Published On  Jan 29,  2012






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Banks, Divorcees Exempt from Inclusion in the Lease Regime




Plots under historical holdings are exempted from inclusion in the lease regime when transferred to third parties during bank foreclosure of collateralised properties or when assets are divided between a divorced couple, a draft regulation authored by the Ministry of Urban Development & Construction (MUDC) suggests.

The Ministry has finalised a 33-page draft regulation, which its senior officials describe as a “model regulation,” and will soon table it to the Council of Ministers, for approval.

The document will clear up much of the confusion engulfing the country, following the issuance of a proclamation revising the urban land lease regime, in October 2011, Ministry officials hope. 

The revised law has met formidable resistance from members of the public, after Parliament ratified the bill with hardly any public debate on its substance. The most controversial part of the provision in the revised law is the potential inclusion of historical holdings of plots under the lease regime, which many perceive as an attempt by the state to deprive them of the right to own property.

There are over 346,664 houses registered with title deeds that are not currently included in the urban land lease regime.

Although the recently revised law foresees the inclusion of these plots under the lease regime in five years, the modalities in which this will be enforced was left to

a follow-up regulation to be drafted by the Ministry and approved by the Council of Ministers.

Unlike the procedure that the Ministry followed during the legislative process of the revised law, the draft regulation is up for public debate, incorporating nine sections and 42 provisions. The draft regulation also excludes the transfer of properties of historical holdings, if capital gains taxes are paid.

However, all transfers of properties, with the exception of an heir’s exercise of inheritance rights, will not be permitted if it is done without the inclusion under the lease regime, according to article six of section two of the draft regulation. The lease rate to be imposed when such transactions are conducted will be determined by the existing initial lease rate of the area.

But, legal experts see the limitations of the regulation in rectifying the many complaints that the revised law evoked among members of the public.

“It is a violation of the hierarchy of laws,” Anberbr Bazezew, a legal expert who has worked in the federal and first instance courts for over a decade, told Fortune.

Despite its contested application of legal authority, the draft’s exclusion of historical holdings in foreclosure has pleased presidents of commercial banks, many of whom have piles of properties on their auction lists.

“We have been financially affected due to the bonds that we are [required to] purchase whenever we give out loans,” said a senior executive at a private bank. “I take this regulation as a way to compensate for and recover sick loans.”

However, the draft regulation remains unclear over what applies when one of the heirs or ex-spouses wants to transfer their historical property right holdings.

Another provision of the proclamation, which most lawyers are alarmed by, is the setting of a time period for force majeure on alleged failures to commence or complete construction projects. It has put a time limit of 24 months for the construction of small projects, while large construction project have double the time. Those in between will have 36 months to complete construction.

These deadlines, though possible to postpone, cannot be extended more than six months for small constructions or more than a year for medium and large constructions, according to the proclamation and the draft regulation.

This is another elusive part of the law, putting six-month and one-year extension limits in the case of unforeseen obstacles to completion, without considering the unpredictability of force majeure, legal experts argue.

But, although the time period may appear to be short, putting a limit on it might have an advantage in fighting corruption, Anberbr argues.

Officials at the Ministry will let members of the public, with diverse interests, debate the draft before they send it to the Council, they said. One such dialogue with the public was held with members of the metropolitan chamber, held inside the city municipality on Wednesday, January 25, 2012.

The time it takes to finalise the model regulation will be determined by the volume of feedback from the public, officials told Fortune.




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