Legal expert stresses importance of due diligence in a confusing market

Attorney-at-law Pho Sotheaphal says that due diligence is essential no matter what kind of property you are looking to buy.
Attorney-at-law Pho Sotheaphal says that due diligence is essential no matter what kind of property you are looking to buy. POST STAFF

Legal expert stresses importance of due diligence in a confusing market

According to Pho Sotheaphal, 34, a bar-registered attorney-at-law, many ordinary buyers of property in Cambodia may run into confusion, and much of the confusion stems from the use of the terms “hard title” and “soft title”.

“In fact,” he says, “the terms soft title and hard title do not exist in any law or official document, even though they’re commonly used and are helpful guides when it comes to determining the security of a property.”

Sotheaphal explains that a hard title actually refers to what he calls an “immovable property holding that is recognised by governmental authorities according to the Land Law, the Civil Code, and other relevant regulations”.

A soft title, he continues, is not a fully recognised legal right to ownership, but it does entail a limited right to ownership.

“The key thing is that, in practice, it can be a step towards obtaining a possessory right or a definitive ownership right, if the holder fulfils the legal requirements.”

That’s where due diligence comes in, says Sotheaphal, who warns that buyers who have undertaken insufficient homework may be “buying into a conflict”.

The lawyer adds: “While extra care should be taken in case of a soft title, it is equally important – even with a hard title – to conduct both legal and physical investigations into the immovable property to find out whether issues exist that affect the title or the freedom to use it, including any unresolved disputes or pending litigation, zoning restrictions, third-party interests or claims, succession issues, or any registered or unregistered encumbrances.”

So-called succession issues can be a particular problem in the case of soft-title properties if the Khmer partner/owner – most soft-title transactions are subject a 49/51 per cent partnership, with the Cambodian owner the majority holder – passes away, for example, the minority holder needs to know who will assume majority ownership.

“It doesn’t matter what kind of property we’re talking about,” says Sotheaphal, “an experienced professional should be engaged to assist in the due-diligence process and in the drafting of an appropriate contract for the transaction.”

So, what exactly is a soft title? According to Sotheaphal, it covers a wide variety of contracts with varying degrees of legality. The contract, he says, may not be legally binding, even if it bears certifications by local authorities at a village, commune or district, even thought such certifications provide more security than “a simple sale-purchase letter or a simple right transfer agreement without involvement of any governmental authorities”.

Despite the passing of the Land Law in 2001, many plots of land in Cambodia remain unregistered. Unregistered land can only be transferred via “soft” contracts and in terms of their legal status.

On the upside, Sotheaphal, calls the Old Policy, New Action campaign – which saw thousands of student volunteers fanning out countrywide in June 2012 to determine the legal status of land – “a remarkable success”.

The government has since issued more than 360,00 land certificates to villagers, according to a government report last year.

But, Sotheaphal adds, given the fact that some land is still unregistered, there is room for disputes, and it requires “determination” and the fulfilment of legal requirements for occupants of immovable property that is not registered “to become legitimate possessors and to obtain legal possession and definitive ownership”.

Meanwhile, on the subject of hard titles, Sotheaphal points out that they come in a number of forms.

“A hard-title document may be a Certificate of Immovable Property Possession, a Certificate of Land Use and Occupancy, or a Certificate of Immovable Property Ownership,” he says, adding that the third is the strongest evidence of “definitive ownership” once it is registered with the Ministry of Land Management, Urban Planning and Construction. Other titles, he cautions, “could be contested by a third party, or by the state, in relation to the right, the size, or the boundaries”.

On the subject of the most common form of property ownership with foreigners in Cambodia, condominiums, the actual title, says Sotheaphal, is known as a Certificate of Private Unit Ownership.

“This title gives you ownership over a private unit within a co-owned building constructed on a plot of land that is collectively owned,” he says.

Foreign ownership, even of condominiums, Sotheaphal adds, is nevertheless conditional. “Ownership is only possible from the first floor upwards, and only 70 per cent of the building eligible for foreign ownership, and the property must be no closer than 30 kilometres to any national borders.”

In summary, Sotheaphal says: “These are the basics, and there are a host of issues, including the transfer process itself, but the key point here is that due diligence is crucial to any property purchases in Cambodia and should involve registered legal representation, if you actually own a property and not a whole lot of problems.”

Next week, we will be looking at the transfer of property rights with Sotheaphal.


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