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Ownership rights in South Sinai for non-Egyptians

Meeting held at 19:00 Friday 1 February 2013

After there had been a lot of confusion within the Facebook group “Ownership Rights in Sinai” it was proposed to hold a meeting to explain the current situation for non-Egyptians in Sinai with regards to owning land and/or property.

Barrister Zeiad Yehia of EdgeBridge Law Firm was invited to provide an explanation of the laws and to answer any questions presented by those in attendance and those who have submitted their queries in prior to the meeting.  The following is a concise account of the information provided at the meeting:

Introduction
In 1996 it was the beginning to restrictions being made on foreigners with regards to their ownership rights in Egypt. Law number 230 of 1996 has stipulated that a non-Egyptian may not own (freehold) more than two properties, and that either of these properties may not exceed a total area of 4000sqm.  This was followed in April 2005 when Prime Minister Ahmed Nazeef has decreed a restriction for non-Egyptians in South Sinai whereby they were entitled to acquire a maximum of 99 years usufruct right on a property. A further decree in 2007 has restricted companies and institutions (whether Egyptian, non-Egyptian or mixed) to acquire only 99 years usufruct on land, implying that developers who purchased after this decree could only acquire a usufruct right on the land.

Usufruct, by definition, is the right to enjoy another’s property and benefit from it.  By law, the primary right is “Freehold” and “Usufruct” is a subsidiary right and you can only grant to another a lesser right. Therefore a freehold may grant a usufruct right or a usufructuary may grant a lease or a usage right.  Therefore for foreigners who are in possession of a usufruct right and wish to sell their property, then it is necessary to “waive” their usufruct right back to the freeholder (usually a developer) and the freeholder shall then grant the new purchaser a new contract (usually against a fee which is often stipulated within the contract).

Furthermore – by definition – a usufruct right is a right for either a set period of time or for life, whichever shall come first.  Therefore upon the death of the usufructuary the usufruct right is immediately terminated.

In Egyptian law upon death of an individual its heirs shall automatically acquire a share of the assets. If a will has been written in prior to death then this shall be honoured, however there are two main restrictions on a will in Egypt:

1.    The will cannot exceed more than 1/3 of the total asset of the deceased.
2.    Beneficiaries of the will must be non-heirs.

The above shall apply for those who have acquired a freehold right. However, as mentioned above, since the usufruct right belongs to civil law and is terminated upon death a local will cannot be applied. A will written outside of Egypt shall also be ineffective.

The solution to protect the rights of the next of kin for usufructuaries came in the form of a “Next of Kin Addendum”, which is a civil-law / private agreement between the usufructuary and the landlord (usually developer).  The developer or freeholder must sign in prior to the death of the usufructuary to agree that upon their death the remaining usufruct right shall transfer to the next of kin, who must be specified within the agreement.  This agreement is a civil agreement and does not have to adhere to the rules of inheritance, as mentioned above.

Most recently, after the revolution of 2011, the military supreme council has issued an edict in 2012.  This is not a law, but an edict, and it has been issued unilaterally via the council by utilizing its authority in the absence of a parliament.  Although this edict is controversial it is, nonetheless, approved and implemented.

The category of people that have been most affected, unfortunately negatively, by edict number 14 of 2012 are the dual national Egyptian. Non-Egyptians who have contracted in prior to this edict’s executive order (dated 13September 2012) are completely unaffected. The law is not retrospective for foreigners but takes immediate effect and therefore shall only affect foreigners who shall purchase after 13 September 2012.  The stipulations against the dual national Egyptians are, however, being enforced in a retroactive manner, despite this going against Egypt’s constitutions along its history– however this is not the subject matter being discussed in this meeting and shall be addressed at a later point and there are already plans in place to counter this.

The new edict and the followed executive order issued by the Prime Minister explaining the edict has touched on the subject of offering a freehold right to foreigners, but remained ambiguous. However, Decree No. 203 of 2012 has elucidated this in article three where it is clearly stated that a non-Egyptian may be granted either a usufruct right for a maximum period of fifty years OR A FREEHOLD RIGHT on constructed, residential property – noting the freehold right can be granted on the property only and not the land it is constructed upon.  Therefore anybody interested in purchasing a property in South Sinai now is entitled to obtain a freehold contract on that property.  However, it must be reiterated, that a developer can only grant a freehold right if he has a freehold right. If the developer has acquired the land after the decree of 2007 then he only has a usufruct right himself and therefore cannot give what he doesn’t have.

Questions & Answers
Q: Do the same laws apply to Dahab City?
A: Yes – The most recent edict applies to the Sinai Peninsula in its entirety, and the new edict abrogates any previous laws that applied to Sinai.

Q: On what date is the new edict effective?
A: It became effective as of issuance of its executive order via Prime Minister/ Dr. Hisham Quandeel, dated as of 13 September 2012 with immediate effect – it is non-retrospective for non-Egyptians. The new edict now gives the option for a non-Egyptian to obtain either 50 years usufruct or freehold.

Q: I bought my property in November 2012 and have a contract giving me 99 years usufruct.
A: This is not possible. The court shall recognize this as a 50-years usufruct period.

Q: Do you recommend I speak to the developer regarding the next of kin issue?
A: This is a mandatory step in protecting your next of kin.

Q: It mentions in my contract that it shall be transferred to my next of kin, but they are not specified by name.
A: It is recommended to clarify your next of kin by their name and personal information to avoid ambiguity or any unwanted heirs claiming the property.

Q: I bought my property in August 2012 and was granted 99 years usufruct.
A: This is still valid – your legal situation remains the same.

Q: I have made a will with my lawyer. I have been to El Tur, completed three copies of the will, signed on the corners and taken many complicated steps to secure the rights of my next of kin. Is this okay?
A: Unfortunately unless the developer (or freehold owner of the property) has signed this document then it is legally valueless.

Q: So how do I legally leave my property to my children as a usufructuary?
A: Via a “Next of Kin Addendum”. This shall be considered as part of the very contract itself and must be signed by both parties who signed the contract.

Q: Why wasn’t this pointed out in El Tur when I have completed the procedures in the past?
A: Presumably the government employees were merely following their standard procedures that were being asked of them. In essence you cannot will what you don’t have and the usufruct right is immediately terminated upon death and reverts back to the freeholder – therefore it is no longer the deceased party’s right to will.

Q: I have bought my property in 2009 and obtained a freehold contract.
A: This shall be deemed as 99 years usufruct automatically by Egyptian courts since it was not allowed to obtain freehold at this time.

Q: My children are already named in my contract as joint purchasers.
A: As long as the children were over the age of 21 at the date of contracting then it’s valid for them to purchase a property. It is possible to sign a next of kin addendum in addition to this for extra protection – for example it is common when there is more than one purchaser named in a contract to state that upon death of one their right is distributed among the surviving usufructuaries. This prevents the share of the deceased from being re-acquired by the freeholder.

Q: I have bought my property in 1997 and obtained a freehold right.
A: Your freehold right remains valid.

Q: I have bought my property before 2012 but my contract is still in court.
A: You still have 99 years usufruct right.  The signature validation case is a legal authentication that protects your right, but the very contract itself creates the deed and therefore it is the very contract that proves your right and the date of the contract that is taken into account.

Q: We have bought our property and completed the contract already – can we still add our children’s names to the contract?
A: Yes. An addendum to the contract can be completed at any time and is a proof that the developer accepts the remaining usufruct right to be granted to the named next of kin.

Q: Can a developer (or freeholder) charge to sign this?
A: Although it is unethical and the majority of developers in Sharm have signed without a fee, it is the developer’s decision and there is no legal obligation to sign a next of kin addendum.

Q: I have bought my property in 2010 and obtained 99 years usufruct but I have no registered this – does it make a difference?
A: It must be clarified here that “registration” is rarely possible and the signature validation cases done in court to authenticate contracts is NOT a form of registration.  Signature validation is very useful in that it is a form of proof of date as well as preventing contract denial by the first party and his next of kin in case of death. However, signature validation does not touch on the right subject matter of the contract and therefore it does not matter that the contract has not been authenticated in this way. Your right is still valid.

Q: I have bought from an Egyptian individual five years ago. I don’t have any children but would like to leave the property to my next of kin upon death.
A: You have a usufruct right for 99 years and you must approach the individual who has sold you the property to protect the rights of your next of kin (who can be anybody you choose, friend or family).

Q: I have bought in 2006 and told I have a freehold right. Can I sell my property?
A: You have a 99 years usufruct right.  Regardless of what practical situations may occur, the only real and legal way to transfer the deed is to waive the usufruct right back to the freehold owner and then he may transfer the right to an Egyptian or non-Egyptian with a new contract between the two parties.

Q: I was told by my developer that due to recent regulations the contract should not be registered with the court but with the bank.
A: This is not true.

Q: In your introduction you have mentioned that a non-Egyptian may own a maximum of two properties.
A: This is a restriction on FREEHOLD properties only.

Q: This edict has been passed with the absence of a proper parliament in Egypt. What would happen if a new parliament comes to power?
A: The new edict has been passed through the proper legal routes currently available and is legally effective right now. Anything that might be said of the future is merely speculation.

Q: Now that the edict is approved, is there anything we can do to change it?
A: The short answer is no. For any disagreements that are non-constitutional then it is possible to make a case to the administrative court of law, which would refuse a request by virtue of the new law, and issue a negative decision. This negative decision shall subsequently be appealed at the constitutional court. However, this must be applied to an individual case, and the court’s verdict can only be applied to that very case. There is no legal method in place to counteract the law as a whole, but practical methods can be applied via mass media and by putting maximum pressure on the government for the unjust stipulations whilst simultaneously initiating as many individual cases as possible.  However, it must be highlighted here that the new edict is only negatively impacting the dual national Egyptians whereby non-Egyptians are now in a better legal position since they can once again obtain a freehold right on a property, but not on the land the property is constructed upon. Therefore to overturn the complete law would therefore not be entirely beneficial and it should be only certain articles within the edict that we would seek to be nullified.

Q: I have bought my property in 2004 and have freehold rights. Can I sell my property?
A: Yes. You can sell to a non-Egyptian and grant them a freehold right or you can sell to an Egyptian. However, you can only grant to the Egyptian a freehold right to the constructed property whereas if an Egyptian purchaser wishes to own the land as well he must contract with the last Egyptian owner.

Q: If I have a freehold right on the constructed property only and not the land, then does that mean if the house burns down I effectively own nothing?
A: The short answer is to have insurance. By law you may claim compensation.  If the accident was to fall into the category of Force Majeure then compensation cannot be claimed. Similarly if the fault was personal then compensation shall not be due. However, if the fault was that of another party then you should claim from them compensation. If there was combined fault them compensation must be claimed through court based on tort.

Q: What is tort?
A: There are two forms of responsibility – a contractual responsibility and tort. To use a good example we can take the case of a delay in handover of an off plan property. It is often mentioned in a contract that if there is a delay in handover then compensation can be claimed and the amount of compensation can be mentioned within the contract. This forms the basis of contractual responsibility and by law the compensation can never exceed what has been agreed upon in the contract. Therefore, if the contract suggests a very minimal compensation value – for example EGP 250 per month – then it is more beneficial to remove this figure from the contract entirely.  Then, in case of delay, compensation can be claimed through court based on tort whereby the judge shall determine the value of compensation, which is highly likely to be in excess of the low amount the contract would have limited the value to had the clause in the contract remained.

Q: Is the usufruct period renewed automatically?
A: No. The usufruct period can only be renewed by the developer (freeholder) granting a new contract. This is often against a fee and the developer is not obliged to renew.

Q: Has the market value of the property depreciated in light of the current situation?
A: Realistically non-Egyptian purchasers are actually in a better situation now than they were before and so, if anything, this should be reflected by an increase in the market value of property. However, the practical situation is that people are panic-selling and many false rumors are spreading causing needless concern.  It is the opinion of many real estate professionals that those individuals selling at a cheap price in the current market shall regret their panic-sale at a later date.

Q: What are the benefits of acquiring a property on a freehold basis?
A: The property right is not restricted to a limited time period and is automatically granted to your heirs upon death by inheritance law in Egypt.

Q: On 13 March 2013 (6 months after the decree) can a government appointed person come to reclaim the property from a dual national Egyptian offering any amount in compensation they consider fair?
A: Although it is wrong on so many levels and contradicts the constitution, this is, unfortunately, the current situation. It is highly recommended for all dual nationals to transfer their property to a trusted “pure” Egyptian whilst efforts are continued to fight this aspect of the new edict.

Q: I have a 99 years usufruct right on my property but the person with a freehold right is a dual national.
A: The dual national individual must arrange to sell the property to a pure Egyptian or he risks losing the rights to the property HOWEVER whatever shall happen to him does NOT affect your current rights to the property. As long as the transfer of rights was done in a legally correct way at the time then you still have the same legal right.  If you sell in the future then you must revert back to the freeholder at that time, whoever that may be, but the dual national owner must clear his situation first.

Q: Do you have any statistics to show how many people are affected by this new law?
A: No. Perhaps a real estate agency may have a better idea of this.

Q: How does the government know that the owner of the property is a dual national?
A: The practical application of the law is not clear but we must do all we can to protect those it affects, since it is an applicable law regardless of how it shall be practically applied.

Q: Does property tax have to be paid directly to the tax authority or can it be paid to the developer?
A: Property tax is a system that has been applied in recent years. It was suspended for a short period and then reapplied once more and is currently in effect.  There are complicated calculations to determine the amount of tax to be applied on a property but, in short, any property that is below the value of EGP 500,000 is not subject to property tax.  Properties above this value have tax applied, whereby the maximum amount of tax to be applied shall not exceed EGP 2000 per annum.  This tax may be paid directly to the tax authority or the developer may pay it on your behalf, but it is important to receive the official tax receipt from the tax office.

Q: Last year two men came to the door asking for property tax. This was paid and the next day the law was suspended. What happens next?
A: The law was effective on the date the tax was collected and it is effective again now – therefore the tax shall continue to be paid annually.

Q: How does the tax authority determine the value of the property?
A: This is based on three factors – the amount mentioned in the contract, the average value of property in the area and the evaluation of the tax authority’s ad-hoc committee.

Q: If I buy 50 years usufruct now and want to sell after 45 years, does that mean I can only sell 5 years usufruct?
A: No. You should waive your remaining usufruct right back to the freehold owner and they shall contract with the purchaser according to the laws at that time (in the present situation this may be a freehold right), as a usufructuary is not entitled to transfer usufruct directly to another individual / entity.

Q: What about the 5km border where no one can own any property in?
A: This is a strategic area at the far north of the Sinai Peninsula, adjacent to the Israeli-Egyptian border, and it is considered by the Egyptian authorities as national security zone. Only Bedouins of North Sinai used to inhibit this area.

Q: I am a non-Egyptian but would like to help in any way I can to overturn this new edict.
A: As previously mentioned, dual national Egyptians must initiate individual cases for any acts which are non-constitutional whereas there is no legal method allowing the law as a whole to be disputed. However the media shall be utilized to put pressure on the government and non-Egyptians may help in publicizing this.

Q: Do you need a new contract to add next of kin or can they be added to the existing contract?
A: You do not need a new contract as an addendum to the existing contract can be added at any time. It shall stipulate in detail to whom the remaining usufruct right is to be transferred to and the developer’s signature (or whoever the freeholder is) is the only legal way to facilitate this.

Source: Facebook Group: “Ownership Rights in Sinai”
Meeting: Karen Lenihan, Sam Grover (Organisation), Zeiad Yehia (Barrister of EdgeBridge Law Firm), Charlie R Charles & his team(the room and set up)
Minutes: Sam Grover