Buying or Selling a Property

Provided by Triay Lawyers

There are two main types of property ownership in Gibraltar, being freeholds and leaseholds. Freehold properties are scarce and usually located within the City Walls (with the odd exception in the South District and other areas). With a freehold property, you own the property and the land it stands on for an unlimited period of time. As Gibraltar only has a miniscule land area of 2.6 square miles, space is at a premium and a large amount of properties are on leasehold tenures. As a leaseholder, you own the property for a finite period of time but not the land on which it is built. The bulk of these leasehold properties are in apartment blocks and are usually held on long leases of 99 or 149 years from the date the Developer was granted a Headlease for the land. These leases are usually very detailed, sometimes containing up to 50 pages in which the rights and obligations of apartment owners among themselves, and with the management company, are carefully described.

When buying a property, the process normally begins with an estate agent who helps you to find your dream home. If you agree a purchase price, the estate agent will prepare a memorandum of sale setting out the agreed terms of the deal. This memorandum of sale should state that the sale is “subject to contract”, meaning that the terms of the memorandum are not legally binding on the parties and can be changed should information arise prior to the exchange of contracts. At this point, you will also need to instruct a lawyer to act on your behalf. It is of paramount importance that the lawyer you instruct is completely independent from the lawyer acting for the seller, to ensure that your interests are adhered to without conflicts arising.

Your appointed lawyer will conduct preliminary enquiries on the property for you, but this will only happen after you have paid a 2% deposit to the estate agent and agreed ‘subject to contract’ to buy the property. As such, we would recommend that you at least ask the following three questions before you pay your deposit to avoid any delays or problems during the purchase process:

1. How many years are left on the lease?

There is currently no statutory protection for leaseholders to have their term extended. As such, upon expiry of the term (unless it is extended), the ownership of the property reverts to the owner of the land. As such, the remaining term of the lease is important as the value of the property may decrease if there is a limited period left. If you are obtaining a mortgage to fund your purchase, the lending institution will require a minimum amount of years to be remaining on the lease (usually 60+ years) to ensure that their security is enforceable.

2. What are the monthly or quarterly outgoings for the property?

Electricity and water outgoings will depend on your use of the services. However, Service Charges and Rates are usually a set amount per quarter. Service charges are your contribution to the outgoings of the Management Company of the building/estate, who are usually responsible for insuring the building, keeping the common areas in a good condition, maintaining the lifts etc. Rates are akin to a ‘property tax’ and are calculated by Land Property Services (as HMGOG’s agents) using a special formula based on the value and size of your property. The rates are collected by LPS on a monthly or quarterly basis whereas the Service Charges will usually be collected quarterly by the Management Company or an agent of theirs.

3. Have there been any alterations to the original layout of the property?

The majority of properties will have restrictions contained within the lease which prohibit owners making alterations to the property without the consent of the Management Company or Lessor. Further to this, the changes may have required consent from the Development and Planning Commission (DPC) and Department of Town Planning & Building Control. If changes have been made to the property without consent from any of the aforementioned parties, the owners can apply for retrospective planning permission. However, it is not guaranteed that the permission will be granted and the changes may have to be reinstated, with inevitable delays in the proposed completion timeline.

As a buyer, you will want to ensure that the seller is the owner of the property who is legally able to sell it, that there are no outstanding charges, encumbrances, or hidden problems, and that you are fully aware of the obligations contained in any lease you will hold the property under. Your appointed lawyer will be able to advise on all of the above and the remaining process to complete your purchase. Where mortgage finance is required, if your lawyer is on the bank’s panel (please check with the Bank first), they can also assist you with the mortgage documentation.

If you are the seller, it is important that you speak to your lawyer and inform them of any issues or changes with your property promptly to ensure that it is fully compliant and there are no unwanted delays.

A seller’s lawyer is responsible for drafting the sale documentation which incorporates the terms outlined in the estate agent’s Memorandum of Sale. A buyer's lawyer will send the seller’s lawyer a detailed set of pre-contract enquiries dealing with all the matters which might not be obvious from the documentation e.g. incidents of damp or water penetration, or poor estate management events, rowdy neighbours, the functioning of the service charge fund, and a whole host of other matters.

The responses to these pre-contract enquiries are important and need to be accurate, as you can be sued for any misrepresentations given. A properly advised seller will provide their solicitors with full and candid information.

Information will be sought from the Management Company to ensure that they are complying with their obligations under the lease, including confirmation that a "sinking fund" is collected and maintained to pay for capital expenditure such as repairs of roofs, replacement of lifts, painting and decoration of external parts and so on.

If you are selling a property to purchase another property, you will be part of a “chain” transaction. Until such time as a contract is signed, neither party will be bound to complete a transaction, and either party can walk away. As such, prior to exchanging contracts, you need to be sure that you are exchanging on both your purchase and sale at the same time, and that the funds will be available on the set completion date. It is highly advisable that all parties in the chain exchange contracts prior to the completion date to ensure that all parties in the chain are legally bound to complete, and have provisions that they can rely upon to force completion to take place (or have alternate legal measures available to them).

Should you require assistance or would like to know more, we at Triay Lawyers would be happy to assist and can be contacted by e-mail at property@triay.com or by telephone at +35020072020. We wish all prospective buyers and sellers the very best with their transactions.

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