The social and economic cost of uncertain land title in Sri Lanka

The chaotic and iniquitous state of the land market in Sri Lanka is one of the most serious obstacles to economic progress. The dysfunction of this market is not only a problem for the national economy but also for the ordinary citizens whose livelihoods are affected by legal uncertainty and fraudulent claims

By Suri Ratnapala

Sri Lanka faces two great challenges as a nation aspiring to peace, stability and prosperity. 

The first and most immediate is the restoration of constitutional government by reviving the conditions for judicial independence, public service integrity, the due process of the law and the authority of parliament. There is reason to hope that the experience of the recent past has created a community wide consensus in support of these goals. 

The second major challenge is to reset economic policy to create conditions for real and sustained economic growth that will enable the nation to avert financial catastrophe, eliminate poverty and lead to prosperity. 

This brief essay is concerned with one of the most serious obstacles to economic progress – the chaotic and iniquitous state of the land market in Sri Lanka. The dysfunction of this market is not only a problem for the national economy but also for the ordinary citizens whose livelihoods are affected by legal uncertainty and fraudulent claims. 

Successive governments of all ideological shades have recognised the need for land title reform. Parliament has enacted the necessary legislative framework for the transition to a better system modelled on the successful Australian ‘Torrens System’ of title registration (Registration of Titles Act No. 21 of 1998, popularised as Bim Saviya).

However, implementation remains slow partly for financial and administrative reasons but also because of real concerns of property owners who currently enjoy peaceful possession of land but fear the loss of their legitimate but legally uncertain rights in the transition. These concerns must be acknowledged and addressed in introducing reform. 

The challenges are formidable and require the goodwill and cooperation of all stakeholders including the political leadership, administrative agencies, the legal profession, the media and the concerned public. What the country cannot afford is indifference and inertia. 

Economic imperative

Mainstream economics identifies four factors of production: land, labour, capital and entrepreneurship. There are other factors but these are the basic resources needed to produce goods and services. They are interdependent. The undisputed owner of a piece of land has the use of its produce and rents. The owner can raise financial capital by mortgaging the land. Secure assets reduce risk and allow more creative entrepreneurship.

The transaction costs of acquiring indefeasible title to land are unacceptably high in Sri Lanka. The nation has one of the most cumbersome systems of registering title documents. A World Bank report of 2012 ranks Sri Lanka at 161 out of 183 in this respect. (World Bank 2012) 

Buyers have no easy way to ensure that they will receive good title to land. Verification involves up to seven days of historical search by lawyers (or their clerks) of past deeds archived in primitive conditions before transfer documents can be drawn up. The registration process takes on average 83 days to complete. (Diviture and Tang 2013, 223) 

Even this costly process does not assure indefeasible title to the buyer. Land disputes make up a large proportion of the workload of courts. Everyone knows someone embroiled in a land dispute. Land cases take 10 years on average to reach finality. (West 1987)

The uncertainty of property rights in land increases the cost of doing business in Sri Lanka and seriously inhibits domestic and foreign investment. But it is not all about business. Big business has the means to overcome their obstacles or go elsewhere with its capital. It is also about the rural farmer, the coastal fisherman, the small trader, the toiling industrial worker, the salaried public servant and the self-employed artisan. The livelihoods and aspirations of ordinary Sri Lankans can be destroyed by the cost of defending their modest holdings. 

Besides, land ownership has a cultural significance to the average Sri Lankan beyond its economic value. As the World Bank Report on Land Reforms in Sri Lanka observes, ‘Land in Sri Lanka represents not only a source of livelihood, but also a source of human-ness and social status’ (World Bank 2008, 17)

Land titling systems

Legal systems of the world have different ways of determining land title. In some traditional societies land is held in common with individuals having customary use of land. In modern commercial societies land is tradable which means that individuals have transferrable title in land. 

While there are many systems of land title, they fall into two broad categories: registration of deeds and registration of titles. There are good and bad versions within each category. Unfortunately, Sri Lanka has a bad version of deeds registration. 

Deeds registration

A deeds registration system does not guarantee indefeasible title. It provides an official archive where deeds concerning the transfer of rights to land can be registered. The Sri Lankan system of deeds registration is governed by the Registration of Documents Ordinance No 23 of 1927. 

The law does not require deeds to be registered but provides a strong incentive to register deeds by giving priority to registered deeds over unregistered deeds. As between two registered instruments, the one registered earlier has priority. A deed to be valid must also be executed by a notary. There are many problems in this system of land ownership. Let me highlight the three main areas of concern.

1. Registration is not proof of ownership

Registration of a deed provides evidence of the transaction but does not make it valid. A deed of sale, though registered, will have no effect if the sale is legally defective. Hence there is a lack of finality. This is as it should be in a system where registration takes place without any inquiry into title.

The officials have no responsibility to ensure that the seller is entitled to sell. They also lack the competence to decide such questions. In case of a dispute, the claimants have to litigate in the courts to achieve finality. 

2. Fraud

The system of deeds registration, at least in the form that operates in Sri Lanka, invites fraud. Officials at the land registries have no duty and, as the law stands, have no competence to verify the authenticity of registrable documents. Hence the legendary Sri Lankan institution of the ‘Hora Oppu’ or fake deeds. Everyone knows someone who is the victim of a ‘Hora Oppu’. I know a Supreme Court judge who was a victim! 

Take the case of a fraudster who sells another person’s land to an innocent buyer and pockets the money. The deed will be registered and the fraud may not be noticed by the legal owner (or successors in title) until a stranger turns up with a claim under the tainted pedigree. The legal owner might be financially ruined in defending their interests. 

The system depends on the professional integrity of lawyers and notaries. These professionals may themselves be duped by clients. Sadly, there are also instances of professional collusion in fraudulent transactions. 

No system, however sophisticated, can eliminate all fraud. However there are measures that can substantially reduce its incidence. Information technology has helped to reduce fraud in many areas of commerce. 

Digitising and computerising the land registry archives will go a long way towards fraud reduction by allowing owners of land and their legal representatives the capacity to maintain a continuous vigil against fraud. The cost of a transition to electronic records is high and may not be immediately affordable by the government except perhaps by diverting a fraction of the colossal amounts spent on wasteful projects.

In any case, the cost can be partially borne by the parties that benefit from fraud avoidance. There is a growing industry catering to this demand. As one local expert points out, in other economies ‘the complex issue of protecting land owners’ identity is undertaken by licensed private sector companies who offer assurance to the prospective purchasers that they are buying land from genuine owners free of fraud forgery’. (Gunasekera and Attygalle 2014) 

3. Problem of physical identity

The Registration of Documents Ordinance does not require all deeds to be registered, which in itself is a major obstacle to reform. A deed must describe the land but need not include a supporting plan made by a qualified surveyor. Even the plans that are submitted with deeds have no reference to a cadastre which is an overall national or regional plan. Hence there is no easy way to resolve a conflict between the boundaries of registered plans.

This problem is practically eliminated where the whole territory is mapped and divided into parcels according to registered ownership. This again is a costly exercise that can take many years and great expense to accomplish. Yet, the burden on the taxpayer can be lessened if the law passes on the cost of mapping to the beneficiaries by making survey plans a condition of registration. Disputes concerning boundaries will become clear sooner and over time their occurrence will decrease. 

Title registration

A system of title registration provides a definitive legal statement of the ownership of an identifiable parcel of land (and interests in it) at a given point in time. The dimensions and the location of the parcel are clearly identified as a part of the national (or regional) map of properties known as the cadastre. The system provides a state guaranteed title to registered lands. 

Any dispute concerning ownership is judicially determined prior to registration. After registration, the owner receives a Certificate of Title that for all practical purposes is indefeasible. If the land is sold, the new owner’s entitlement is substituted for that of the predecessor. The register is a public document that may be inspected by prospective buyers. 

The system, being humanly administered, cannot eliminate all errors and fraud but can minimise their occurrence. The Registration of Titles Act makes provision for innocent victims of fraud to be indemnified from an Insurance Fund. The system is not perfect but is vastly superior to the legal quagmire that currently prevails. 

The way ahead: challenges and choices 

Attempts to introduce title registration date back to the colonial era. Land Registration Ordinance No. 5 of 1877 was implemented in three villages (Dehiwala, Wellawatte and Kirulapone) which now form part of greater Colombo. 

The latest attempt takes the form of the Bim Saviya project. It was initially funded by a World Bank grant and has been continued with public revenue. Progress has been slow for a number of reasons well documented in the World Bank Implementation Report. (World Bank 2007) There seems to be no great enthusiasm for this reform although all sides of politics embrace it. Perhaps it is not a hot button issue at election time. The Implementation Report states:

These implementation problems were due to a combination of the complexity of the vested interests involved and a lack of commitment of Government including the implementing agency to deal with these head on or on a priority basis. In particular, there were no champions in the high level political and policy making arenas to spearhead solving of the outstanding project issues. (World Bank 2007, 10)

A system of land title registration is an obvious long-term solution to the problem of the uncertainty and vulnerability of land entitlements in the country. Ironically, this problem is also the major obstacle to the transition to a title registration regime. The confused state of land ownership in Sri Lanka has many historical, legal and cultural causes. 

In the pre-colonial era, entitlement to land was determined by local customary laws. The Roman-Dutch law superseded customary law but did not displace the personal laws of certain communities, specifically, the Kandyan law, the Thesawalamai applying in the Jaffna peninsula and Muslim law. Any investigation of title must also take account of relevant legislation. Even where the applicable law is clear, the entitlements often are not.

Much land is found in co-ownership. Family members enjoy undivided parts of inherited lands and in the absence of judicial or consensual partitioning the ownership becomes atomised over generations. A partition case to settle ownership takes in average a decade or more to reach finality. Therefore the anxiety about the process on the part of many persons with undocumented interests in land is both real and understandable. 

The Bim Saviya scheme is not intended to extinguish rights without judicial resolution of disputed claims. Where a dispute about entitlement arises, the Act provides for its judicial resolution before registration occurs. Even so, the process imposes unforeseen costs on property owners currently in peaceful possession who are compelled to join actions to prosecute or defend their interests lest they irretrievably lose them. 

The report of an expert advisory committee chaired by the distinguished lawyer Arthur Samarasekera, PC, concluded: ‘It is these problems that made compulsory Registration of Title to every land an impossible task and totally unworkable’. The Law Reform Commission has also consistently opposed compulsory implementation for these reasons. 

The Samarasekera Committee does not oppose the policy and aims of the Registration of Titles Act, but questions whether compulsory registration is feasible. The committee recommends that the implementation be initially voluntary. 

There are many land owners who enjoy secure title under current law. Titles derived from state grants and judicial decrees are generally certain at least in the hands of the first generation. There are other land owners whose entitlements have been rigorously verified and accepted by lending institutions. These owners have strong incentives to have their titles made indefeasible by registration. 

The Samarasekera Committee has reason to think that when the benefits of title registration become evident others will be motivated to have their titles legally clarified for registration under the Act. The committee recommends that the implementation of the scheme be phased in with the initial focus on the urban areas where land ownership is more documented and settled. They recommend that separate registers be maintained for title registered lands and for other lands.

I see much merit in the Samarasekera Committee recommendations. Yet, there are other measures that should be taken to mitigate the problems blighting the state of property rights in the country. Parliament should require all deeds to be registered. Deeds constitute prima facie evidence of entitlement without which title registration becomes difficult if not impossible. The accuracy, and therefore the evidentiary value of a deed depend on the integrity of the notarial process. Parliament can also tighten the standards for notaries in executing deeds.

It will be irresponsible for the government to press ahead with compulsory title registration. That object is neither practical nor equitable. However, doing nothing is not an option. The chaotic state of land law in the country carries enormous unaffordable economic costs. It is not easy to explain to the public the intricacies of legal reform in this field. Yet it is the general public that ultimately bear this cost as the economic growth needed to combat poverty and create prosperity is stifled by archaic law. 

It is therefore the duty of patriotic and public-spirited politicians, administrators, lawyers and media leaders to energise this reform process. Constructive criticism of the title registration system should be welcome and alternative proposals must be seriously considered. What the nation cannot afford in this field is inertia. 

References

H Diviture and C Tang (2013) ‘Cadastral system migration from deeds registration to titles registration: case study of Sri Lanka’, 45:330 Survey Review 220-228

Gunasekera, Kirthimala and Attygalle, Randima (2014) ‘Tightening archaic laws a must for preventing land fraud’, The Island, February 8, 2014

West, H W (1987) The Application of a Rural Renewal Policy in Sri Lanka. Discussion Paper No. 16 Department of Land Economy, University of Cambridge, Cambridge, UK: 47 pages. 

World Bank Group (2012) Doing Business – Measuring Business Regulations http://www.doingbusiness.org/data/exploreeconomies/sri-lanka#registering-property (accessed 10 March 2015)

World Bank (2007) Implementation Completion and Results Report (IDA-34960), Report no. ICR 0000190, The World Bank, USA

World Bank (2008) Land Reforms in Sri Lanka: A Poverty and Social Impact Analysis, http://siteresources.worldbank.org/INTPSIA/Resources/490023-1120841262639/PPP171_WB_SriLanka_Report_30-05-08.pdf

(The writer is Emeritus Professor of Public Law, The University of Queensland.)