The restrictions prevent foreigners from buying properties in Sri Lanka but certain exceptions - such as condominium apartments- are provided for in the Act.
It is advisable to obtain the services of a competent and experienced notary or even a law firm in such matters. Whilst experienced persons may command a premium for their work it is considered a prudent expenditure
By Kshalini Nonis
Property is appreciated or valued the most when the entire process of buying or selling goes smoothly without any hassle. However, the most common of all issues is the legal hurdle pertaining to the property which can seriously hinder a smooth transaction. In the second part of this article, we talk to Dhammika Welagedara Attorney- At- Law engaged in Civil and Appellate Practice to discuss some of these issues.
Q: What about finding tenants online?
Finding tenants online – that is by advertising or posting on websites or social media (such as Facebook, Instagram as well as groups on messaging apps such as Whatsapp) has become quite common. In fact, there are dedicated websites for this purpose.
Also, web-based businesses such as Airbnb are in fact portals where an owner of a premises meets a tenant (although the term tenant is not used). In such instances the premises is generally hired for a short term (a few days, weeks, a month or even a few months) and generally other amenities such as bed linen, towels etc are provided along with the premises. In these instances, the company (such as Airbnb) involves itself as an intermediary and provides certain safeguards (guaranteeing payments etc). Also, the parties can be rated by other parties who have dealt with them in the past and thus one party has some idea as to the past conduct of the other party.
However, where a tenant is found directly through the web, unless there is a recommendation from a known third party, the landlord would be ignorant as to the past conduct of the tenant (eg. a person who may have defaulted in payments, and who may have not vacated the premises after the expiry of the agreement etc).
In the circumstances, it is imperative that precautions are taken and safeguards put in place when giving a property on lease to an unknown tenant found online. This would include entering into a legally enforceable (attested by a Notary) lease agreement with all safeguards, obtaining a security deposit sufficient to cover all damages which can be made to the premises and to cover any unpaid utility bills during the term of the lease. In some instances, the rent for the entire lease period (or at least a substantial part of the total amount payable during the lease such as 1 years rent or even 6 months rent) is obtained upfront by the landlord. By obtaining such an amount the landlord eliminates (or reduces) the risk of non-payment of rent and avoids the hassle of the landlord having to ‘chase’ the tenant for rent money. However, not all tenants are in a financial position to pay such advances and thus this practice is limited.
Q: What are some of the risks associated with renting a property?
Any person giving a property on rent should know that there is a risk of a tenant violating the terms of the contract of tenancy – i.e. non-payment of rent, refusing to vacate the premises and sometimes even demanding money to hand over vacant possession of the premises. There have been rare instances of tenants even claiming ownership on the basis of ‘prescription’ having stayed in the premises for a long period of time (more than 10 years) not recognising the rights of the owner/landlord.
However, a person coming into occupation as a tenant succeeding in a court with such a claim is slim unless cogent evidence is adduced to show a change in the status/relationship and ‘ouster’ as a person coming into occupation in one capacity (such as a tenant) remains to be in occupation in the same capacity.
Q: What are the documents you need for buying, selling and renting property?
When buying property, the buyer needs to see the original of the title deed of the seller. Generally, a seller would be hesitant to release the original to a potential purchaser till the sale goes through. In such circumstances, at least a photocopy of the deed would be needed for the buyer to cause a title search in order to verify the title of the seller – as the prior registration details would need to be obtained from such deed. Generally, the original would be given to the buyer at the time the conveyance is done by signing a transfer deed. There are instances where the original may have been misplaced. In such event, a certified copy of the title deed can be obtained from the ‘Duplicate Copy’ of the said deed tendered to the land registry (every month a notary has to send all the duplicates attested by him within that month to the land registry). A deed is done in triplicate at the point of execution, namely, the ‘Original’ which is given to the buyer after registration, the ‘Duplicate’ which the Notary sends to the Land Registry and the “Protocol’ which the Notary retains. All 3 are considered originals. A seller too will need to have his original deed – however he can obtain a certified copy as stated above if the seller has misplaced or lost it.
In the case of renting, the need for the title deeds do not arise. However, a copy of the title deed will be required by the notary who would need to reproduce the schedule in the title deed in the Lease Agreement. If it is only a monthly tenancy even this requirement does not arise.
Q: How do you check the legality of the documentation?
It is best to obtain the services of a competent notary or lawyer to check the legality of the documentation.
Q Can foreigners buy or sell property in Sri Lanka?
Foreigners are free to sell any property they already own. Previously, foreigners could buy properties as well. However, after the enactment of the Land (Restrictions on Alienation) Act, No. 38 of 2014 the power of foreigners to purchase properties in their names is restricted. This act has been enacted on 29.10.2014 but is designed to be in operation retrospectively from 01.01.2013 (Vide - Section 1(2) of the Act). The term ‘foreigner’ applies to foreign individuals as well as foreign companies (even companies registered in Sri Lanka where the majority of the shares are held by foreigners). In order to overcome the provisions some foreigners have bought properties in the names of Sri Lankans whom they can trust.
Although the Act itself was enacted in 2014, from about the year 2012 the Registrars of Land Registries refused to register deeds in favour of foreign nationals after the then President (who was also the finance minister) made a statement in parliament (if I remember correctly, it was during a budget speech) that a prohibition would be imposed on foreigners buying land.
The restrictions prevent foreigners from buying properties in Sri Lanka but certain exceptions - such as condominium apartments- are provided for in the Act. Whilst the original act allowed foreigners to purchase condominium units only above the 4 th floor, a subsequent amendment in 2018 has removed it allowing any floor to be purchased by a foreigner.
However, the entire purchase consideration when purchasing such an apartment has to be paid in foreign currency by a foreigner. The exceptions to the rule barring foreigners/foreign companies purchasing properties are set out in paragraph 3 of the Act while the prohibition is set out in Section 2 thereof.
These restrictions do not apply to foreigners renting or leasing a property. A dual citizen having citizenship in Sri Lanka as well as another country is not considered a ‘foreigner’ and the restrictions of the Act do not apply to such persons and they are free to purchase properties in Sri Lanka.
Although foreigners are presently not entitled to purchase properties after the enactment of the aforesaid Act, foreigners are entitled to inherit properties in Sri Lanka as well as be a beneficiary of a gift (donee) when the donor is a next of kin. A person who had given up Sri Lankan citizenship in order to obtain citizenship in a country is also categorised as a foreigner. If a Sri Lankan obtains citizenship in a country such as Singapore where dual citizenship is not available , such a person becomes a foreigner although originally from Sri Lanka. Such a person can inherit or be a donee in a property gifted by a next of kin. Also, a foreigner who has never been a Sri Lankan citizen can benefit from such a gift or inheritance , so long as such a gift or inheritance is from a next of kin.
Q: Any other advice that you would like to give to those buying, selling and renting property?
It is advisable to obtain the services of a competent and experienced notary or even a law firm in such matters. Whilst experienced persons may command a premium for their work it is considered a prudent expenditure (the notaries charge for attesting an instrument is generally a percentage of the value of the instrument and thus there won’t be a huge difference between the charges of an experienced person and a person who is new to the profession and inexperienced) as the consequences of not checking title properly etc far outweigh the cost savings. There are instances of professionals (generally by those who are new to the profession and struggling to establish a practice) ‘undercutting’ and offering to charge a lesser percentage/fee in order to procure more work and clients. Bigger law firms may charge taxes such as VAT on top of their usual legal charges. However, it is still worth to obtain services of a competent lawyer or law firm even at a premium price considering the high value of properties. The higher price may be justified by the substantial risk involved in getting the services of a ‘cheap’ notary. The idiom ‘Penny wise, pound foolish’ is quite applicable in this case.
