Inviting investors to Sri Lanka: Could entrepreneurs and housebuilders purchase land with stable lan

Friday, 6 February 2015 00:00 - - {{hitsCtrl.values.hits}}

A discussion by A.C.N. Dedigama, Attorney-at-Law and Solicitor with Kirthimala Gunasekera, Attorney-at-Law, summarised and presented in this article offers useful practical insights to landowners

On a recent visit to Colombo, I had the pleasure of a long discussion with a prominent Sri Lankan property lawyer who has actively engaged in a campaign to prevent land fraud. Kirthimala Gunasekera and I have jointly written papers, and have participated in international programs that engage in legal reforms to strengthen property rights. She is also a member of several committees appointed by the Ministry of Justice in Sri Lanka to amend and implement property statutes. My discussion with her, summarised and presented in this article, in a question and answer format offers useful practical insights to prospective land buyers. The answers provided by Gunasekera are from her extensive knowledge and personal experience spanning over 40 years Q: Would it be correct to say that land has defective title [known as ‘dead capital’] hinders economic development? A: Secure land rights and safe land ownership are two main factors for increasing incentives for investment and improving access to credit. This is a view expressed by economists and this economic viewpoint has been expressed in several books. A well-known economist Hernando de Soto, the author of ‘The Mystery of Capital’ says, “in developing countries there is poor investment opportunity as land and ownership are without clearly defined property rights; these countries have houses and properties without proper deeds and title

s and businesses without statutes of incorporation.” He stresses that full security of tenure is essential as these lands are not marketable and will idle as ‘dead capital’ in the hands of owners. Gunasekera says that it is sad to note that in Sri Lanka there is no interest in this subject. According to her, there is a nexus between the current situation of land title in Sri Lanka and the ‘dead capital’ referred to by de Soto as dubious land deals are on the increase and land frauds have sparked off a multitude of serious repercussions. Q: How has the situation got bad? A: In Gunasekera’s words: ‘Let me put it this way. The legal structure of land registration and conveyancing are still functioning under the old colonial statues introduced by the British in 1907, 1927 and 1840. These colonial statutes have no teeth to make the public aware to whom the ownership of the land of the country belongs. Today even a lawyer will not be able to determine the correct ownership to a land.’ Q: Could you give examples? A: Yes; you could see from the following cases [1 to 4], how much money has to be frittered away on land cases before land owners can use their lands or houses. 1] Registration of a deed is not a compulsory requirement under the old statues A prospective purchaser could be taken by surprise by claimants who possess unregistered deeds. Mr. De Soysa bought a land from Mr. Dias for Rs. 10 million to put up a factory. Shortly afterwards he was in for a rude surprise when he discovered that the owner had previously entered in to a notarised agreement to sell the land to Mrs. Sena and had taken Rs. 3,000,000 as an advance. Although the ‘Agreement to Sell’ was not registered, Mrs. Sena has rights over the land. Mr. De Soysa’s lawyer had no opportunity to find out about the unregistered agreement as the notarial system works under a non-compulsory registration system. With the original owner surreptitiously slipping out of the country, it took over two years to even serve summons on him. 2] Land fraud goes unchecked – most experienced notaries may not be able to guarantee title to land Mrs. Jinasena, a well-known lawyer, recommended title to a piece of land and her client Mr. DeLanarole purchased the land purely on Mrs. Jinasena’s recommendation. Much to the embarrassment of this experienced lawyer, one Mr. De Silva contested the title of Mr. DeLanarole with a duly notarised deed in his favour to the same land with a different chain of title. Presently Mr. DeLanarole and Mr De Silva both have two deeds to the same land and are involved in a legal battle now going into the fifth year. 3] A deed in the hands of an owner is not sufficient to validate ownership. Owners require an entire set of documents to support ownership rights To prove ownership in land transactions the deed alone is not sufficient. One has to retain copies of all the volumes and folios from the land registry where the deeds are registered. To give an example, Mrs. Muthukrishan had a house in Bambalapitiya gifted to her by her mother in 1972. She decided to sell the land. A buyer was found without much effort as the land was in a prime location. But to her dismay the buyer’s lawyers rejected the title as the relevant page of the book where the deed was registered in the land registry was damaged. [It is warning to all land owners to apply for extracts or copies of the pages from the land registry and retain with your deed.] 4] Old laws in disharmony with new laws Implementation of new statutes is not possible unless there is reference to the existing provisions of the old statutes; ‘The Registration of Documents Ordinance’, ‘The Notaries Ordinance’, ‘The Prevention of Frauds Ordinance’ and ‘The Bim Saviya Act’. A food example is The ‘Land (Restriction on Alienation)’ Act 38 2014. This Act imposes a tax of 15% of the total rent on foreigners who lease premises. The Act states that if the tax is not paid the registrar of lands shall refuse registration of the lease document. In my view this is a grave oversight as lease documents are valid under the above statutes even if they are not submitted for registration. Result is many leases are executed without the collection of the tax as they are not registered. In addition, the Land (Restriction on Alienation) Act No. 38 of 2014 which prohibits foreigners from obtaining deeds has retrospective application. Anyone therefore who had purchased condominium units with money they had in Sri Lanka when the retrospective law had yet not been introduced will now have no legal right to obtain their deeds as the money had not come from abroad. Their rights are restricted to possessing the units without deeds. Then, there are some of them who had completed payments several years ago. However due to lapses on the part of developers who had delayed to issue the deeds on time these persons had not obtained their deeds at the time the retrospective legislation was introduced. These unfortunate purchasers today, have no legal right to obtain their deeds. Q: What are the legal safeguards implemented so far to resurrect the ‘dead capital’? A: Sri Lanka has invited both local and foreign investors to propel the economy and consequently rating agencies and other market participants monitor Sri Lanka’s property rights performance. In 1998, in response to the external reporting and rating the Title Registration Act 21 of 1998 was introduced. The implementation of the Bim Saviya program, which is a national program, commenced in 2007 to introduce and implement the new Act. Under this Act, the registration of all land transactions is compulsory, unlike in the existing system of registration. The full information relating to land ownership, mortgages, charges, easements, restrictive covenants, property boundaries and rights of way are all registered in one conclusive register. The Government gives a guarantee to owners and purchasers. Purchasers and banks are no longer required to carry out lengthy searches to ascertain title. It is my observation that despite an overhaul to the property law system, there is no training or education offered to Attorneys-at-Law and to law students on the new system. There are no feasibility studies or research carried out to explore how to enhance the existing deed registration system or changes required. The clamour, without logical argument, is to merely retain the statues of the colonial era without addressing the complexities of the current times. Q: Has there been any attempt to introduce title registration in Sri Lanka before the Act 21 of 1998? A: Gunasekera refers to books written by erudite lawyers Dr. A.R.B. Amerasinghe on Title Insurance and E.R.S.R. Coomaraswamy’s books on Property Law and Conveyancing part 1 and 2. Accordingly to E.R.S.R. Coomaraswamy, from 1863 Sri Lanka had been afflicted by cycles of stop-go measures over title registration. The Ordinance No. 8 of 1863 was the first Ordinance to replace the deed registration system. This was followed by progress and decline in 1877 and 1907. Registration of titles was to be re-introduced by an Ordinance recommended by a commission known as the Mortgage Commission in 1945. In 1969 when the idea of introducing title registration surfaced again, Dr. A.R.B. Amerasinghe was able to modify the system with the introduction of title insurance with a unique program to stabilise land rights under the deed system. The program did not take off fully, resting merely at the stage of insuring land title by Insurance companies. Finally in 1998, Title Registration Act No 21 was introduced. Gunasekera expresses her fervent hope that the lawmakers in Sri Lanka would focus on designing a reliable land registration system based on a reliable deed system with the added knowledge gained from the dual registration system that is presently functioning in Sri Lanka.

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event including Valentine ’s Day. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Flower Bouquets, Clothing, Watches, Lingerie, Gift Sets and Jewellery. Also if you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.