LEGAL: Questions and Answers by an Egyptian lawyer

[Zeiad Yehia]

Dear All,

The following post is intended to inform every one who desires to invest in the real estate market of Sharm el Sheikh with the legal facts they need to know. The information written below is useful for either these who intend to purchase, or those who have already purchased. I have been told more than once about this forum via many clients, and I believe it would be for the best of all to elucidate the legal facts in a simple way, focusing only on the imperative points.

Legal Procedures to Purchase a Property in Sharm el Sheikh



Purchasing a property in Sharm el Sheikh is different than purchasing a property in any different location in Egypt, according to the difference in legal status. There was an administrative decree issued by the prime minister of Egypt in 2005, abrogating the context of the previous law issued in 1996. Despite the fact that originally an administrative decree is normally unable to nullify law, but this decree is currently the prevalent decree governing the foreigners’ legal status when it comes to purchasing a property in Sharm el Sheikh. The aforementioned decree states that foreigner purchasers in Sharm el Sheikh may not be granted the right to be "landlords" on the properties they purchase, but only would have the "Leasehold" right, for the maximum time of 99 years. Some people believe that purchases are "Freehold" purchaes, and since the term "Freehold" originally applies to the right to enjoy a property and all its advantages for good, in addition to the right of disposal, either physical or legal disposal, and since the decree has stated the maximum limit of freehold as 99 years, therefore – legally talking – it is NOT freehold, and not exactly leasehold, it is better to be rephrased to "Usufruct". Usufruct is the best description for the current real estate sales legal name involving foreigners in Sharm el Sheikh, and it, consequently, raises many questions concerning registration of the sale.

Definitions of usufruct on the Web:
• The right to enjoy other goods with the obligation to preserve them, except where the law authorizes otherwise.

• (Legal-Civil Law) The right of enjoying a thing, the property of which is vested in another, and to draw from the same all the profit, utility, and advantage which it may produce, provided it be without altering the substance of the thing. For example, in Nevada, the state's water belongs to the people, but is permitted, through the water rights permitting process, to be used beneficially by other individuals or entities.

• A legal term from the Roman Empire (in Latin, usufructus), meaning "using the fruit" of land claimed by the State without injuring or destroying the ecological infrastructure.

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


Property Ownership in Law

The ownership of land by foreigners is governed by three laws: Law No. 15 of 1963, Law No. 143 of 1981 and Law No. 230 of 1996.
Law No. 15 of 1963
Law No. 15 and its amendments (Law 104 of 1985) provides that no foreigners, whether natural or legal persons, may acquire agricultural land.
Law No. 143 of 1981
Law No. 143 and its amendments (55/1988, 205/1991, & 96/1995) governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, co-operatives, partnerships and corporations. Partnerships are permitted to own 10,000 feddans, provided that the individual shall not own more then 150 feddans. Joint stock companies are permitted to own 50,000 feddans.
Partnerships and joint stock companies may own desert land within these limits even if foreign partners or shareholders are involved, provided that at least 51 percent of the capital is owned by Egyptians. However, upon liquidation of the company, the land must revert to Egyptians. Article 1 of Law No. 143 defines desert land as the land two kilometers outside the border of the city.
Further, the lease of such land for more than a period of 50 years shall also be considered to be ownership under Law 143. Despite the fact that companies which were formed under the Investment Law No. 8/1997 do not require Egyptian participation, companies that undertake projects over desert land must be owned in their majority by Egyptians. According to the law 55 of 1988, the President of the Republic may decide to treat Arab nationals as Egyptian nationals for purposes of this law.


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



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

The only option available for foreigner purchasers in Sharm el Sheikh is a legal suit called "Signature Validity". Signature Validity legal suit, however, is a legal suit aims to obtain a court verdict, stating that the signature of the seller in a sale / usufruct contract, is truly theirs. This legal suit, however, DOES NOT touch on the origin of right, or in other words; it is non-concerned about neither who is the current owner of the property, nor who was the previous owner, but is only concerned about the belonging of the signature to the seller, and therefore is a mere precautionary legal suit. This legal suit, however, is the common suit used for sales and usufructs in Sharm el Sheikh, and it has a legal value after all, despite the fact of not being as valuable and authenticated as registration.


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


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

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

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

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

Appendix

It must be mentioned that Egypt has replaced its old method of registration – out of Sharm el Sheikh – for taking a percent equals to 3% of the purchase price as fees for notarizing a contract. The new policy is to take a certain amount of funds not exceeding 2000 EGP as fees for the registration process, regardless of the purchase price of the sold property. It must also be emphasized that other types of legal suits which purpose to prove the transfer the ownership are unavailable due to some legal hazards i.e. Contract Validity legal suit. This legal suit is available only in case if the seller has registered his property, or obtained a contract validity legal verdict on it, and be SELLER here I mean each seller in the evolution of deed, which is unfortunately not the practical case of Sharm, furthermore, the state collects fees equal to 7.5% for this type of legal suits, and it can take long time in courts, and by long time here I mean 2 years average. There is NO PERCENT taken by the government for the signature validity legal suit, but only administrative fees, which shall be included in the attorney fees.

Zeiad Yehia
Head of Legal Department
City and Urban International
Gendy Mall, King of Bahrain St., 2nd Floor,
Neama Bay, Sharm el Sheikh,
South Sinai, Egypt.
Telephone: +20 69 3601515
Fax: +20 69 3601520
Cellular: +20 12 3344988
Please see here for new contact details http://www.totallyproperty.com/egypt...il-change.html

[Veronica]

Is the land in dahab governed under the same guidelines, as we have been told by our lawyor that foreigners are now unable to own land in south sinai. that this is a new law and we are unable to register our land,

[Zeiad Yehia]

Hello Veronica,

Freehold is still granted in the region of Dahab, but for other reasons I strongly disrecommend Dahab as a real estate market.

It is companies, regardless of their nationalities, and not individuals, that are now prohibited to be granted the freehold right in Sinai Peninsula, according to the new prime minister's decree no. 350 of 2007.

Brief Answer:

You CAN get a freehold on properties in Dahab, but I'm strongly advising you NOT to do.

[Veronica]

thank you for your reply.
Unfortunately, it is too late as we bought the land back in 2005 and are still having problems with it, I truly wish I had not got involved with it. Our lawyor is organising to sell it for us but even though the land has almost doubled in price in that area we are only geting our money back on this land. We are being taken advantage of as we do not speak the language and have been told by our lawyor that the new law prohibits foreigners from owning land in Sinai.
We are inclined to think he is not trustworthy even though he is from Cairo and was recommended to us by a mutual friend he is acting as go between in selling the land.

[Zeiad Yehia]

I am really wishing you the best luck there.

[islam pearson]

Salaam Ali kum.

Hi , I am a new member, just getting into the understanding of Egyptian law!


myself
i am a English man who converted to Islam 12 years ago (al hamdullah).
i have family who live in Cairo and Alexandria. Whom I’m related to though my mothers sister marriage.


My need to understand the law.
I’m looking to invest in Egypt, Cairo, Alex and sharm.
i have read and understood your post on sharm property law, (very well put together)


My Question is about the Usufruct law, when you buy a property you have a 99 year hold on this, but what happens when you sell it, dose the next owner start with a new 99 year usufruct contract or do they take the remainder of the time the first owner had on it?

What is the case for buying second hand property?

I hope i have explained my question adequately.
look forward to hearing you response.
Islam Pearson

[Zeiad Yehia]

Dear Mr. Pearson,

In the usufruct system, if you sold your usufruct out after 10 years for instance, the next purchaser will enjoy only 89 years; the remaining time of your usufruct period. This is why developers state in the usufruct contract that they will charge you 5% of the purchase price if you wish to resell, the reason is that they take this percentage to issue the new purchaser a new 99 years usufruct right contract, being the freehold right holders. End of story.

[Zeiad Yehia]

Originally Posted by awahee123

Hi Zeiad Yehia,

Some good information for buyers in sharm here,what happens to people that have already purchased in sharm as freehold are they allowed to keep their title or does it become 99 year leasehold

Thanks.

For those who have purchased their property as "Freehold" and whereas he transaction took place before Prime Minister’s Decree no. 548 of 2005, they maintain the SAME POSITION as freeholders, and NOTHING can affect this position. The decree applies ONLY t those who purchased after it was issued.

[Zeiad Yehia]

Originally Posted by dave99

Hi Zeiad Yehia,

Nice to see you back on the forum.

Is it possible that there are developments in Sharm or Hurghada that are exempt from the 5 year rule on selling.
I've been told by one lawyer that represents a development that it does NOT apply to them even though they are in tourist area - seems unlikely to me.

...

Thanks Dave. To put it very simple, if we're talking about a foreigner purchaing a property in Sharm, this is usufruct here and not freehold. Consequently there'd be no restriction of nay kind on that, while if we're talking about FREEHOLD properties OUT OF Sharm, the 5 years restriction legally applies no matter what, and regardless of what being said with whoever. It is law and it was clear enough to mention the 5 years restriction. May be some people do otherwise, may they don't register and they do this and that instead. But However I am here to speak the PROPER LAW AND PROCEDURES, in order not to encounter unexpected pitfalls in the future.

If that lawyer was in Sharm then he was speaking the truth, but if he was not...ummm... then he was not!

[dave99]

Any comment on this letter


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