not be granted the right to be "landlords" on the properties they purchase, but only would have the "Freehold" right, for the maximum time of 99 years, and since the term "Freehold" originally applies to the right to enjoy a property and all its advantages for good, in addition to the right of disposal, either physical or legal disposal, and since the decree has stated the maximum limit of freehold as 99 years, therefore ? legally talking ? it is NOT freehold, it is better to be rephrased to "Usufruct". Usufruct is the best description for the current real estate sales legal name involving foreigners in Sharm el Sheikh, and it, consequently, raises many questions concerning registration of the sale.

Definitions of usufruct on the Web:

? Usufruct is the legal right to use and derive profit from property that belongs to another person, as long as the property is not damaged. In many legal systems of property, buyers of property may only purchase the usufruct of the property.

Property Ownership in Law
The ownership of land by foreigners is governed by three laws: Law No. 15 of 1963, Law No. 143 of 1981 and Law No. 230 of 1996.
Law No. 15 of 1963
Law No. 15 and its amendments (Law 104 of 1985) provides that no foreigners, whether natural or legal persons, may acquire agricultural land.
Law No. 143 of 1981
Law No. 143 and its amendments (55/1988, 205/1991, & 96/1995) governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, co-operatives, partnerships and corporations. Partnerships are permitted to own 10,000 feddans, provided that the individual shall not own more then 150 feddans. Joint stock companies are permitted to own 50,000 feddans.

Partnerships and joint stock companies may own desert land within these limits even if foreign partners or shareholders are involved, provided that at least 51 percent of the capital is owned by Egyptians. However, upon liquidation of the company, the land must revert to Egyptians. Article 1 of Law No. 143 defines desert land as the land two kilometers outside the border of the city.

Further, the lease of such land for more than a period of 50 years shall also be considered to be ownership under Law 143. Despite the fact that companies which were formed under the Investment Law No. 8/1997 do not require Egyptian participation, companies that undertake projects over desert land must be owned in their majority by Egyptians. According to the law 55 of 1988, the President of the Republic may decide to treat Arab nationals as Egyptian nationals for purposes of this law.

Law No. 230 of 1996
On July 14, Law No. 230 of 1996 was issued superseding Law No. 56 of 1988. The new law allows non-Egyptians to own real estate whether built or vacant with the following conditions:
1. That ownership be limited to only two real estate properties throughout Egypt for accommodation purposes of the person and his family (family meaning spouses and minors), in addition to the right to own real estate needed for activities licensed by the Egyptian Government.
2. That the area of each real estate not be in excess of four thousand square meters.
3. That the real estate is not a historical site.
Exemption from first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers.
Furthermore, non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is effective (the date on which the realty is recorded at the competent Notary Public Office). Non-Egyptians may only sell their real estate five years after registration of ownership, unless the consent of the Prime Minister is obtained.

Registration, in principle, is this process done in the notary office, to register your sale contract, as a deed, and a proof of owning a property. Since the aforementioned decree stated that foreigners are not granted the rights to be landlord, then it is not allowed for foreigners to register their properties, while practically, even Egyptians are not allowed to register their properties in Sinai. Therefore there has been an urgent need to find an alternative legal method to suit the new status of foreigners in Sinai post the prime minister's decree.

The only option available for foreigner purchasers in Sinai is a legal suit called "Signature Validity".
Signature Validity legal suit, however, is a legal suit aims to obtain a court verdict, stating that the signature of the seller in a sale / usufruct contract, is truly theirs.

This legal suit, however, DOES NOT touch on the origin of right, or in other words; it is non-concerned about neither who is the current owner of the property, nor who was the previous owner, but is only concerned about the belonging of the signature to the seller, and therefore is a mere precautionary legal suit. This legal suit, however, is the common suit used for sales and usufructs in Sinai, and it has a legal value after all, despite the fact of not being as valuable and authenticated as registration.

Purchasers should take the following procedures into their consideration while purchasing a property in Sharm el Sheikh:

A) Obtaining a real estate certificate and a tax certificate for the property:
Purchaser's lawyer should obtain a "NEGATIVE" certificate for the property from the government, stating that there are no mortgages, pledges, or any other sort of rights arranged to any other party on the desired property. The certificate must be governmental and stamped with the official stamp of the state. Also a certificate must be obtained from the tax authorities determining the exact due taxes on the desired property. There has been a wide-spread myth stating that there are no taxes due on Sharm el Sheikh's properties. The truth, however, is that THERE ARE taxes estimated on each property in Sharm el Sheikh. Those taxes vary in value according to the original usage of the property. Purchasers are requested to consult their lawyer in order to handle the taxes issue. Taxes can be reduced to almost 60 EGP in case if the property is used for the sole purpose of residence, while these taxes would be higher in case if the property was used for the purpose of renting out.

B) Articulating a precise and bilingual sale / usufruct contract:
Sale / Usufruct is actually all about the contract, and therefore it is imperative for a purchaser to have a precise and detailed contract, defining the property boundaries in a definitive manner, purchase price, how did the property evolved to the previous owner, method of payment?etc.
This contract should be articulated in both Arabic and English languages, and it must be taken into consideration that the only authenticated and recognized language in courts is the Arabic language, and consequently English is used for the mere purpose of guidance. Here is a golden advice: NEVER sign a contract which was articulated only in English or any other languages than Arabic when it comes to purchase a property in Egypt, or you will be in serious risk.

C) Authenticating Sale / Usufruct Contract:
Prior to the point of authenticating Sale / Usufruct contract, purchasers are required to issue a power of attorney to their lawyer, in order to be able to act on their behalf in courts. Power of attorney, however, requires the purchaser "Principal" to obtain a multi-entry visa from El Tur city, which is located not far from Sharm el Sheikh, and where all the governmental utilities for Sharm el Sheikh's area are located. After obtaining the power of attorney from the notary office, the lawyer is responsible for establishing the signature validity legal suit. This legal suit takes between 6-8 months before obtaining the final verdict from the court.

These were simply the imperative steps needed to purchase a real estate property in Sinai, which in practice are not any different between Egyptians and foreigners, Except for the fact that Egyptians are entitled to choose between having a sale or usufruct contract, while foreigners have the sole choice of having a usufruct contract.


It must be mentioned that Egypt has replaced its old method of registration in Sinai for taking a percent equals to 3% of the purchase price as fees for notarizing a contract. The new policy is to take a certain amount of funds not exceeding 2000 EGP as fees for the registration process, regardless of the purchase price of the sold property.

It must also be emphasized that other types of legal suits which purpose to prove the transfer the ownership are invalid whenever a foreigner party is included i.e. Contract Validity legal suit. This legal suit is available only in case if the purchaser was the first purchaser, and when the seller is the government or a governmental utility. There is NO PERCENT taken by the government for the signature validity legal suit, but only administrative fees, which shall be included in the attorney fees.

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