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Apr 08, 2014

Immovable Property: Understanding the Types of Title and the Conveyance Process in Cambodia


By Daniel Noonan
 
Buyers of property in Cambodia often run into confusion stemming from the use of the terms “hard title” and “soft title”. When acquiring immovable property in Cambodia, proper due diligence to confirm the status of title and identify possible risks is required. An experienced professional should be engaged to assist in the due diligence process and in drafting an appropriate contract for the transaction.
 
Types of Title to Immovable Property and Due Diligence
 
The terms widely used to refer to a right to an immovable property (i.e., soft title and hard title) do not exist in any Cambodian law or official document. “Hard title” refers to immovable property holding recognized by governmental authorities according to the Land Law, the Civil Code, and other relevant regulations. On the contrary, “soft title” is not a fully recognized right according to law, but, in practice, refers to the existence of a limited right to an immovable property, which could be used to obtain a possessory right or a definitive ownership right if the holder fulfills the particular legal requirements.
 
While extra care should be taken in the case of a soft title, it is equally important – whether land is held under a soft or a hard title – to conduct proper due diligence (both legal and on-site investigations on the immovable property) to determine whether issues exist that affect the title status or its use or ability to transfer. Use may be limited by unresolved disputes, pending litigation, zoning restriction, third party interest or claim, succession issues, or any registered or unregistered encumbrance. Buildings, structures, grown timber existing on the land may not be considered by law as components of the land and may be subject to a different right.
 
What Is A “Soft Title”?
 
Soft title to an immovable property refers to a document produced on soft or low quality paper in a variety of forms and records a holding. It may bear certifications by local authorities ranging from the village to commune/Sangkat levels up to the district/Khan level or may be a simple sale-purchase letter or a simple right transfer agreement without the recognition of any governmental authorities.
 
Despite the passage of the Land Law in 2001 and the issuance of various implementing regulations, a number of land plots in Cambodia remain unregistered resulting in land plots for which only a soft title exists. People holding only a soft title may be recognized as inhabitants (or occupants) on the immovable property.  A further process of determination and confirmation is required in order to fulfill the legal criteria to become legitimate possessors with definitive ownership (i.e., obtaining hard title).
 
There are several risks associated with soft title ownership: overlapping claims, unclear boundaries and the possibility that a plot of land being occupied is State public land - which cannot be transferred or registered as a private property.
 
In order to mitigate these risks, the Royal Government implemented the successful “Old Policy, New Action” campaign to survey and record land plots countrywide.
 
What Is A “Hard Title”?
 
A hard title refers to both the paper quality and the legal effect of the document. Hard title  may be used to refer a Certificate of Immovable Property Possession, a Certificate of Land Use and Occupancy, or a Certificate of Immovable Property Ownership, all of which indicate the registration of the immovable property with the cadastral administration. The first and second types of title indicate a possessory right issued by the cadastral authority according to the sporadic registration system, conducted at the request of the holder. The third type of title evidences definitive ownership and is issued upon completion of the procedure for a systematic registration initiated by the Ministry of Land Management, Urban Planning, and Construction at determined locations.
 
The ownership title is the strongest title to an immovable property whereas the possession title represents a possessory right which may be subject to a contest by a third party or the State in relation to the right, the size, or the boundaries. A definitive ownership title cannot be requested at the will of the immovable property holder (i.e. awaiting the State-initiated systematic registration process). However, the immovable property holder may request a sporadic land registration be undertaken to obtain a formal possession title legally strengthening the title.
 
In addition to the types of title mentioned above, another type of ownership title known as Certificate of Private Unit Ownership defines ownership over a private unit within a co-owned building constructed on a collectively-owned plot of land (i.e., a condominium apartment) which is available to Khmer and legally qualified foreigners.  Foreign ownership in this case is contingent on meeting certain legal requirements: (i) foreigner must be legally qualified, (ii) ownership is restricted to first floor upwards, (iii) only a certain proportion of the building may be allocated for foreign ownership (currently up to 70 percent of the total surface size of all private units of the co-owned building), and (iv) generally foreigners are not allowed to have ownership over private units of a co-owned building located within 30 kilometers from land borders and other areas as determined by the Royal Government.
 
Immovable Property Transfer Process
 
A soft title to an immovable property is not  legally registered, and the transfer of soft title is normally done through a certification on a right transfer letter by local authorities, at the village or commune/Sangkat level or up to the district/Khan level. Generally, the process for soft title transfer is simple, fast, and inexpensive because at present there is no mechanism to collect taxes for soft title transfers. However, the buyer who receives the soft title assumes all risks and outstanding obligations associated with the ambiguity of the soft title.
 
For a hard title transfer, the parties may draw up a contract containing detailed terms and conditions and their respective rights and obligations, including a schedule for payments according to the stages of the transfer process. However, this contract is only a private agreement between the parties, which is separate from the documents used to process the transfer of title at the cadastral office. Cambodian law requires that an agreement to transfer an immovable property must be made by an authentic deed. An authentic deed is either a document notarized by a notary public or made by a competent officer for registration process. Having the sale-purchase agreement certified by the chief of commune/Sangkat may meet the required involvement of a “competent officer”.
 
In order to process the conveyance of an immovable property, the parties must complete an authentic deed prescribed by the cadastral administration and execute it before the competent officer. Supporting documents include Khmer identity cards or identity verification letters acceptable to the cadastral authority, and in case either party is a legal entity, the shareholders must provide a power of attorney authorizing a physical person to act on its behalf - such  authorization may require certification by an attorney-at-law and/or the commune/Sangkat authority.
 
Upon completion of the procedure at the cadastral office, the law requires a payment of stamp tax for the immovable property conveyance, the current rate of which tax is 4 percent of the immovable property value as assessed by the taxation authority. After the appropriate tax amount is paid, the cadastral authority will conclude the legal and official procedure by registering the transfer on its formal records and annotating the same on the title deed.
 
Sciaroni & Associates, Real Estate & Property Practice Group
 
Sciaroni & Associates professionals have decades of experience in providing advice to clients in all aspects of the real estate industry in the Kingdom of Cambodia. Sciaroni & Associates’ Real Estate and Property Practice Group provides advice on all aspects of conveyances, including drafting of purchase and sales agreements, leases, deeds and mortgages. The firm also completes title searches and coordinates the filing of legal documents for all types of real estate transactions.
 
Sciaroni & Associates
 
Sciaroni & Associates is a leading legal and investment advisory firm with offices in Cambodia, Laos and Myanmar.  Serving SE Asia since 1993, Sciaroni & Associates provides experienced advice and business insights to many of the world's leading companies, governments, economic think tanks, global development investment funds and international NGOs in accordance with international standards. For more information contact info@sa-asia.com or visit www.sa-asia.com.

 
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Sciaroni & Associates is a leading professional and investment advisory firm doing business in Southeast Asia since 1993. Based in Cambodia with legal offices in Laos and Myanmar, we provide experienced advice and business insights to many of the world’s leading companies, governments, economic think tanks, global development funds, international NGOs and the Royal Government of Cambodia in accordance with strict international standards.
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