Dear rfrog,
Please be informed that Sharm el Sheikh is an incredibly beautiful place, both for the scenes and the investment potential, but here are the points you need to address in prior to involvement in a purchase, regardless of being in that project or another:
Due diligence is the process where the developer's deeds and pertinent documents are checked, in order to decide whether the investment is at risk or not.
Due diligence verification process aims to check the following documents, for both existence and purpose:
1- Title of Deed: Title of deed is the legal proof of the developer's ownership to the land plot subject-matter of the development where the desired property is located. Title of deed in Egypt can be either a usual title of deed, or unusual title of deed:
A- Usual Title of Deed: Usual title of deed is the familiar form of acquiring ownership, and it takes one of two forms:
Form (1): A contract, or a series of legal, authenticated, and valid contracts, rooting from the state and ending at the current developer who is the Seller in the real estate sale contract issued to a purchaser. The contract must show clearly the parties, the boundaries of the land-plot, the purchase price, and all the other relevant details.
Form (2): Assignation Resolution, where the state issues a resolution assigning a certain defined land plot to a certain developer, with a grace period wherein the developer must complete the development according to the terms agreed in the abovementioned resolution and the building license. The assignation resolution is the normal type of title of deed in certain areas of Egypt. It is mandatory while checking the assignation resolution to ensure that the grace period is not expired, or that it is not impossible for the developer to accomplish the task within the time remaining.
B- Unusual Title of Deed: In some cases, ownership can be acquired via means else than the abovementioned, which is known in the Egyptian real estate law as "Prescription as a reason for firmness and permanence of ownership."
The Egyptian law has stated that prescription, which means the non interrupted continuation of possessing a certain land plot by a certain individual / entity for a certain period of time, is a reason to grant the latter the ownership of the land plot subject-matter of the possession. Prescription must be confirmed by a final court verdict known as "Ownership Fixedness."
2- Building License: After the developer obtains the title of deed, and on the process of establishing a residential complex / development in Egypt, a building license must be issued by the state represented in one of its official organizations, granting the developer the right to build on the land plot, defining the purpose of building, the grace period, and also the percent of land permitted to construct. Consequently there are four major reasons to check the building license:
A- Existence: Checking that there is a building license in the first place, which proves that the land plot is not an agricultural land or something else than the construction purpose.
B- Purpose: That the purpose of building is, or inclusive of, constructing residential units. This ensures that the land plot is not assigned for another purpose such as entertainment, hospital…etc.
C- Grace Period: Verifying that the developer is not constructing the development post the expiry date of the grace period.
D- Percentage of Construction Area: This can be a tricky part, since it needs an engineering experience to confirm that the developer is not exceeding the permitted land to build on.
3- Commercial Register: This is the official record of the developer's company. It must be checked for a lot of reasons; for instance to be checked for whether the company is expired or not, and also to confirm the party / parties who have the right to sign on behalf of the company against others. A certain person can be he chairman of a company, yet it may be stated in the commercial register that signature must be in conjunction with another board member's signature. In this latter case the signature of the chairman on the sale contract solely fails to suffice for the legal criteria required to validate a sale contract.
4- Tax ID: Tax ID check is important to verify that the developer's company is recognised against the tax authorities and that the developer is subjected to tax regulations.
It has also to be mentioned that in the event the developer has settled the land plot's purchase price to the government via instalments, governmental receipts must be shown in order to prove that the developer is settling the instalments regularly.
There is an ethical obligation on every developer to show the due diligence documents to the purchaser's solicitor when requested. Scanned copies can suffice, since they show clearly the state's stamp, and also the governmental number for each treatment. The latter number can be verified by the government in case of suspicion, yet the governmental verification usually takes longer time and can result in a delay of the due diligence check, and consequently the buying process.
Now specifically on Sharm el Sheikh:
Purchasing a property in Sharm el Sheikh 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 Sharm el Sheikh. The aforementioned decree states that foreigner purchasers in Sharm el Sheikh may not be granted the right to be "landlords" on the properties they purchase, but only would have the "usufruct" right, for the maximum time of 99 years. Some people believe that purchases are "Freehold" purchases, 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, and not exactly leasehold, 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:
• The right to enjoy other goods with the obligation to preserve them, except where the law authorizes otherwise.
• (Legal-Civil Law) The right of enjoying a thing, the property of which is vested in another, and to draw from the same all the profit, utility, and advantage which it may produce, provided it be without altering the substance of the thing. For example, in Nevada, the state's water belongs to the people, but is permitted, through the water rights permitting process, to be used beneficially by other individuals or entities.
• A legal term from the Roman Empire (in Latin, usufructus),meaning "using the fruit" of land claimed by the State without injuring or destroying the ecological infrastructure.
WE HAVE THE RIGHT TO EXIST, by Wub-e-ke-niew - Glossary • 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 Sharm el Sheikh. Therefore there has been an urgent need to find an alternative legal method to suit the new status of foreigners in Sharm post the prime minister's decree.
The only option available for foreigner purchasers in Sharm el Sheikh 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 Sharm el Sheikh, purposing to eliminate the possibility of 'Contract Denial' in the future either by the developer of its legal successor.
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 Sharm el Sheikh, 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.
Now the next of kin issue remains an issue in Sharm el Sheikh.
One of the most significant issues pertinent to acquiring a real estate property in Sharm el Sheikh is Next of Kin issue. To explain the issue precisely we have to go back to April 2005, when the Prime Minister of Egypt had issued a decree, defining foreigners' right on real estate properties within the territory of Sharm el Sheikh as usufruct right.
Usufruct, in the briefest definition, is the right to enjoy another landlord's property for a certain period of time, utilizing its benefits as well i.e. rental income. The term usufruct is originally a Roman term that means "Usage of Fruits."
Egyptian law has regulated terms of inheritance in case of ancestor's death. Inheritance, however, covers the case of freehold, while usufruct expires upon death of the beneficiary "usufructuary."
The aforementioned decree had defined the maximum time limit for usufruct as 99 years, which normally exceeds the time period a purchaser is thought to live after having purchased a property, and subsequently it is thought that the usufruct right shall transfer automatically to the said purchaser's next of kin, but the truth is that the usufruct, according to law, expires upon the usufructuary's death, even if the 99 years were not consumed, provided that the usufructuary was the sole beneficiary in the usufruct contract.
This fact made people who are aware of it think of an alternative solution to keep the property for their children and grand children until the 99 years expire, and the idea of articulating a will came to the surface.
Wills, however, are not the right solution in this case, since the will system in Egypt is different than the will system in England or other western countries. Egyptian civil law had certain conditions for the will, stating that the beneficiary of a will must not be a natural heir, and consequently children fall out of the beneficiary category in the Egyptian will system. Moreover, a beneficiary in a will cannot be granted more than 1 / 3 of the ancestor's assets.
This situation has an easy solution in fact; purchaser's next of kin, whether they were natural heirs or not, shall be mentioned as next of kin within the context of the very usufruct contract. The clause can be articulated as follows:
In the event of death of the second party, both parties have agreed that the remaining period of the usufruct right shall be transferred automatically, instantly, and without any additional legal procedures to the following next of kin:
A) Name.
B) Nationality.
C) Passport Number / Social Number.
D) Address.
E) Date of Birth.
F) Gender.
Purchasers who are still in the process of obtaining their contract are strongly encouraged to include this clause in their contracts. The point here is that the next of kin in this case will obtain its right according to the landlord / developer's approval, represented in their signature on the contract, which implies granting the remainder of the usufruct period to the next of kin defined by the original purchaser.
In case a person has already purchased a property that does not include this term, it is highly recommended to obtain an addendum to the purchase contract, identifying the next of kin and bearing signatures of the developer and the purchaser. Next of kin can be one person or more, as there is no limit for the next of kin.
In the event the next of kin was mentioned as two persons for instance, the right will be distributed on them in equal portions, while in case the purchaser had another wish, portions can be defined accurately in the agreement, since the said agreement is based on private law, and people have the right to agree on whatever they find more convenient.
It is also worth mentioning that in most, if not all, of the usufruct contracts, there is an article regulating resale, and fixing a certain sum of funds, or a certain percent of the purchase price, to be settled for the developer in order to issue a new 99 years usufruct contract to the new purchaser. This article can be utilized in favor of the purchaser and its next of kin as well and can be useful in a unique way; the usufructuary, at any point during the 99 years, can settle this amount to the developer, and transfer new 99 years to its next of kin via a new contract issued by the developer in favor of next of kin directly, and in that case the next of kin would be the direct usufructuary, and shall make sure that its next of kin is mentioned in the context of its very contract.
Next of kin can also be mentioned in the contract as a joint purchaser, but in that case the next of kin shall be 21 years of age at least, since the Egyptian civil law does not recognize legal actions by people younger than 21 years of age, especially regarding acts that involve purchasing or selling.
In the event a purchaser has died, and the usufruct right has transferred automatically to its children who are legally prohibited to act. A senior family member shall represent the kids legally until they reach 21 years of age, and the court must accept this family member as a guardian, and the court's approval will be needed in prior to initiating a resale on the property. Otherwise the court would appoint an official guardian to preserve the kids' rights until they reach 21 years of age.
I hope the above has shed light on your enquiries,
