International Real Estate News Newsletter of the Real Estate Section of the International Bar Association Legal Practice Division

8TH REAL ESTATE INVESTMENT CONFERENCE 14–15 APRIL 2016, COPENHAGEN

IN THIS ISSUE Contributions to this Newsletter are always welcome and should be sent to Roland Müller or Laine Skopina at the From the Chair 4 addresses below:

From the Editors 5 Newsletter Editor Committee officers 6 Roland M Müller VISCHER AG, Basel Conference reports [email protected] IBA Annual Conference Assistant Newsletter Editor , 4–9 October 2015 8 Laine Skopina Articles Skopina & Azanda, Riga [email protected] AUSTRALIA

New laws for strata apartments in Australia 11 Terms and Conditions for submission of articles 1. Articles for inclusion in the newsletter should be sent to the Newsletter Editor. 2. The article must be the original work of the author, must not have been previously published, and must not currently be under consideration by Tax reform in Austria: heavy burden on share deals another journal. If it contains material which is someone else’s copyright, involving real property 12 the unrestricted permission of the copyright owner must be obtained and evidence of this submitted with the article and the material should be clearly CANADA identified and acknowledged within the text. The article shall not, to the best of the author’s knowledge, contain anything which is libellous, illegal, or infringes anyone’s copyright or other rights. Foreign investment in Canadian real estate: are controls 3. Copyright shall be assigned to the IBA and the IBA will have the exclusive or special taxes for foreign buyers on the horizon? 14 right to first publication, both to reproduce and/or distribute an article (including the abstract) ourselves throughout the world in printed, electronic or any other medium, and to authorise others (including Reproduction Rights Organisations such as the Copyright Licensing Agency and the Copyright Unique unbundling telecoms and its distinct real Clearance Center) to do the same. Following first publication, such publishing rights shall be non-exclusive, except that publication in another journal will estate aspects 17 require permission from and acknowledgment of the IBA. Such permission may be obtained from the Director of Content at [email protected]. FINLAND 4. The rights of the author will be respected, the name of the author will always be clearly associated with the article and, except for necessary editorial Real estate news from Finland 19 changes, no substantial alteration to the article will be made without consulting the author. MEXICO

Foreign ownership of Mexican residential real International Bar Association estate in the Restricted Zone 21 4th Floor, 10 St Bride Street London EC4A 4AD, United Kingdom NIGERIA Tel: +44 (0)20 7842 0090 Fax: +44 (0)20 7842 0091 Leveraging the Nigerian diaspora to exploit the www.ibanet.org vast investment opportunities in mass housing: © International Bar Association 2016. the regulatory issues 23 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature without the prior permission of the copyright holder. Application for permission should be made to the Director of Content at the IBA address. A new law on secondary residences in Switzerland: a new era for the real-estate market in the Swiss Alps 26

Lex Koller: restrictions for foreigners acquiring Advertising real estate in Switzerland 28 Should you wish to advertise in the next issue of the Real Estate Committee newsletter, please TURKEY contact the IBA Advertising Department. [email protected] Acquisition of residential properties by foreign individuals in Turkey – enjoying consumer protection 30

UNITED STATES Printed in the Lights, camera, action! Property owner beware film United Kingdom location release agreements 33 by Hobbs the Printers Ltd Totton, Hampshire Investments in the US student housing market: SO40 3WX six insights to help the investor 34 www.hobbs.uk.com Scholarship essay

The challenges posed by the rule of law, or lack thereof, in developing countries when seeking This newsletter is intended to provide general information inward real estate investment 36 regarding recent developments in real estate law. The views expressed in this publication are those of the contributors, and not necessarily those of the International Bar Association.

REAL ESTATE NEWSLETTER APRIL 2016 3 FROM THE CHAIR

Nikolaus Pitkowitz The real estate investments Graf & Pitkowitz, Vienna conference [email protected]

s Chair of the IBA Real Estate Copenhagen, Denmark. Our Conference Committee, the world’s largest Chair, Jakob Schou Midtgaard – supported association of international real by a dedicated team of leading Danish real Aestate lawyers, it is with great estate lawyers – has designed an outstanding pleasure that I present our newsletter. Our programme with exceptional speakers and committee offers to our members various unparalleled networking opportunities. You platforms to communicate and exchange will find more information on this inside the views on topical issues of international real newsletter. We are expecting more than 150 estate law. One of these platforms is our participants and I sincerely look forward to newsletter. As of this edition, thanks to welcoming you in Copenhagen. our Newsletter Editor Roland Müller, the Please also mark your calendars for the newsletter is not only distributed by email IBA annual meeting from 18–23 September but will also be available in hard copy at 2016 in Washington, DC, where our our upcoming conference. This newsletter committee plans to schedule exciting sessions offers insight into remarkable legal on complex real estate transactions and developments around the world, as well as innovative billing models, as well as a dinner a picture of the past and future work of our on Tuesday 20 September and a real property committee. The reports on our exciting tour. I also use this opportunity to inform you sessions during the annual conference in that our next real estate annual conference Vienna and, especially the picture gallery, will take place from 29–31 March 2017 in Rio give you a great demonstration of our de Janeiro, Brazil. fruitful and enjoyable sessions. Our committee is powered by a team of It is a tradition of our committee to outstanding and dedicated officers from all organise a real estate investments conference around the world. There is, however, still room for early each year. In previous years, the for those interested in supporting our team, event has alternated between Europe and and as of 2017 we will be allocating new officer the Americas. This year we are back in positions. Please do not hesitate to contact me, Europe, and the venue of our conference, or any of our officers if you are interested in scheduled for 13–15 April 2016, is one taking an active role or have any other questions of the most exciting real estate markets: regarding our committee and its work.

4 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION FROM THE EDITORS

Roland M Müller VISCHER AG, Basel [email protected] Welcome to the newsletter

Laine Skopina his is the second newsletter published The next newsletter will be published Skopina & Azanda, during our 2015-2016 term as in August 2016 (prior to the IBA Annual Riga Newsletter Editors of the IBA Real Conference in Washington, DC). We strongly [email protected] TEstate Section. You receive it just encourage each of you to not only attend these before one of our section’s annual highlights, two great events, but also to grab the opportunity the Annual Real Estate Investments to place an article from your country in the Conference in Copenhagen, which shall take forthcoming editions of the newsletter. place from 13–15 April 2016. We look forward to meeting many of you in Copenhagen and in Washington, DC. COMMITTEE OFFICERS

Committee officers

Chair Conference Quality Officer Nikolaus Pitkowitz Catherine Martougin Graf & Pitkowitz, Vienna Jones Day, [email protected] [email protected]

Senior Vice-Chair Conference Coordinator Boris Babic Pedro Nicholson Babic & Partners, Zagreb Estudio Beccar Varela, Buenos Aires [email protected] [email protected]

Vice-Chair European Forum Liaison Officer Rossana Duarte Peter Kunz Mattos Filho Veiga Filho Marrey Jr e Quiroga, Kunz Schima Wallentin Rechtsanwälte, Vienna São Paulo [email protected] [email protected] Asia Pacific Forum Liaison Officer Secretary Jiong Zhang Gerardo Carrillo Valadez Zhong Lun, Beijing Haynes & Boone, Mexico City [email protected] [email protected] Young Lawyers Liaison Officer Treasurer Juan Jose Lopez de Silanes Duarte de Athayde Basham Ringe y Correa, Mexico City Abreu Advogados, Lisbon [email protected] [email protected] Website Officer Scholarship Officer Eduardo Martin Michael Lunjevich Carey, Santiago Hadef & Partners, Dubai [email protected] [email protected] Latin American Liaison Officer Journal Editor and Special Projects Officer Marco Cannizzo Saetta Corrado Rampini Cannizzo Ortiz y Asociados, Mexico City Baer & Karrer AG, Zurich [email protected] [email protected] Real Estate Hospitality Liaison Officer Communications Officer Bernat Mullerat Nancy Zhang Cuatrecasas Goncalves Pereira, Barcelona Beijing Jincheng Tongda & Neal, Beijing [email protected] [email protected] Real Estate Investments Liaison Officer Newsletter Editor Jakob Schou Midtgaard Roland M Müller Plesner, Copenhagen VISCHER AG, Basel [email protected] [email protected]

Assistant Newsletter Editor Laine Skopina LPD Administrator Skopina & Azanda, Riga Susan Burkert [email protected] [email protected]

Membership Officer Jan Buechsenstein Credit Suisse AG, Zurich [email protected]

6 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION

CONFERENCE REPORTS – IBA ANNUAL CONFERENCE, VIENNA, 4–9 OCTOBER 2015

CONFERENCE REPORTS

THURSDAY Real Estate Committee session 8 OCTOBER 2015 Izabela Zielinska- ‘Negotiation clinic: sharpening Barlozek Wardynski & Partners, your skills’ Poznan izabela.zielinska@ wardynski.com.pl Co-Chairs/Moderators negotiation knowledge, skills and techniques. Boris Babic Senior Vice-Chair, Real Estate As it entailed audience participation, it Committee; Babic & Partners, Croatia was divided into two parts: interactive Izabela Zielinska-Barlozek Chair, Industry presentations of speakers; and a case study/ Services Subcommittee, Real Estate Committee; workshop. Wardynski & Partners, Poland After an introduction from the moderators, the floor was taken by Walter Samuel Speakers Bartussek, an expert trainer in body Peter Alfandary PRA CrossCultural & language/body awareness, who dealt with Development, UK non-verbal negotiations/communication Walter Samuel Bartussek Pantomime Studio skills. First, he gave a short performance, Gold Egg, Austria which was enthusiastically received by Claudio Cocuzza Cocuzza & Associati, the audience, and then gave a training Catherine Martougin Jones Day, France presentation that included some exercises Peter Vocke Heuking Kühn Lüer Wojtek, with the delegates. A movement exercise put participants into Claudia Winkler CDRC Vienna – THE IBA-VIAC a good mood and helped to introduce the Mediation and Negotiation Competition, Austria topic of body awareness. Next, Claudia Winkler, a negotiation trainer, took participants through negotiation eal estate practitioners teamed up skills and tools, including the Harvard in the panel with a negotiation and Negotiation Concept. The theoretical mediation coach, a mime actor/ background was backed up by exercises and Rbody-language trainer, and an expert examples of negotiation skills and tools seen in cross-cultural awareness and comparative and practised by real estate experts: Catherine business culture, to discuss negotiation Martougin, Claudio Cocuzza and Peter Vocke. intricacies and techniques, and not only those Finally, Peter Alfandary, in his usual related to real estate transactions. interactive style, shared with the audience his The session was meant to be interactive knowledge of the possible impact of cultural and aimed at exploring and practically differences on negotiations, providing testing essential soft skills. It was not participants with an overview of intercultural targeted just at lawyers engaged in real estate communication skills. transactions, but also at all lawyers partaking The second part of the session involved a in negotiations and wishing to deepen their workshop using the ready Texoil case, one

8 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION CONFERENCE REPORTS – IBA ANNUAL CONFERENCE, VIENNA, 4–9 OCTOBER 2015

of the cases provided by the Kellog School of a sometimes emotional but excellent set of Management (a number of licences to use the negotiations between a couple who owned case during the session were secured by the the Texoil service station and the Texoil moderators). All the participants divided into corporation that was considering purchasing it. two groups, supporting either the seller’s or The attendance was high (64 participants the buyer’s representatives, and were able to plus speakers and moderators) during the use and exercise the specific tools and skills whole session – the participants did not want they had just learnt. It turned out to be a to leave, despite it being late afternoon on very captivating, deeply involved discussion the Thursday – and was evaluated as highly among all participants. It also demonstrated practical and informative.

WEDNESDAY 7 OCTOBER 2015 A stroll through Vienna’s Peter Kunz Kunz Schima Wallentin real-estate landscape Rechtsanwälte, Vienna [email protected] he Real Estate Property Tour was meant to display the variety and The DC Tower uniqueness of real estate in Vienna. TFelix Zekely, member of the CBRE Group, and Peter Kunz, officer of the Real Estate Committee, hosted the tour. It started at the DC Tower, a very interesting real-estate project (with its height of 250m and offering 66,000m², used for offices, hotels, restaurants and flats) planned by the French architect Dominique Perrault. The marvellous view over the entire city and surroundings made a lasting impression, even on this rainy Reichsbrücke autumn day. By bus we went on to the Reichsbrücke, which – originally planned by the emperor Karl Ferdinand I, due to the constant danger of flooding close to the Danube – was constructed in several phases. It had to be rebuilt twice (eg, after its collapse in 1976) and is therefore also called the ‘Third Reichsbrücke’. We then arrived at The Library and Learning Centre, the Wirtschaftsuniversität Wien (Vienna Wirtschaftsuniversität, Vienna University of Economics and Business), whose campus was opened in 2013 and whose main complex (the Library & Learning Center) was designed by the internationally renowned architect Zaha Hadid. A specially booked guide led us through the university.

REAL ESTATE NEWSLETTER APRIL 2016 9 CONFERENCE REPORTS – IBA ANNUAL CONFERENCE, VIENNA, 4–9 OCTOBER 2015

The tour then continued along the Wiener Ringstraße, which encloses Vienna’s historical centre with its numerous historical buildings and which is counted among Austria’s main attractions. The tour’s final object, the Goldenes Quartier (including Austria’s most expensive apartment), was presented by a member of Signa Holding, an Austrian-owned Former stock exchange building, Ringstraße and internationally established group of companies that owns a number of exclusive real estates and is active in fund and real estate management. The attic penthouse embodies both luxury and uniqueness, and serves as proof of the interest of international real estate investors.

Property tour participants

No 6 Goldenes Quartier

10 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION NEW LAWS FOR STRATA APARTMENTS IN AUSTRALIA

FEATURE ARTICLES

AUSTRALIA

Anthony J New laws for strata Cordato Cordato Partners apartments in Australia Lawyers, Sydney ajc@ businesslawyer.com.au n 1961, construction was under way on corporation. They must act like company the Sydney Opera House. Also in 1961, directors, with due care and diligence. Tenant the Strata Titles Act became law in New representatives may attend meetings, but are ISouth Wales, the state of Australia that has not entitled to vote. If the strata committee Sydney as its capital city. works with a professional strata manager, then What is so remarkable about the Strata the strata manager can be appointed for a Titles Act is that it was a world first, because maximum of three years and cannot receive it introduced freely tradable land titles for benefits over and above their commission. apartments in an apartment building. ‘Freely tradable’ means just that – the permission of Annual general meetings the other apartment owners is not needed to transfer, mortgage or lease the apartment. Meetings at which the annual accounts of the Owning a strata apartment became just like strata scheme are considered and strata levies owning any other property, except there were (owner fund contributions) are set, buildings rules for community living, which are called insurance is decided and strata committees strata by-laws, which apply to occupant noise are elected. To avoid the problem that in and behaviour, car parking, damage to common some buildings one or two owners gather up areas, rubbish disposal, hanging washing to ‘proxy votes’ to control the committee, a limit dry, cleaning windows, floor coverings and is to be imposed of five per cent of all votes keeping of pets. There is also common building that can be gathered up by one owner. insurance, external maintenance and repairs. Strata title has become very popular. There New strata buildings are currently more than 87,000 strata title buildings in New South Wales, and almost These raise two concerns. The first is that 200,000 across Australia. They range from building defects should be identified and one-level villa homes built side by side, to rectified; the initial meeting of the owners three-storey ‘walk-up’ blocks, to multi-storey corporation is to have an initial maintenance high-rise buildings with lifts, swimming pools schedule as an agenda item; building defect and gymnasiums. All use the same legal model, inspection reports are to be prepared by the which is that the apartment owner has legal builder and the owners corporation. The title to their apartment, while the owner and all second is that there should be funds available other owners jointly own the building structure to pay for the rectification of the defect(s). and the common areas (entrances, stairs and The new law will require that the builder pay surrounding grounds). Their joint ownership is a building bond of two per cent of the build through a company, which is called an owners cost to cover the cost of rectification. corporation, in which they are shareholders in proportion to the size of their apartment. Responsibility for maintenance, repairs The New South Wales Government has now and renovations introduced new laws to bring the Strata Titles Act up to date and to address some problems These are allocated between the owners and that have arisen. The new laws are as follows: the owners corporation as follows: cosmetic works are permitted to be carried out by the owner inside the apartment, such as Strata committees painting and carpeting. Renovations inside Elected by the owners at their annual the apartment – such as replacement of the general meeting to manage the owners kitchen cupboards – sink and stove, are the

REAL ESTATE NEWSLETTER APRIL 2016 11 TAX REFORM IN AUSTRIA: HEAVY BURDEN ON SHARE DEALS INVOLVING REAL PROPERTY

owner’s responsibility but require the approval Redevelopment of the owners corporation. External building This has been made easier. Some strata work – such as repair and replacement of buildings have passed their useful life; others windows, balcony railings, roof and painting – are sited on land that is valuable and could is the responsibility of the owners corporation. support higher density. The new laws will allow a resolution to be passed by 75 per New strata by-laws cent of the owners to redevelop the building, instead of the current situation where 100 per These by-laws were introduced to address cent of the owners must agree to redevelop. several issues of concern. They are: a limit The new laws for strata apartments look of two adults per bedroom to prevent well suited to meeting the needs of owners for overcrowding; fines for parking illegally on many years to come. common property; better noise control; prohibitions against smoke drift from cigarettes and barbecues on balconies; allowing small pets.

AUSTRIA

Tax reform in Austria: heavy Dr Martin Foerster burden on share deals Graf & Pitkowitz, Vienna involving real property [email protected]

enerally, the acquisition of property in (Einheitswert) and was capped at 30 per cent Austria triggers real estate transfer tax, of the market value. The uniform tax value is irrespective of whether the acquirer is in most cases between five and 15 per cent of Ga native or a foreigner. As part of an the fair market value. overall tax reform, the Austrian Government recently proposed a new act amending taxes Transactions that trigger tax related to real estate transactions. The act generally entered into force on 1 January 2016. The Tax Reform Act introduced two new The purpose of this article is to give an types of taxable transaction. overview of investing in real estate and the First, the transfer of shares in a partnership related new taxes in Austria. (Personengesellschaft) triggers RETT if at least 95 per cent of the shares are transferred to new partners within a five-year period. Legislation before the tax reform In contrast to the previous legislation, it is Unitl now, the taxation of real estate irrelevant if these shares are transferred to a transactions was limited to direct acquisitions single person or a multitude of acquirers. The of property (asset deals). Share deals new tax regime concerns a change in partners triggered real estate transfer tax only if a holding a capital interest. The change of single person acquired 100 per cent of the partners who do not hold a capital interest in shares in a company that owned real estate. the partnership does not trigger RETT. Companies, which are part of the same VAT Secondly, the transfer of shares in a tax group that were treated as a single person corporation is a taxable event if at least for these purposes. Hence, by structuring a 95 per cent of the shares are acquired by share deal in such way that a second or other a single person. In this case, no time limit purchaser(s) acquired a nominal stake in applies. Companies forming a group of the company, real estate transfer tax (RETT) companies pursuant to Section 9 of the could easily be avoided. Austrian Corporation Tax Act are treated In case of share deals, the tax base was as a single person. As companies (unlike the threefold of the uniform tax value VAT groups) only form a group under the

12 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION TAX REFORM IN AUSTRIA: HEAVY BURDEN ON SHARE DEALS INVOLVING REAL PROPERTY

Austrian Corporation Tax Act if this has been demergers and contributions in kind, are formally declared by an order of the financial taxed at a reduced tariff of 0.5 per cent. authorities, the reference to this act (as Transactions without considerations (and opposed to the VAT Act under the previous transactions between certain family members) legislation) serves to increase legal certainty. are taxed at a progressive rate of 0.5 per cent In both above-mentioned cases, shares (for the firste 250,000), two per cent (for that are held by a trustee will be attributed the next e150,000) and 3.5 per cent (for the to the trustor (ie, the beneficial owner). Property Value in excess of e400,000). Thus, if the trustee is instructed to no longer Transactions are deemed to be without hold the shares on behalf of one person, but consideration if the purchase price (or other rather on behalf of another person, then this consideration) is less than 30 per cent of the will trigger RETT if it concerns (alone or in Property Value. If, on the other hand, the connection with other transactions) at least purchase price (or other consideration) is 95 per cent of the shares. As a consequence, more than 70 per cent of the Property Value, the frequently used trust constructions can no then the transaction is in its entirety deemed longer be practised. to be for consideration. If the purchase price is anywhere between these figures then the transaction is deemed partially (New) tax base against remuneration. This means that the The tax is calculated on the basis of: the progressive rate applies to the part of the consideration received for the property (ie, transaction that is without consideration and the purchase price); or at least the property the standard rate applies to the rest. value. Thus the Tax Reform Act introduced the Property Value, an entirely new tax Tax exemption base. In case of the transfer of shares and in case of reorganisation measures (mergers, The Act on Public Benefit Gemeinnützig-( demergers, contributions in kind), the keitsgesetz 2015) introduced a new tax Property Value is always decisive. exemption possibility: gratuitous transfer of The Property Value is defined in the real estate by corporations, associations of Tax Reform Act and can be either of the individuals (Personenvereinigungen) or estates following: (Vermögensmassen) that serve to promote a • the threefold of the land value (Bodenwert) charitable or ecclesiastical purpose will not plus the value of the building. The method trigger land transfer tax. of calculating the land value and value of the building is spelled out in detail in a Other changes of taxes regarding real separate regulation; estate • the value stated in a real estate price index (Immobilienpreisspiegel); a regulation Furthermore, the Tax Reform Act introduced clarifies which indexes may be used and a number of other changes, including: which depreciations from the index are An increase to the income tax rate from 25 permitted; or per cent to 30 per cent for all profits derived • the fair market value as assessed by a from real estate sales. When calculating the certified expert. profit, the seller can no longer make use of The Tax Reform Act aims to ensure that the the deduction for inflation. first two possibilities will lead to a value below The depreciation rate for buildings that the fair market value in order to encourage are held for the operation of a business tax-payers to use existing data rather than was changed to 2.5 per cent (instead of, present individual expert opinions on the fair previously, two, 2.5 and three per cent, market value for each transaction. respectively). The depreciation rate regarding buildings that serve for income from rent remains unchanged at 1.5 per (New) tax rate cent. Furthermore, the Tax Reform Act The tax rate generally remains at 3.5 per cent contains the presumption that 40 per cent of the tax base. But preferential rates apply in of the acquisition cost concerns the land certain cases: and thus only 60 per cent is attributed to the The transfer of shares in partnerships and building. Only the latter serves as a basis for corporations, as well as the transfer by reason the depreciation. of reorganisation measures such as mergers,

REAL ESTATE NEWSLETTER APRIL 2016 13 FOREIGN INVESTMENT IN CANADIAN REAL ESTATE

The reduced VAT rate of ten per cent will to avoid real estate transfer tax at 0.5 per be increased to 13 per cent for several services, cent of the Property Value. One possibility such as accommodation in furnished living could be to transfer the shares in the parent rooms and bedrooms. These amendments will company of the company that owns the real enter into force on 1 April 2016. estate. In case of a partnership, RETT could be avoided by staging the transaction in two phases, thereby transferring a significant part Impact (but less than 95 per cent) in the first stage, The Tax Reform Act has significantly and the remaining shares only after five years. increased tax on real estate transactions since As the law just entered into force, it will 1 January 2016; especially for share deals still take some time until settled case law involving real property. emerges that permits prudent tax planning in Henceforth, share deals involving real connection with a contemplated transaction. property will need to be carefully structured

CANADA

Foreign investment in Thomas E Baillie QC Canadian real estate: are Baillie Law Corporation, controls or special taxes for Vancouver [email protected]

foreign buyers on the horizon? Allison A Ritchie Baillie Law Corporation, aise tax on high end Vancouver the increasing foreign ownership of Canadian Vancouver houses to lower housing residential real estate. [email protected] prices’… ‘Time for government To what extent foreign investment is causing ‘Rintervention in real estate these price increases is unknown. There are no market’… ‘Make foreign buyers pay’… mechanisms in place to measure the extent of Reading these almost daily headlines in foreign ownership, the nationality of foreign Canadian newspapers may lead one to property owners, what geographical areas are conclude, that ‘the sky is falling’. They most affected by it, or its impact on prices and reflect a growing concern in Canada over the the character of communities. There is an impact of foreign investment on Canadian underlying assumption on the part of many residential real estate prices, particularly in Canadians that foreign buyers are one of the the detached housing markets in Vancouver reasons for rapidly escalating prices in the and Toronto. The feeling among Canadians Vancouver and Toronto residential markets. that they are being priced out of the Whether or not that is an accurate conclusion real estate market as a result of foreign cannot be determined, because of the lack of ownership has made it increasingly likely empirical data. that some form of regulatory action on Analysing rising residential prices foreign investment in real estate will become is a complicated exercise and involves a reality. This article examines those issues comparing trends in the prices of single- and discusses what the future may hold for family detached housing, townhouses and foreign investors. condominiums in various geographic areas. Several statistics do stand out, however. Sales prices of residential properties have Background increased between 20–28 per cent during Two trends are readily apparent in the the past 12 months in the Vancouver area. Vancouver and Toronto residential real estate According to property assessment figures markets. The first is the rapidly escalating released in early January 2016, a detached prices of residential housing. The second is home on a 33ft (10m)lot in Vancouver’s

14 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION FOREIGN INVESTMENT IN CANADIAN REAL ESTATE

West Side was assessed at CAD1,940,000, and This latter measure would appear to be a similar home and lot in the East Side at the most restrictive step undertaken by CAD1,274,000. According to the Real Estate any jurisdiction with respect to foreign Board of Greater Vancouver, based on actual buyers. The Australian Government has sales, the average sale price for a home in recently ordered the sale of eight residential Greater Vancouver in November 2015 was properties that were acquired in violation of CAD2,530,000. While these prices may not be foreign ownership laws, bringing the total of alarming when compared with prices in Hong forced sales to 27. Kong or Singapore, many first-time Canadian buyers have been forced to seek more Legislative framework in canada affordable homes in outlying areas, or turn to townhouses or condominiums as alternatives. Canada is a federal system in which powers And while these escalating prices are are divided between the federal government benefiting Canadian sellers, political and the provinces and territories. Local pressure is mounting to find solutions to this governments, including cities, are governed by affordability problem. the provinces. Under Canada’s constitution, In addition to rapidly rising prices, there the provinces have exclusive jurisdiction over have been other more subtle influences property and civil rights, so any future steps to resulting from foreign ownership. These control or restrict foreign ownership will be include increasing absentee ownership and created by them. This will create a patchwork areas where certain ethnic groups have of laws and regulations that may not be become a majority, resulting in signage consistent throughout Canada. and shopping areas where English and The federal government does, however, French, Canada’s official languages, are have a role to play at a national level, as it largely absent. Recently, a complaint was controls fiscal, monetary and taxation policies made to the British Columbia Human and can influence prices through the use of Rights Tribunal concerning the decision of those policies, particularly interest rates. It a condominium corporation to conduct its recently tried to moderate price increases business in Mandarin only and to exclude the by increasing the equity requirements for use of English and French. These changes purchasers wanting to obtain government- to the character of neighbourhoods are guaranteed mortgages. The jury is still out on harder to measure and quantify, but they are the effectiveness of that measure. increasingly present and have contributed to the perception that foreign ownership has Positions of governments and politicians significantly increased. During the campaign leading up to the federal election in October 2015, all Steps taken by other jurisdictions parties had platforms that addressed, albeit Other jurisdictions have encountered similar vaguely, the housing affordability issue and, issues and several have taken steps to address tangentially, the foreign ownership issue. them. Hong Kong and Singapore assess an While most concentrated on fiscal and tax ad valorem stamp tax on purchases of certain measures to stimulate the construction of real estate by non-residents. Since 2013, the affordable housing, several addressed the UK has offered financial support to British foreign ownership issue. citizens buying homes and recently raised The Liberal Party, which formed a majority property transfer tax on luxury homes to 12 government after the election, included in its per cent. Parts of Hawaii levy property taxes platform the following statement: at different rates depending on whether ‘We will review escalating home prices in owners are residents or non-residents. high-priced markets, like Toronto and In New Zealand, non-residents are restricted Vancouver, and consider all policy tools from purchasing ‘sensitive land’ such as farms that could keep home ownership within and holiday and waterfront homes. reach for more Canadians. We will also In Australia, foreign buyers pay an immediately restore the mandatory long- application fee to the Foreign Investment form census to ensure that decisions on Review Board for approval of purchases. housing are made using the best and most For properties in excess of AUD1m, the fee up-to-date data available.’ is AUD10,000, and foreign buyers can only purchase newly built homes and apartments.

REAL ESTATE NEWSLETTER APRIL 2016 15 FOREIGN INVESTMENT IN CANADIAN REAL ESTATE

The Conservative Party, which now forms What the future may hold the official opposition, stated in its election There are many factors that influence the platform that it would spend CAD500,000 price of real estate, particularly in Vancouver. to collect data on foreign investors in an The scarcity of land in Vancouver, surrounded effort to try to answer the question of how as it is by the Pacific Ocean, the mountains and much influence those investors have on protected farmland, contributes significantly the Vancouver housing market. It did not to increasing prices. The falling value of offer any details on how that data would be the Canadian dollar makes real estate here collected. increasingly attractive to foreign purchasers. In an interview in December 2015, in Whether the presence of foreign buyers has response to a question concerning controls exacerbated these price increases, while on foreign ownership, Prime Minister Justin anecdotally believed by many Canadians to Trudeau stated: ‘You know you have to be be the case, has not been objectively proven. cautious about decisions like that, that are based Whether proven or not, it is part of the on a single factor, because at the same time it political reality in Canada at the present time. would potentially devalue the equity that a lot of The problem for foreign buyers is that people have in their homes right now.’ political leaders at all levels in Canada feel At a provincial level, in October 2015 the pressured to offer quick solutions to these British Columbia finance minister stated complex issues. While many Canadian sellers that the provincial government was looking have benefited from sales at rapidly increasing into a proposal to implement a more prices, there are many more Canadians who progressive property transfer tax on high- feel they are being frozen out of access to end homes, while keeping such levies low residential real estate at affordable prices, and on less-expensive properties, and that while they will not be patient in waiting for action the province has been under pressure to act to be taken. While outright restrictions, such to cool the heated real estate market, the as those enacted in Australia with respect government would move carefully. ‘I have to used homes, are highly unlikely, the come to believe that for every taxation action introduction of greatly increased property there can be a reaction,’ he stated. What flows transfer taxes and property taxes targeted from that cryptic comment is hard to discern. to affect only foreign buyers and owners are Vancouver’s mayor, Gregor Robertson, alternatives that likely appeal to politicians of recently stated that: ‘A speculation tax all stripes. would help slow down the practice of The sky may not be falling, but foreign flipping houses, which treats housing as buyers of Canadian real estate should a commodity and intensifies the price watch developments in Canada closely as escalation. A luxury housing tax would future transactions will in all likelihood be ensure that the very wealthiest buyers or significantly more complicated and expensive. investors pay an added price.’ These statements can leave little doubt that the issues of foreign ownership and high real estate prices have caught the attention of politicians at all levels of government.

16 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION UNIQUE UNBUNDLING IN TELECOMS AND ITS DISTINCT REAL ESTATE ASPECTS

CZECH REPUBLIC

Jiří Horník Unique unbundling in Kocián Šolc Balaštík,* Prague telecoms and its distinct [email protected]

Alica real estate aspects Stegmannová Kocián Šolc Balaštík, istorically, telecoms services have venture with Atlantic West. The operation was Prague been strongly monopolised both consolidated in 2003, when Czech Telecom [email protected] in Europe and elsewhere. Even took full control of Eurotel Praha. Finally, in Hafter the market was liberalised in 2005, a majority Czech Government share in the 1980s, providers continued to own the Czech Telecom, currently O2 Czech Republic, network infrastructure as well as handle the was sold to Spanish company Telefónica. For management, administration and commercial the next eight years, Telefónica developed the aspects of their business. It did not take provider, and in 2013 sold its shares to PPF long, however, until the idea to separate Group, a Czech investment company. the infrastructure from the actual Because of its original position as the business began to percolate. Since then, the largest integrated telecom operator on Organisation for Economic Co-operation and the Czech market, O2 Czech Republic Development’s Competition Committee, and owned and operated a huge network of the European Commission, have held several telecommunications infrastructure, in discussions on structural separation – when an addition to providing mobile and fixed-line operator separates its network infrastructure services. New owner PPF Group, as one of from those units offering services using that the largest Czech investment companies, infrastructure – and the telecoms sector in was naturally looking for more efficient general is still the subject of great debate. In ways to operate the provider and decided practice, structural separation has been done to implement a voluntary separation of the successfully several times, but the reasons had infrastructure and retail services. been mainly to meet regulations or because This unique voluntary separation – the regulators ordered the separation to ensure first of its kind in Europe – was valued at fair competition. Even in cases where the approximately E1.7m. New company Ceska separation was undertaken voluntarily, it Telekomunikacni Infrastruktura (CETIN) was mainly initiated due to anticipation of was spun off from O2 Czech Republic in June impending regulatory measures or in order to 2015 and became the owner of the network conclude ongoing proceedings. infrastructure and all related data centres, The Czech fixed-line and mobile telecoms hardware, software licences and contracts, services market has undergone developments as well as all necessary personnel. O2 Czech similar to those in many other countries Republic, whose shares are still listed on the in the Central and Eastern Europe (CEE) regulated market, continues to focus on voice region. Once the CEE countries shifted to a and data services and television. This enables market economy and the telecommunications CETIN to focus exclusively on planning and market became liberalised, the original further developing the network infrastructure. government-owned and monopolised In addition, compliance requirements are providers of telecoms services started to now more logically distributed, and regulatory face competition, which eventually forced hurdles will be less of a burden since CETIN governments to privatise the providers to itself has no retail offering. ensure their survival. The Czech Government Apart from its corporate, regulatory and tax originally developed fixed-line and mobile dimensions, the transaction was also unique operations separately using different foreign from a real estate perspective. Due to the partners to help to develop the appropriate volume of the transferred assets and clash of technology. While the fixed-line operator – old and new legislation, the real estate aspects since 2000 branded as Cesky (Czech) Telecom had to be dealt with carefully to ensure a – was a joint venture with TelSource, a KPN/ successful transaction. Swisscom consortium, the mobile operator Until the end of 2013, the Roman legal Eurotel Praha was developed as a joint principle superficies solo cedit did not apply in

REAL ESTATE NEWSLETTER APRIL 2016 17 UNIQUE UNBUNDLING IN TELECOMS AND ITS DISTINCT REAL ESTATE ASPECTS

the Czech Republic. Accordingly, ownership were a part of the land or a standalone item of a building or structure was separable was whether they could be removed without from ownership of the land beneath it. their value decreasing. This, however, could This remnant from the state-run economy bring problems as well since the results could (originally invented in order to enable vary for fibre-optic cables on one hand and buildings or structures to be built on land that metallic cables on the other. the state was not able to acquire) resulted in a It eventually turned out that functionality situation where land was in fact encumbered would be the key factor, and whether or not by the ownership title of the owners of the assets were movable or immovable would buildings or structures. On the other hand, not play a role. In fact, all cables, ducts, certain parts of infrastructure could not building's housing network elements, masts, necessarily qualify as standalone buildings or towers and associated infrastructure, as well structures, and those were considered part as radio access equipment and antennas and of the land. In practice, this concept created network control nodes, were transferred. a lot of problems, particularly in the case of In total, the network in question, which cable line infrastructure, where it was not continues to grow by the day, consisted of 20 always entirely clear which cables were part of million kilometres of metallic cable pairs and the land and which were individual assets or 38,000 kilometres of fibre-optic cable. standalone structures. As of 1 January 2014, Lastly, the spin-off was also distinct when the new Czech Civil Code entered into when considering the scope of real estate force, the superficies solo cedit principle was involved, as the network reaches practically introduced in order to put Czech principles in each district in the country and every small line with European standards. Consequently, town and village. Moreover, as the Czech many unresolved issues from the past have now Republic has more than 10,000 cadastral areas been brought to light. administered by nearly 100 different branches Thus, to implement the unbundling of the Cadastral Authority for recording correctly, it was necessary to indicate which real estate and transfer of ownership titles, assets would actually be transferred to a specific process regarding the applications CETIN. From a practical point of view, some related to tens of thousands of land plots had things were clear: the above-ground cables, to be prepared to ensure the spin-off would telecommunication masts and towers, and go through smoothly. other technical equipment, were not subject to dispute; however, cables freely placed Note underground raised concerns. The main * Kocián Šolc Balaštík advised O2 Czech Republic on the factor in determining whether the assets unbundling.

18 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION REAL ESTATE NEWS FROM FINLAND

FINLAND

Jaana Koukkari Real estate news from Finland Lexia Attorneys, Helsinki ntil recently, residential development rarely available here, the City of Helsinki is [email protected] in Finland has been a (lucrative) promoting the so-called ‘complementary business reserved mainly for construction’, through forms such as the Ubuilding companies and institutional building of additional floors in residential investors. Development of blocks of flats by houses, and new buildings on plots of existing future apartment owners was possible but not residential houses. In Finland, residential regulated by law and was thus an exception buildings belong to limited liability housing to the rule. The new act on ‘group building’, companies where the shareholders own the which entered into force on 1 September flats. A sale of ‘a right to complementary 2015, changes the situation by providing legal building’ to a building company or investor basis for the development of blocks of flats permits the housing company to finance by groups of future owners. The new concept an expensive renovation, for example. of residential development provides for a Renovation of residential buildings is in better participation of future flat owners in constant increase as the share of old building the design of their flats and common areas stock grows. Thus complementary building is of the house. It is also expected to reduce a response to both social and private needs. acquisition cost of the new home, since For a complementary building project, an ‘group building’ transfers the developer’s risk increase in the permitted building volume from building companies and investors to is usually necessary, which means in practice private individuals. Recognised by legislation, that amendments have to be made to the city the new mode of residential building also is plan first. This is often the main obstacle for now more attractive to bankers. New financial complementary building: city planning is and risk management solutions are under way based on municipal decision-making, which, to help private individuals buy a new tailor- in a democratic society, is often a complicated made home at a reasonable price. and time-consuming procedure with an uncertain outcome. Changes to legislation regulating city-planning procedures are ‘Complementary building’ promoted being prepared to facilitate complementary Over the past few years in Finland there building. Strict and even complicated has been a steady internal migration to the regulations concerning decision-making Helsinki metropolitan area, which is thus procedures in housing companies are another facing a growing need for new apartments. key issue to be dealt with when selling ‘a right Since new interesting residential plots are to complementary building’.

REAL ESTATE NEWSLETTER APRIL 2016 19

FOREIGN OWNERSHIP OF MEXICAN RESIDENTIAL REAL ESTATE IN THE RESTRICTED ZONE

MEXICO

Patricio Martínez Foreign ownership of Mexican Creel Abogados, Mexico City residential real estate in the patricio.martinez@ creelabogados.com Restricted Zone Bernardo Espinosa oreign ownership of Mexican real companies have engaged in the Republic Creel Abogados, estate has a particular regulation, the enterprise of acquiring large extensions Mexico City especially for the acquisition for of land, it is necessary to stop this evil with a bernardo.espiniosa@ residential real estate located 100km prompt and effective correction, because, if creelabogados.com F from the borders and 50km from the coasts, not, it would not take long for the national which includes all of Mexico’s prime vacation territory to end up, as a fact or under a areas. Such areas are referred to as the fiction, in foreign hands.’ ‘Restricted Zone’. While no foreigner may As time has passed, restrictions to foreign have ownership rights over residential real ownership of Mexican real estate have estate located within the Restricted Zone, diminished. The Foreign Investment Law Mexican laws provide an alternative that currently allows foreigners (directly or allows foreigners to be trust beneficiaries through Mexican companies with foreign (fideicomisarios) of Mexican trusts that acquire investment) to acquire non-residential real residential real estate within the zone. estate after agreeing with the Ministry of There are currently two bills being Foreign Relations to be treated as Mexican discussed by different commissions within the nationals and renounce the protection of Mexican Senate that propose amendments their governments in matters pertaining to to the Mexican Constitution, and that would the Mexican real estate. result in various reforms to other regulations, Likewise, real estate development including the Foreign Investment Law companies with foreign investment may (Ley de Inversión Extranjera), to remove the own real estate (from its acquisition and all restrictions that prevent foreign ownership the way up to its commercialisation), but of residential real estate in all of the Mexican they may only transfer the finished products territory. to Mexican nationals, Mexican companies These reforms would be beneficial that do not allow foreign investment, and especially to foreign vacation property owners Mexican trusts. as it would reduce their costs in Mexico. In the case of agrarian real estate, the applicable laws limit participation of foreigners in companies that own agrarian Background land and are engaged in the production, Restrictions on foreign ownership of real transformation or commercialisation of estate are the consequence of different agricultural, stockbreeding or forestry historic events (including Mexican products. Foreigners may only hold 49 per Independence in the early 1800s) and cent of these companies (through a special they share the same origin: fear of losing series of shares known as T-Series shares) sovereignty at a time when invasions were part and these entities may only hold agrarian of Mexico’s recent history. land that does not exceed 25 times the limit Indeed, it is not surprising that when the allowed for each type of land. Likewise, there Mexican Constitution in force was redacted, are restrictions on how many T-Series shares the debates on its content included mentions may be held by individuals and companies. of ‘limiting foreign acquisition in real estate’. In fact, on the constituent’s debate Residential real estate agenda dated 1 December 1916, the need to limit foreign ownership of agrarian property Residential real estate has two types of (which at that time made up a significant treatment when foreigners are involved, part of Mexico’s territory) was discussed, depending on its location. stating: ‘The need for this reform is imposed If the real estate is located outside of the by itself, because nobody ignores that […] Restricted Zone, then it may be acquired by

REAL ESTATE NEWSLETTER APRIL 2016 21 FOREIGN OWNERSHIP OF MEXICAN RESIDENTIAL REAL ESTATE IN THE RESTRICTED ZONE

foreigners or by Mexican companies, and a standard real estate trust, any trust they only need to request a permit from the beneficiary who is a foreigner would not be Ministry of Foreign Affairs, which is deemed entitled to directly acquire the real estate if granted if the Ministry does not publish a the trust is extinguished. negative response within five days of the Real Estate Restricted Zone Trusts allow request. beneficiaries to have the use and enjoyment While there is no available public of the real estate owned by the trust, and information that distinguishes permits will have no limitation on transferring the issued for the acquisition of residential and property’s right of use to any third party, or non-residential real estate outside of the in setting mortgages or other liens over such Restricted Zone, below is the number of real estate. permits issued by the Ministry of Foreign The duration of such trusts is limited to Affairs between 2005 and 2010 (which 50 years, with a 50-year extension. In case represents the most recent available the foreigner wishes to maintain their trust information) for the acquisition by beneficiary rights over the residential real foreigners of real estate in Mexico:1 estate, they would need to instruct the expiring trust to sell the real estate to a new trust, which in turn would require a new Number of Permits issued 2005–2010 approval from the Ministry. 2005 2006 2007 2008 2009 2010 Below is the number of permits for Real Estate Restricted Zone Trusts issued by the 5,050 5,029 5,050 4,310 2,691 2,899 Ministry of Foreign Affairs between 2005 and 2010:2 On the other hand, if the residential real estate is located in the Restricted Zone, it may Number of Real Estate Restricted Zone not be acquired directly by foreigners nor by Trusts 2005–2010 Mexican companies with foreign investment, but the Foreign Investment Law provides that 2005 2006 2007 2008 2009 2010 they may be trust beneficiaries of Mexican trusts that own residential real estate within 5,753 6,611 7,000 5,226 3,402 3,271 the Restricted Zone. It is worth noting that timeshare From the above numbers it is easy to properties, mixed-used properties with appreciate that, up to 2010, each year there a residential component, real estate were more permits issued for Real Estate held by credit and financial institutions Restricted Zone Trusts than for acquisitions as collateral, and real estate used for outside of this area. commercial, industrial or service activities are deemed not to be ‘residential properties’ Proposed constitutional reforms for purposes of this restriction and may therefore be acquired by foreigners and Both constitutional reform bills being Mexican companies with foreign investment. discussed have the same objective: to allow foreigners to acquire residential real estate in the Restricted Zone by following the Real Estate Restricted Zone Trusts same requirements (which involve a permit Real Estate Restricted Zone Trusts from the Ministry of Foreign Affairs) as (fideicomisos sobre bienes inmuebles en zona when acquiring real estate, residential restringida) are a special type of real estate or otherwise, outside this area. The most trust where a Mexican bank acts as trustee recent of them was approved in April 2013 and acquires the residential real estate for by the Chamber of Representatives (Cámara the benefit of its clients, usually foreign de Diputados) and passed on for further individuals or entities. The banks charge discussion to the Senate. the trust beneficiaries a contracting fee The timing for both bills being discussed when entering into the trust and yearly on the Senate floor is questionable, since maintenance fees. they are still being analysed by different These trusts require approval from the commissions of senators and there has been Ministry of Foreign Affairs to acquire no indication of tangible progress. The bills residential real estate for the profit of would need to follow the required process their beneficiaries. As a difference from for constitutional amendments, which

22 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION LEVERAGING THE NIGERIAN DIASPORA TO EXPLOIT THE VAST INVESTMENT OPPORTUNITIES IN MASS HOUSING

involves approval by the majority of Mexico’s regime applicable to foreigners wishing to states before being enacted by the president acquire residential real estate in Mexico via publication in the Official Gazette of the will be simplified and the most tangible Federation (Diario Oficial de la Federación). and immediate effect that should be felt is a substantial reduction of legal costs for maintaining a property, given that there will Future expectations be no need to keep a Real Estate Restricted Due to the active participation of Mexico Zone Trust with a bank. in foreign trade agreements, it is likely that restrictions to foreign investment will be Notes further reduced to encourage additional 1 Secretaría de Relaciones Exteriores. ‘Estadísticas de los investment in the country. Servicios’, 22 January 2015. http://sre.gob.mx/ Therefore, if any of the proposed estadisticas-de-los-servicios. constitutional reforms is approved, the legal 2 Ibid.

NIGERIA

Tola Oshobi Leveraging the Nigerian diaspora Babalakin & Co, Lagos toshobi@ to exploit the vast investment babalakinandco.com opportunities in mass housing: Precious A Adeyemi the regulatory issues Babalakin & Co, Lagos aadeyemi@ babalakinandco.com igeria, reported to be Africa’s in the world.9 A significant amount of these largest economy and a fast-growing funds are remitted to acquire real estate in Adeyoyinsola emerging market, is facing a Nigeria. In practice, these remittances are Olanipekun Nnational housing deficit of about made periodically to friends or relatives who Babalakin & Co, Lagos 17 million units, and this figure is growing at supervise the purchase/construction. This the rate of two million units per annum. The process is characterised by unduly extensive aolanipekun@ babalakinandco.com cost of bridging the deficit, according to a periods of development, cost overruns and, World Bank study, is US$363bn.1 The demand sometimes, misappropriation by the recipient. for housing has driven the cost of rent in The Nigerian housing market is challenged urban areas up to as much as 60 per cent of a by various hurdles to accessing mortgage tenant’s disposable income.2 finance, which will be discussed subsequently. A significant number of the Nigerian This article gives an overview of the more diaspora have an interest in property significant legal and regulatory challenges acquisition in Nigeria, as well as potential relevant to financing the housing deficit. access to alternative sources of funding. It further discusses legal issues involved in Nigerians living outside Nigeria are estimated structuring alternative sources of finance at 17 million.3 Popular locations include by leveraging the diaspora demand for real the UK, where it is estimated that more property and, by implication, bridging the than one million Nigerians reside,4 and housing deficit. the US, where the Nigerian population was estimated at 219,309 in 2010.5 Nigeria is the Challenges facing the mortgage industry largest recipient of diaspora remittances in in Nigeria sub-Saharan Africa,6 receiving nearly two- thirds of the total.7 Nigerians living abroad A major hindrance to overcoming the sent home US$63.17bn between 2011 and housing problem is the underdevelopment June 2014,8 and U$20.8bn in 2015, which is of the mortgage system in Nigeria. Mortgage reported as the largest volume of remittances finance as a share of GDP in Nigeria is 0.5 to any country in Africa and the sixth-largest per cent, compared with the UK’s 80 per cent

REAL ESTATE NEWSLETTER APRIL 2016 23 LEVERAGING THE NIGERIAN DIASPORA TO EXPLOIT THE VAST INVESTMENT OPPORTUNITIES IN MASS HOUSING

and the US’s 77 per cent.10 The main reasons Reforms are being implemented to for the underdevelopment of the mortgage address a few of these challenges. For industry in Nigeria are legal, fiscal and instance, to minimise delays, some regulatory. These include delays in and cost governors have delegated the power of registering titles, non-availability of long- to grant Governor’s Consent. The term funds, prohibitive interest rates, barriers introduction of Active Case Management to foreclosure and protracted litigation in and Fast Track Commercial, Revenues and enforcing rights. Mortgages Divisions in some courts, as The Land Use Act11 prohibits the transfer well as the reduction in timelines for filing of title or any interest in land including appeals, have helped. Various legal devices mortgages without the consent of the can also be adopted to limit the risks. governor of the state in which the land is situated. Due to an inefficient administrative The Nigerian diaspora and financing the process, there is often a delay of several housing deficit months before ‘Governor’s Consent’ is obtained. Consent fees and other charges are The demand for property and the also payable based on the transaction value. limitations in the mortgage industry in The state of Nigerian case law on Nigeria present an opportunity for foreign mortgages, particularly with regards to the investors interested in mass housing. Some right of foreclosure and the competing entities have shown interest but refrained concept of equity of redemption, makes the from investment because of the regulatory process of foreclosure less certain than it challenges in the system. For instance, in ought to be. 2007, the US’s Ex-Im Bank indicated that The case law is overwhelmingly skewed it had US$500m earmarked for guarantees in favour of the mortgagor. In Ejikeme v to support mass housing in Nigeria that Okonkwo,12 the mortgagor’s right to redeem could not be disbursed because potential was referred to as being ‘so inseparable an borrowers could not meet the conditions, incident of mortgage that it cannot be taken largely due to the constraints in the legal away by an express agreement of the parties’. and fiscal environment.13 The investment The Supreme Court stated that ‘the right climate is otherwise favourable, as the law continues unless and until the mortgagor’s allows 100 per cent foreign ownership title is extinguished or his interest destroyed of companies, capital importation and by sale under process of court or of a power repatriation of profit. Considering the huge in the mortgage incident to the security’. amounts of money repatriated by Nigerians In this case, the equity of redemption was in the diaspora for property acquisition, upheld in spite of the accrual of third-party there is a ready market for companies based rights in the form of a 35-year lease that was in countries with a substantial Nigerian 29 years old at the time the Supreme Court population to develop mass housing delivered its judgment. The only exception projects. seems to be where there is a valid and A feasible mechanism is a finance conclusive outright sale. structure that enables the parties to Since there is no valid or complete sale contract under the diaspora law with the until Governor’s Consent is obtained, a primary secured property in Nigeria, while mortgagor can file a spurious claim in a secondary security is the purchaser’s court to challenge foreclosure before the property in the diaspora. mortgagee is able to sell the property, and This provides the advantage of working certainly before the mortgagee obtains within an alternative legal system, which Governor’s Consent. This situation is both parties are connected to, devoid of the compounded by the length of time it takes to challenges referred to above. The mortgagee obtain such consent. is also able to work within a familiar system Some potential investors in the sector and have easier access to the purchaser’s are also wary of the delays that may be credit rating and history. The transaction experienced in the event of litigation. The and the repayments can be denominated in multi-layered appellate process, with every the same currency (of the country where the litigant being entitled to pursue his case all purchaser is located). Also, the transaction the way to the Supreme Court, has created a could be structured such that the right to huge backlog of cases in the court system and proceed against the diaspora property is a clog in the wheel of justice. conditional upon the inability to obtain a

24 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION LEVERAGING THE NIGERIAN DIASPORA TO EXPLOIT THE VAST INVESTMENT OPPORTUNITIES IN MASS HOUSING remedy against the Nigerian property. The investors. We believe that these challenges purchaser is thus discouraged from unduly are not insurmountable and can be overcome opposing foreclosure, and his primary by using various legal devices and leveraging residence in the diaspora is protected since the funds available to the Nigerian diaspora, the mortgagee is able to proceed against the thus creating a win-win situation for both the Nigerian property. Nigerian economy and investors. This structure does not completely alienate the Nigerian legal system (nor is Notes it desirable to do so) and there are still 1 Africa Housing Finance Yearbook 2015, Centre for Affordable certain Nigerian law issues that parties Housing Finance in Africa. www.housingfinanceafrica. need to address in order to successfully org/country/nigeria. 2 Walter Emiefade (2015), Housing in Nigeria: use this mechanism. The requirements of Why We Desperately Need 17 Million More Homes!. certain laws – including the Companies http://sapientvendors.com.ng/housing-in-nigeria. and Allied Matters Act, Companies Income 3 The Economist (20 June 2015), ‘Nigerians abroad: Tax Act, Land Use Act, Foreign Exchange Secret weapon’. www.economist.com/news/special- report/21654360-nigerias-diaspora-source-money-markets- (Monitoring and Miscellaneous Provisions) skills-and-ideas-secret-weapon. Act and Nigerian Investment Promotion 4 Vanguard (2015), ‘Over 1m Nigerians live in London Commission Act – may apply. First, even – Mayor of London’. www.vanguardngr.com/2013/05/ where the major agreement is contracted over-1m-nigerians-live-in-london-mayor-of-london. 5 American Immigration Council. under foreign law, the agreement that http://immigrationpolicy.org/just-facts/african- concerns the Nigerian property as security immigrants-america-demographic-overview. will need to be bound by Nigerian law. 6 Odoziobodo Ifeanyi, ‘Africa And Her Diasporas: Building Secondly, where an institution is deemed Global Partnerships For Development (A Case Study Of Nigeria)’. International Journal Of Scientific & Technology to be doing business in Nigeria either by Research, Vol 2, Issue 9, September 2013, 185. the nature or the frequency of its proposed 7 The World Bank (2015). See www.worldbank.org/en/ activities, it is required to incorporate a news/press-release/2015/04/13/remittances-growth-to- Nigerian subsidiary; other compliance issues slow-sharply-in-2015-as-europe-and-russia-stay-weak-pick- up-expected-next-year. will consequently arise. Furthermore, there 8 See https://constative.com/opinion/how-nigerians-in- are tax implications with regard to income diaspora-can-contribute-in-building-a-better-nigeria. ‘derived from Nigeria’. There would also be 9 The World Bank (2015), Migration and Remittances Factbook 2016. http://go.worldbank.org/QGUCPJTOR0. need for collaboration with Nigerian entities 10 See n 1 above. for investigation and perfection of title. 11 S.22 Cap L6 LFN 2010. In conclusion, while there are legal and 12 8 NWLR Pt 362 p 266 at p 278 paras A-B (1994). regulatory challenges to bridging the huge 13 Statements made during meetings at the offices of the US Ex-Im Bank attended by Tola Oshobi as part of a trade housing deficit in Nigeria, paradoxically this delegation in June 2007. deficit also presents a massive opportunity to

REAL ESTATE NEWSLETTER APRIL 2016 25 A NEW LAW ON SECONDARY RESIDENCES IN SWITZERLAND

SWITZERLAND

A new law on secondary Niels Schindler DGE Avocats, Geneva residences in Switzerland: niels.schindler@ dgepartners.com

a new era for the real-estate Alexandre Ayad DGE Avocats, Geneva market in the Swiss Alps alexandre.ayad@ dgepartners.com

n 11 March 2012, the Swiss In both situations, these lodgings must be electorate decided in a ballot permanently offered exclusively for short stays initiative to limit the number of and at the regular market price. Osecondary residences in every Homes that existed before 11 March 2012 municipality to 20 per cent of the total or construction projects that received a permit amount of lodgings by way of a new provision that entered into force before that date have in the Swiss Constitution.1 This matter no restriction of use. The owner may use emerged in the news again in the first days the lodging as its primary residence, as a of 2016 as the Swiss Federal Parliament, after secondary residence for holidays or lease it a provisional regulation period, enacted for short or long periods of time. Renovation a statute that implements the 2012 ballot and transformation are authorised without initiative. This statute, complemented by an restrictions within the limits of the initial ordinance of the Swiss Federal Government, usable surface. In constructible areas, the entered into force on 1 January 2016. house may even be enlarged up to 30 per The purpose of the regulation on cent of the initial usable surface subject to the secondary residences is to encourage condition that it does not lead to the creation sustainable tourism and limit the ‘cold beds of a new unit of housing. syndrome’2 that affects tourist areas, especially in the mountains. Illustration through examples The following examples show how the The principles restrictions can affect a current real-estate In summary, the new law prohibits the ownership or the desire to invest in a future construction of secondary residences in real-estate acquisition in Switzerland. the Swiss municipalities where secondary residences exceed 20 per cent of the total Client A wishes to settle down in Switzerland amount of units of lodgings (the ‘Affected and benefit from the lump sum taxation status. Municipalities’). The creation of primary He is aware that his new contemplated place of residences – that is, lodgings in which at residence is located in an Affected Municipality. least one person effectively resides either He wonders if he should opt for purchasing an as a duly registered permanent resident or existing house or building a new construction. for the purpose of a professional activity or studies – remains allowed. The statute defines First option: Client A purchases a house a secondary residence as a lodging that is not or apartment that already existed on 11 used as a primary residence. March 2012 or was created on the basis of Under the new legislation, lodgings a construction permit entered into force used for tourist accommodation may still before this date. He will use this place as his be created in the context of an organised primary residence – and effectively reside hospitality establishment, namely a hotel or there at least six months in the year – for the a residence with services common to hotels purpose of being taxed under the lump sum (reception, restaurant, room service, etc). taxation status. Moreover, the local population is permitted A few years later, Client A may decide to accommodate tourists in the building to move his place of residence elsewhere of the principal place of residence. This and keep this lodging for his own use as model refers to a type of ‘bed and breakfast’. a secondary residence. He may also lease

26 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION A NEW LAW ON SECONDARY RESIDENCES IN SWITZERLAND it for long or short periods in order to Affected Municipalities. obtain revenues. He will not be subject to The projected hotel must permanently any restrictions of use with respect to this offer all rooms for short periods of time, at real-estate property. Moreover, if Client A the market price, with access to the hotel considers to sell the property in the future, services. the purchaser will not be obliged to make As regards to the three apartments without this lodging his/her primary residence. The hotel service, Client B will be allowed to unrestricted right of use is transferred to the integrate them in the project under very strict future purchaser. conditions. In order to qualify, Client B will Second option: Client A wishes to build a new have to demonstrate, through a report from property according to his own taste on a land an independent expert, that the following to be acquired. Considering that he plans criteria are met: the profits arising from to use this brand-new lodging as his primary the lease or sale of such apartments are residence, he will be allowed to build it in an essential for the financing of the construction Affected Municipality. or operation of the hotel; the profits are However, it is essential to warn Client A reinvested in the construction or operation of that the construction permit will include a the hotel; and an architectural and functional restriction that the new construction has to be unity exists between the hotel and the used as a primary residence. Such restriction apartments. will also be noted in the Land Register. If, at Client B will also have to strictly comply a later stage, Client A moves out, he will have with size requirements as regards the three no other choice but to find tenants who rent apartments. If the apartments are for the place as primary residence, or sell it to sale, Client B will be allowed to allocate someone with the same intent. to such apartments a maximum of 20 Client A will not have to maintain this per cent of the whole primary usable primary residence for himself until he surface area including the hotel and the finds a suitable tenant or purchaser, as apartments. The ratio reaches 33 per cent the authority may, upon request, grant a if Client B decides to remain the owner temporary stay of the requirement to live for a long period of time and leases the in the property until a new permanent three apartments, either as a primary or a resident is found. However, in particular secondary residence for the tenants. in rural areas, finding a new tenant or a purchaser who is willing to permanently Client C is an investment fund interested in reside in such a place may be difficult. The acquiring unprofitable hotels in the Swiss Alps scarcity of demand may have a major impact and transforming them into apartments. Client on the sale price. C is aware that the operation is viable only if the The same scenario applies if Client A lodgings can be used as secondary residences. invests in an existing property that is built on the basis of a construction permit in force In Affected Municipalities, Client C’s business after 11 March 2012. plan is conceivable on the strict condition In conclusion, the first option is to be that the targeted hotels have been operated recommended. for more than 25 years. An independent expert must demonstrate that the hotel is no longer viable and that the owner or operator Client B is a company in the hotel business. It is not at fault for this. has a project to build and operate a hotel in an The reallocation for use as secondary Affected Municipality. It also intends to build residences is limited to 50 per cent of the three apartments in one aisle of the building but primary usable surface area of the existing without hotel services. property. The remaining 50 per cent must The project to build a hotel is not barred be used as a hotel or related organised by the new legislation on secondary hospitality establishment. If we refer to the residences, even if the project takes place letter of the law, it is not clear if the operation within an Affected Municipality. Along of the hotel can be completely shut down with primary residences, lodging used for when it is demonstrated that operating the tourist accommodation in the context of hotel would clearly be unprofitable. In such an organised hospitality establishment is cases, we would advise Client C to negotiate the other main exception to the complete with the authorities in order to obtain, at prohibition of new secondary residences in least, an authorisation to transform the

REAL ESTATE NEWSLETTER APRIL 2016 27 LEX KOLLER: RESTRICTIONS FOR FOREIGNERS ACQUIRING REAL ESTATE IN SWITZERLAND

remaining 50 per cent into commercial Switzerland implemented a centralised premises or apartments used as primary regulation at the country level. Municipalities residences. will have little room for interpretation of the new legislation despite their economic and geographic individualities. Closing remarks The statute contains a number of harsh This article considers the restrictions on civil and criminal sanctions intended to secondary residences exclusively under the dissuade owners from the temptation to scope of the new statute and ordinance circumvent the new legislation, particularly by on secondary residences in force since 1 establishing fictitious primary residences. January 2016. Readers must be aware that an additional set of restrictions have applied Notes since 1985 for the acquisition of real estate in 1 Article 75b, Federal Constitution of the Swiss Switzerland by foreigners. Confederation. Unlike most of its neighbouring countries, 2 The expression ‘cold beds’ refers to lodgings that stay empty most of the year.

SWITZERLAND

Lex Koller: restrictions for Benedict F Christ VISCHER AG, Zurich foreigners acquiring real [email protected] estate in Switzerland

he Swiss Constitution guarantees Switzerland. The restrictions on foreign private property; thus, as a basic rule, real estate investments have been subject to real estate may be freely transferred. periodic political swings over the years. The T However, there are some drastic formerly more restrictive regulation had been restrictions on real estate transfers, including liberalised in 1997 to permit the transfer of the restrictions imposed by the Federal Act commercial real estate, and further in 2005 to on the Acquisition of Real Estate by Persons allow investments in listed real estate funds. Abroad, commonly referred to as Lex Koller, In 2007, the Federal Council even proposed which limits the transfer of real estate to repealing the Lex Koller in its entirety – foreigners. which, however, Parliament rejected. Due to Lex Koller, with a few exceptions, Meanwhile, the Federal Council has foreign investors may not acquire residential completely changed its stance. Rather than real estate located in Switzerland, while considering repealing the Lex Koller, the there are no restrictions on the purchase Council now seems poised to make the Lex of commercial real estate. Lex Koller’s Koller more restrictive. For instance, under restrictions apply to companies incorporated the Council’s new proposals, expected outside Switzerland and foreign nationals. to be launched in the course of 2016, There are no restrictions for persons from foreigners would no longer be permitted to European Union/European Free Trade acquire commercial real estate other than Association (EFTA) countries as long as they for their proper use, while purchases for are resident in Switzerland. investment purposes would no longer be possible. Further, foreign investors would no longer be allowed to invest in real estate Political developments companies. Also, the purchase of main The current Lex Koller is the successor residences would be restricted. Foreign of former legislation that, starting in the persons (other than from EU/EFTA early 1960s, limited, to varying extents, the countries) would be forced to sell a main possession of real estate by foreigners in residence upon leaving Switzerland.

28 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION LEX KOLLER: RESTRICTIONS FOR FOREIGNERS ACQUIRING REAL ESTATE IN SWITZERLAND

These proposals by the Council, if determined on economic analysis. Thus, any adopted by Parliament, would significantly transaction that would permit a foreigner constrict the purchase and possession of to obtain control over Swiss residential real real estate by foreigners. If, and to what estate is prohibited. The consequences of extent, these proposals become law is a breach are draconic. The transaction is currently an open matter. null and void and the parties are subject to criminal sanctions. To assess the permissibility of a real estate Commercial real estate transaction involving a foreign investor, According to the current law, foreign the essential criterion is economic control. investors can buy commercial real estate in Thus, a foreigner may invest in residential Switzerland without restrictions. Any real real estate as long as a Swiss partner estate that is used for commercial purposes continues holding the control and a foreign qualifies as commercial real estate, including person cannot influence the Swiss partner office buildings, factories, warehouses, retail or bypass such control. spaces, stores and shopping centres, hotels There is no ban on investments in real and restaurants. A foreign investor may estate companies that are listed on a stock acquire such commercial real estate for its exchange and there are no restrictions on own use or for investment purposes. the purchase of listed stock. However, a Land that is not developed is not listed real estate company can only invest considered to be commercial real estate in residential real estate as long as it is not independent of its zoning or potential future foreign-controlled. use. However, a foreign investor may buy non- Classification issues can arise in connection built-up land if they plan to develop the land with the purchase of real estate companies within a reasonable period of time. Further, with portfolios that include some residential a foreign investor may acquire undeveloped real estate in addition to commercial real land together with commercial real estate as estate. The purchase of such a company is long as the non-built-up area is significantly permitted as long as the residential part is smaller than the built-up area. significantly smaller than the commercial Also, farmland is not deemed to be part. Further, there is no problem with the commercial real estate. The transfer of acquisition of commercial real estate that farmland is subject to separate regulation includes a few apartments. applying equally to foreigners and nationals. The Federal Act on Rural Real Estate basically Permits and declarative orders prohibits any transfer of farmland other than to farmers for their own use. To the extent a purchase of real estate is permitted (namely, commercial real estate and real estate used as main residence), a Residential real estate foreign investor can buy the respective real As a general rule, foreign investors estate freely without the need to obtain (except for EU/EFTA nationals resident in permission from the authorities. Conversely, Switzerland) cannot acquire residential real there are only limited circumstances under estate in Switzerland. Exempted from this which the authorities can grant a permit for rule is the purchase of a main residence at a transaction that is otherwise prohibited the actual domicile of the foreigner, which a (namely, vacation homes within the small foreigner can buy without the need to obtain annual quotas). permission from the authorities. Sometimes there are cases that are difficult There are some very limited exceptions to to classify; in particular where there are the general ban on transfers of residential no defined threshold values but only open real estate to foreigners, which allow terms such as ‘significant’. These cases foreigners to purchase residential real estate include instances where commercial real if they obtain a permit from the authorities. estate includes non-developed land or mixed Exceptions apply, in particular, to the residential and commercial portfolios, but purchase of vacation homes, for which there also issues of control. Considering that is a small annual quota. prohibited transactions are void, but also The Lex Koller’s transfer restrictions that the land registry may refuse to register cannot be avoided. Whether or not a a questionable transfer, it is recommended transaction is in breach of the Lex Koller is to clarify such issues prior to the transaction.

REAL ESTATE NEWSLETTER APRIL 2016 29 ACQUISITION OF RESIDENTIAL PROPERTIES BY FOREIGN INDIVIDUALS IN TURKEY

The case can simply be discussed with the the cantonal and, if needed, the federal authorities on a non-binding basis, or the authorities early in the transaction. Also, the parties can ask for a binding declarative Lex Koller’s interpretation may vary from order (advance ruling). In any case, it is canton to canton. recommended to start the dialogue with

TURKEY

Acquisition of residential Serhan Koçaklı Kolcuoğlu Demirkan properties by foreign Koçaklı Istanbul skocakli@ individuals in Turkey – kolcuoglu.av.tr Alp Erçetin enjoying consumer protection Kolcuoğlu Demirkan Koçaklı Istanbul aercetin@ hanks to Turkey’s successful and As a result of this system’s importance kolcuoglu.av.tr stable economic growth over the past and extensive usage, the new Consumer decade, in addition to its strategic Protection Law No 65022 (the ‘CPL’) and the Gözde Kabadayı geographical location, foreign and Regulation on Residential Property Sale (the T Kolcuoğlu Demirkan domestic individuals are increasingly willing ‘Regulation’) introduced radical provisions Koçaklı Istanbul to acquire residential properties in Turkey. on residence sales involving advance According to data obtained from the Turkish payment, thereby introducing a great deal of gkabadayi@ kolcuoglu.av.tr Statistical Institute, total residential property protection to consumers while simultaneously sales to foreign and domestic individuals establishing significant burdens and penalties reached 106,008 in November 2015, reflecting on the developers’ side. a 2.1 per cent increase over the previous year.1 Residential property sales to foreign The CPL’s application to foreign individuals individuals increased even more significantly, expanding by 25.6 per cent, or 2,119 units, The CPL is a Turkish law applicable to in November 2015. Istanbul had the greatest transactions between Turkish individuals number of purchases by foreigners, with 703 carried out within Turkey. Having said that, residential property sales that month. the International Private and Procedural This radical growth in residential property Law (IPPL) sets forth the application of sales to both foreign and domestic individuals domestic laws to transactions that contain a triggered a consistent increase in the price foreign element. of land set for development by construction As per Article 21 of the IPPL, the law of firms. However, due to the rise in expenses the state where the real estate is located will resulting from these construction projects, apply to property transactions containing developers generally struggled to complete a foreign element. Additionally, the legal their projects using their own financial form of transactions concerning property resources. rights is also governed by the law of the state In order to solve this problem, developers where the property is located. In this respect, invented an auto-financing system whereby foreign individuals’ real estate transactions consumers could purchase residential units within Turkey are governed by Turkish law by viewing mock-ups of the properties. Under and are subject to form requirements (eg, this system, the consumer could pay a certain execution of advance payment agreements portion of the purchase price in advance (the ‘Agreement’) in statutory form). and the remaining amount in instalments. Accordingly, foreigners are also subject to The proceeds received allowed developers to the protections under the CPL in relation to reduce their financing burden. Accordingly, residential property acquisitions involving most residential sales in Turkey are completed advance payment. using this system.

30 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION ACQUISITION OF RESIDENTIAL PROPERTIES BY FOREIGN INDIVIDUALS IN TURKEY

Although the protective regulations are of the construction permit, etc) and the applicable to foreign individuals’ residential consumer rights set forth under the CPL, and property acquisitions with advance payment, must provide the buyer with the building’s foreigners are still subject to an application management plan, the layout plan for the process related to their residential property residence and the residential unit, the acquisitions in Turkey. technical specifications and a copy of the land registry record corresponding to the residential unit. Novelties brought by the CPL

Execution of the residential property sale Delivery date of the residential unit with advance payment agreement in The residential unit must be delivered statutory form in habitable form, and its title must be Under Turkish Law, an agreement concerning transferred to the consumer within 36 months the sale of real estate must be executed ex of the Agreement’s execution date. officio (in the form mandated by law) before If the developer does not duly transfer a notary public. Otherwise, the agreement is the title of the residential unit within this deemed null and void in its entirety. However, period, the developer will be obligated to when the former Consumer Protection Law pay an administrative penalty of TRY23,250 e was in force, residential property developers (approximately 7,125) per residential unit did not respect this requirement and often not duly delivered to the buyer. executed residential property sales involving the Agreement in ordinary written form. Buyer’s right to withdraw As execution of the Agreement in ordinary written form often led to disputes, law-makers The buyer is entitled to withdraw from the decided to include a clear provision in the Agreement without penalty and without CPL. Accordingly, the Agreement must be cause, within 14 days of the Agreement’s executed before a notary public in order to execution date. The CPL expects the be binding on the contractual parties. developer to prove that the buyer was If the Agreement is not executed in the properly informed about his right to withdraw statutorily mandated form, a developer will from the Agreement. not under any circumstances be entitled to If the buyer exercises his right to withdraw request payment from a buyer or enforce any from the Agreement, the purchase price paid document (bond, security, etc) that burdens by the buyer and all documents binding the the buyer with debt. buyer must be returned to him within 14 days of the date the developer receives the withdrawal notice. The buyer must return Obtaining a construction permit before any gains earned pursuant to the terms of the execution of the Agreement Agreement to the developer within ten days As per the CPL, the developer must obtain of receiving the developer’s refund. a construction permit before entering into the Agreement. If the developer executes the Buyer’s right of rescission Agreement before obtaining the required permit, the developer will be subject to In addition to the withdrawal right, buyers are an administrative penalty of TRY116,254 entitled to rescind the Agreement any time (approximately e35,600). before the title transfer of the residential unit. If the buyer rescinds the Agreement, the developer is entitled to request from the Delivery of the preliminary information buyer any expenses arising from taxes, fees, form charges and similar legal duties, plus two As per the new CPL provisions, a developer per cent of the Agreement amount (ie, the must deliver a preliminary information purchase price), as compensation. form at least one day prior to executing the If the buyer rescinds, anything paid by the Agreement. buyer, and all documents binding the buyer, In this respect, the developer is obligated must be returned to the consumer no later to state all key details regarding the than 90 days following the date the developer residential unit (eg, delivery date, date received the rescission notice.

REAL ESTATE NEWSLETTER APRIL 2016 31 ACQUISITION OF RESIDENTIAL PROPERTIES BY FOREIGN INDIVIDUALS IN TURKEY

The developer’s obligation to provide Turkey) regarding the acquisition of real guarantee estate. However, the Law was amended and it is now possible for foreign individuals to Depending on the number of residential units acquire real estate in Turkey without satisfying falling within the scope of the development the reciprocity rule. plan (the CPL does not provide for a number, Further to the amendments relating to but the Regulation draws the line above the reciprocity principle, the Law sets forth 30 residential units per development), the certain aerial and territorial restrictions to developer must provide building completion foreigners acquiring real estate in Turkey, insurance or another type of security before whereby these individuals are subject to a initiating the sale of residential units. These preliminary application procedure. requirements reflect an attempt by law-makers In this respect, foreign individuals must to mitigate a buyer’s risk should the developer apply to the relevant land registry in order become financially distressed during the to determine whether they are eligible to construction. acquire real estate in Turkey. Although the reciprocity principle was lifted by the Law, Annotation of the Agreement citizens of certain countries cannot buy real estate in Turkey. These countries are Under Article 41 of the CPL, the Agreement determined by the Council of Ministers and must be annotated with the relevant land are kept confidential due to their political registry. Once the Agreement is annotated, nature. Following the application, the even if the original developer sells the relevant land registry will first determine residential property to a third party, the buyer whether or not the applicant is entitled to (ie, the buyer under the Agreement) may acquire real estate. assert his right to purchase the target property After a determination of eligibility, the vis-à-vis the new owner, in accordance with the application will be forwarded to the relevant terms and conditions of the Agreement. Military Staff (Genelkurmay Başkanlığı) to determine whether or not the target land Application procedure for foreign falls within a military security zone. The individuals’ acquisition of real estate application will proceed in accordance with in Turkey the response received from the Presidency of Military Staff. If the response is affirmative, The Title Deed Law (the ‘Law’) previously the real estate will be transferred to the limited foreign individuals’ acquisition of real foreign individual. estate in Turkey. Foreign individuals were only permitted to acquire real estate resting within the boundaries of an implementation Notes plan and which would be used as a residence 1 See www.tuik.gov.tr/PreHaberBultenleri.do?id=18562. 2 The new Consumer Protection Law was enacted on 28 or office, and only if there was reciprocity November 2013 and entered into force on 28 May 2014. between the two countries (theirs and

32 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION LIGHTS, CAMERA, ACTION! PROPERTY OWNER BEWARE FILM LOCATION RELEASE AGREEMENTS

UNITED STATES

Matthew V Lights, camera, action! Wilson Arnall Golden Gregory, Property owner beware film Atlanta matthew.wilson@ agg.com location release agreements

Philip G Skinner he film industry in the US state of occur. Similarly, the property owner will want Arnall Golden Gregory, Georgia is booming. As of June 2015, to protect the condition of the property Atlanta Georgia ranks third in the US for and be indemnified for any losses arising in [email protected] T film projects behind only California connection with the use. and New York. The state, with its temperate In some instances, image-conscious owners climate and picturesque landscapes, may want to consider how the property will bolstered by a highly successful tax-incentive be portrayed and restrict any uses that may programme, has proved irresistible to be deemed embarrassing or defamatory, Hollywood production companies and or simply not in keeping with the character filmmakers alike. On any given day, from or image of the property. The creativity Savannah to Decatur, film crews can be seen displayed in some location agreements can shooting in public spaces, local businesses match, if not eclipse, the efforts of big-budget and neighbourhood homes. Hollywood screenwriters. Before any private property can be The use of a single-family residence will portrayed on film, however, the filmmakers present a bundle of potential issues and must secure various rights from the property concerns: ‘Who will take care of my personal owner or the owner’s authorised agent. In property and belongings?’; ‘Do I have to pack industry-speak, the right to access, record and anything up and put it away?’; and ‘Will they depict private property is secured through a need to paint or change anything, and if so ‘location release agreement’. will they put it back the way it was?’ All should As one might imagine, the length, scope be answered before handing over the keys. and complexity of these agreements often In contrast, the issues that emerge with the varies depending on the needs of the parties, use of a multi-tenant commercial property as a their relative tolerance for risk and overall filming location are somewhat more complex. transactional sophistication. For example, a building owner might ask: The rise of the film industry in Georgia • ‘What do my tenant leases say about this?’ is a relatively recent phenomenon, so most • ‘Do I need to inform my mortgagor and/or property owners know little about location seek their consent?’ release agreements. The purpose of this • ‘Should I let my insurance carrier or agent article is to briefly outline some of the issues know?’ that a property owner should consider, • ‘Whose insurance will apply if property whether their property is located in the state damage occurs or someone is hurt as a of Georgia, in the US or elsewhere. result of the use of my property for filming?’ In addition to addressing access and • ‘Do I have to use the licence fees or rental publicity rights, most location release payments received to reduce or offset agreement forms originating from the operating costs, or pay them to my lender?’ filmmaker’s camp will include a litany • ‘Will this interfere with my tenants’ use of of legal concepts designed to favour the their premises or of the common areas? filmmaker. Accordingly, it is important for If so, do I need my tenants’ permission? a property owner to appreciate the legal And what do I need to tell them about the landscape associated with filming and the filming so they don’t interfere with things?’ movie industry generally, and to work with • ‘Do I want my building’s or project’s name experienced counsel to help rebalance what is published or displayed in the film?’ likely a one-sided agreement. • ‘What am I going to get paid for putting For example, a business owner seeking to my property and my tenants through this minimise the disruption to business activities inconvenience?’ should insist that the agreement specify the Based on the above, you can see that a precise date(s) and time(s) that filming will property owner’s questions that might arise

REAL ESTATE NEWSLETTER APRIL 2016 33 INVESTMENTS IN THE US STUDENT HOUSING MARKET: SIX INSIGHTS TO HELP THE INVESTOR

as they consider entering into a location the agreement beforehand. Consequently, the agreement can vary tremendously. The prudent owner should ensure that both they portrayal of a home, business or other and their property are adequately protected. location or structure in a feature film, As they say in the film industry, ‘That’s a wrap!’ commercial or television show may enhance the value of a property, but could leave the Note owner with post-production headaches that This article presents information on legal matters of general could have been avoided with a little work on interest in summary form. This document should not be construed as legal advice or opinion on specific matters.

UNITED STATES

Investments in the US student Andrew D Siegel Arnall Golden Gregory, housing market: six insights Atlanta to help the investor [email protected]

ver the past five years or so, issues in student housing investments that student housing has become can be addressed in a buyer’s purchase an increasingly attractive agreement. While there are many factors to Oinvestment vehicle for many consider when investing in student housing US and international investors. Over that projects, any investor in student housing same period, many investors have felt the developments should contemplate the effects of an increasingly overcrowded and following as they prepare and negotiate their overpriced multi-family housing market, purchase agreement: which has led them to look for alternative • While current occupancy is important like investment vehicles in the broader housing in regular multifamily deals, pre-leasing by market. Many other investors simply wish to the end of the current school year for the further diversify their holdings. Regardless of following school year is material for student motivation, student housing projects located housing transactions. in the US near much-sought-after universities • A buyer may require a ‘condition and colleges with growing enrolments are precedent’ to its obligations to close with particularly desirable. respect to future occupancy of the project. Although many US and international This usually means that a minimum investors have considerable experience with percentage of beds at the project must be respect to student housing transactions, many pre-leased for the following school year by investors who are expanding their portfolios closing. ‘Leases of beds’ rather than ‘leases to include such projects do not. Unlike a of units’ are often used because at many traditional multi-family transaction, a student projects each student typically signs an housing deal places great importance not individual lease. only on the current occupancy of a project, • Additionally, or in lieu of a ‘condition but also on future or pre-leasing occupancy precedent’, a buyer may require an because the student tenant population is automatic purchase price reduction in the viewed as less stable. Student renters often purchase contract if a minimum percentage spend only a year in a particular project of pre-leased beds has not been satisfied before moving on to a different housing by a certain date prior to or at closing. choice for the following school year. However, While a seller may be reluctant to agree to at a university or college with growing this at first, they may ultimately agree to enrolment there is a constant stream of new the concept if a ‘collar’ is placed on the students ready to fill the empty units year maximum adjustment and if the adjustment after year. can go both up and down. The purpose of this article is to briefly • A buyer may want to include a provision discuss six insights regarding certain unique in the purchase agreement that gives the

34 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION INVESTMENTS IN THE US STUDENT HOUSING MARKET: SIX INSIGHTS TO HELP THE INVESTOR

buyer the right to offer incentives to the others for whom enforcement of a guaranty seller’s property management team to boost could be difficult); and requiring that the pre-leased rate (eg, a $100 bonus for certain traditional or unique guidelines be each pre-lease executed during the term satisfied with respect to leases per an exhibit of the purchase contract, provided closing to the purchase contract defining the same. occurs). This can help align a buyer’s goals • When determining ‘monthly rental rate’ in with incentives for the seller’s team that a lease, the buyer should seek to have the can help mitigate, if not prevent, price- purchase agreement define monthly rental reduction mechanisms as discussed in obligations for tenants without including points two and three above, and may even any credits or financial accommodations result in an increased purchase price if the afforded to the tenant that are applicable price adjustment provision contemplates and/or payable at or after closing (ie, free two-way adjustments. or reduced rent for the last month or two of • Defining acceptable pre-leases is important a lease). for a buyer. The parties should define the A buyer’s purchase agreement that covers academic year and the minimum monthly the above will help assure that the project rental rate for each lease. This can be is well leased when the closing occurs. As accomplished by: defining such minimum with any other purchase agreement, there rates on an exhibit to the purchase contract; are many other contractual provisions stating whether additional charges must that are important, but a bit less unique to be included in each lease, such as a per- student housing than those discussed above. bed monthly water reimbursement fee; As with any other commercial transaction, stating whether guarantors are required for student housing deals there is no true for a lease (often, a parental guaranty may substitute for good-quality representation be required); stating whether additional by experienced brokers and legal counsel security deposits are required for particular involved on the deal team. tenants (such as international students or SCHOLARSHIP ESSAY

SCHOLARSHIP ESSAY

Pavlina Ivanova Dimitrov, Petrov & Co, The challenges posed by the rule of Sofia law, or lack thereof, in developing [email protected] countries when seeking inward real estate investment

nvestors are motivated by broad and limits, and explicit terms were set forth in the varied needs when considering real relative legislation for making claims. estate investment. These considerations While some of the reasons for disputing a Iinclude savings, retirement, increasing title deed may not be overcome or predicted, income, security, business expansion, business others may be mitigated through research and relocation, distribution of risk, redirection of legal due diligence prior to purchase. It should capital and so on. Countries looking to attract be noted that the process of checking title foreign direct investment need to recognise must always include a search of the relevant these motivations while also considering registries, including for reimbursement of their own motivations, such as transfer of title. To enable this, it is important that all technology, know-how and innovation, such claims are duly registered and publicly employment creation, development of accessible no matter the year in which they are infrastructure and population growth. submitted. More steps could be undertaken Investors face many challenges when in this regard as some claims are currently considering investments in jurisdictions with impossible to ‘track’. less-developed legal systems; some of these are Another important resolution to defective detailed below. titles is the maintenance of a proper record of titles. The risk of defective or unenforceable title The lack of record of title The risk of a defective or unenforceable title could be a strong barrier to real estate The record of title guarantees the possibility investment in a developing country. At its to research history of ownership and to core is the possibility for a third party to obtain information on the existing burdens dispute ownership rights after receipt of over the property (such as mortgages, claims title due to various reasons (eg, prior title and other real estate rights or restrictions). preceding state ownership in eastern and These are of high importance to guarantee south-eastern Europe; lack of registration of any future real estate investment. The lack of a title deed; fraud preceding the receipt of uniform procedures for registration of title title). Proper legislative amendments such as may endanger the transfer of ownership and explicit terms for claims for reimbursement hinder property due diligence research. It of title, uniform procedures for conclusion of leads to uncertainty in real estate transactions title deeds, and strict control and time limits and consequently may lead to fewer investors for claims, are among the most important investing in property. On the contrary, a solutions here. proper indisputable record of title increases A good example is found in the certainty and may therefore increase the legislation of Bulgaria where, during the volume of real estate transactions. Communist period, most private ownership A good example is Macedonia’s Real Estate was nationalised. During the subsequent Cadastre Agency, where information on restitution period, former owners received registered ownership rights and other real the right to reimbursed title of real estate, but property rights can be obtained, as well as real all claims were restricted within certain time estate data and other rights and facts stipulated

36 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION SCHOLARSHIP ESSAY by law. From the Cadastre, one can also obtain resolution of disputes, establishing specialised cadastral map copy, which is important for the courts and strict control of procedures so purpose of demarcation and identification of a they are clear and fair for all are among the property. The access to property characteristics compulsory measures for increasing court – location, area, purpose, applicable system efficiency. regulations and restrictions – also helps A good example is the specialised facilitate real estate deals. administrative courts established in Bulgaria Another problem in developing countries for the purpose of resolving administrative is the lack of uniform cadastral maps or disputes (mostly appeals against incomplete surveys (ie, not including the administrative acts). These courts have taken whole country’s territory). The lack of on a significant volume of lawsuits from the property cadastral maps can lead to mistakes in common courts and have thus speeded up property identification and an increase in title resolutions. disputes. Meanwhile, bureaucracy – a frequent characteristic of developing countries – also Political instability hinders real estate investment. Another barrier to foreign investment is political instability. As the political system Bureaucracy at central and local directly links to the legislative system, it may government bodies both hinder and stimulate business, including Bureaucracy is an issue that affects all spheres in real estate. Political instability may lead of a country’s economy. India is known to be to impairment of the banking system, which particularly afflicted in this regard. According could cause serious damage to all types of to a report by the Hong Kong-based Political investment. The possibility of a pro-business and Economic Risk Consultancy, on a scale of government being replaced by a regime one to ten, India’s bureaucracy scored 9.2. favouring state ownership should not be Other countries covered included Vietnam underestimated as it can have huge impacts on (8.5), Indonesia (8.4), the Philippines (7.6) foreign investment flows into the economy. and China (7.1). The problem with bureaucracy is that it Restrictions on repatriation of capital can encourage the use of non-legal means (ie, corruption) to ‘resolve’ a matter, leading Some developing countries may have capital to uncertainty and subjectivity. Clear rules transaction restrictions, most commonly for a for the issuance of administrative acts, strict certain period of investment. Such restrictions appeal procedures and audit control can assist are often established in countries with scarcity here. Stamping out under-the-table payments of domestic funds so as to limit the flow of is also helpful. For example, a recent money out. The repatriation of investment Romanian anti-corruption drive culminated profit is also often subject to high taxes (an in the jailing of former prime minister example is the US), so there may be external Adrian Nastase – indeed, the National considerations as well. Anticorruption Directorate may serve as an example to similar authorities in other Mortgage registration developing countries. Both under-the-table payments and bureaucracy are also linked to Real estate investments are mostly financed increases in disputes, which can also taint the through loans secured via mortgages. In an overall investment climate in a country. ideal case, the investment will be financed by a local financial institution; however, when local rates are not so attractive, buyers Dispute settlement may arrange alternative financing in their Fair, effective and quick dispute settlement own countries. Either way, a standardised procedure is also important to foreign mortgage contract and uniform procedures investors. It gives certainty to the investment for establishing, registering and/or made and encourages further investment deregistering a mortgage are vital in order to volume. Unfortunately, some developing secure financing of an investment project. countries’ court systems are overburdened, which means contract disputes can often take Taxation years to move through the system. Judicial reform measures including explicit terms for Another barrier to foreign investment could

REAL ESTATE NEWSLETTER APRIL 2016 37 SCHOLARSHIP ESSAY

be the country’s taxation legislation. Lower on the flexibility of the local legislation) taxation rates attract investments in all be considered a local person – which may spheres of the economy and thus may also then obtain title of land. Using this type of boost the volume of real estate transactions. transaction is considered the most secure as For example, Bulgaria’s corporate income the foreign investor would hold all shares tax rate is ten per cent – one of the lowest in in the subsidiary and thus fully control its the European Union – personal income tax activity. It is, however, related to additional is also ten per cent, and businesses in high- accountancy and registration costs for unemployment areas are not taxed at all. maintaining the company’s activity in the host country, which may be prohibitive to smaller investors. Infrastructure and human resources Foreign-ownership restrictions may also Many real estate investments are underpinned be overcome through a public–private by a need to secure business development partnership (PPP) for larger projects. A in the host country, such as relocation of typical PPP would be a building of public manufacturing plants, and therefore they may importance financed and/or constructed by a be influenced by the infrastructure conditions private foreign investor and then leased to the and availability of skilled labour. Investors are authority in charge, which would also retain attracted by countries with highly educated the ownership of real estate. and skilled professionals and suitable Another possibility, depending on the infrastructure for future expansion. flexibility of the local legislation, is the use of a long-term rental agreement for the property. In countries where such agreements Restrictions to foreign ownership of land can be registered, they may also retain their Foreign-ownership restrictions are a validity notwithstanding a change of legal substantial barrier to attracting real estate owner. This would guarantee the use of the investment. In some countries, foreigners property for the period of the lease, but not and foreign organisations are not permitted longer than that. to own land at all, or certain types of land (agricultural, forest, etc). This barrier may Minimum mandatory elements of real be easily overcome by employing innovative estate law required to secure foreign structures, although it may be more difficult investment if there is a total prohibition. For example, non-EU companies are not allowed to own The above economic and administrative land in Bulgaria, but there are no restrictions requirements need to go hand in hand with for Bulgarian companies or Bulgarian minimum prerequisites of real estate law. subsidiaries of non-EU companies. These include: Where there are absolute prohibitions such as in parts of the Middle East or Africa, Strict rules on the methods of acquisition there may be a need to use nominees or of real estate local partners, which can cause uncertainty over the investment should the relationship An investor needs to receive full and accurate sour in the future – and in some jurisdictions information on all possible legal means to such structures can run the risk of being acquire or dispose of real estate. Those means declared void. should be uniform, clear and unequivocal As the nominee would be the actual owner and contained in real estate laws that are of the property, it raises many difficulties accessible. All means to transfer real estate around how to secure the funds invested, should be set out in the legislation to avoid and how to also guard against claims by ambiguous or non-confirming means being creditors of that nominee or by heirs upon used to transfer interests. death. Possible means for the foreign investor to secure investment are the registration of Publicly accessible information on property mortgage, right of use or other limited real title and characteristics estate right on the property. If using a local partner is not possible, the Public information must be available to foreign investor may register a subsidiary – research property title, encumbrances, a company, registered by the means of the characteristics and ownership. If this is not local legislation, which may (depending possible through easily accessible means,

38 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION SCHOLARSHIP ESSAY it may deter investment. Public means of Strict rules and sanctions on violation of information may be provided in a property property and fast legal means to restore register, cadastre or other register, maintained ownership in case of deprivation by a public authority that is liable for all Violation of property ownership rights damages caused by its false information, would be a big problem. Strict rules, action or inaction. sanctions and control provided in the real estate legislation would help minimise Uniform procedure and standardised this risk and ensure strict penalties for contract for transfer of title violations. A specialised property court may assist in expediting these matters. It should be guaranteed that the real estate investment is secured. This may be achieved by following uniform procedures and signing Clear administrative procedures and terms standardised written contracts to enable the for issuance of administrative acts both registration of the title deed to be transferred related to transfer of title and developing in accordance with clear procedures set forth business in the legislation. All avenues to benefit from the property should be easily ascertainable – such as Compulsory registration of title construction, rent, establishment of real estate rights, development and/or change The registration of all transfers, of use. As these actions are often related to encumbrances and other rights in respect of time-consuming administrative procedures, the property (eg, long-term leases) should explicitly setting them forth in the relevant be mandatory before they are recognised. legislation may shorten such procedures. This would guarantee that the transfer of ownership is made public and known to all persons who may have claims to or interest in Compulsory mortgage registration the property. It is also an important element Another essential element of real estate of real estate law that protects the investment. legislation is the procedure for mortgage The registration could be made in the registration. As this type of financing is property register, cadastre or other register common to real estate investments, it should maintained by a public authority. be made accessible and clear. Registration of mortgages ensures that they are publicly Uniform procedure and explicit terms for known and thus better protected, which also disputing title deeds leads to increased financing options for real estate transactions. After the registration, any terms for disputing All above-mentioned minimal elements title should be clear and with set time limits, of a real estate law should go hand in hand running from the time of registration of the with corresponding amendments in the host deed. This, together with strict procedure country’s legislation concerning real estate and conditions for disputing title set forth investments, and associated ancillary laws in the real estate legislation, would restrict such as taxation and dispute resolution laws. groundless disputes.

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