Dependable law, land registry are vital tools for land owners to protect against real estate fraud

‘The Rule of Law’ discussed by Attorneys-at-Law Kirthimala Gunasekera, Ajithaa Edirmanne and Ranjini Jayasuriya

Land transactions and the Rule of Law

Land rights depend on the Rule of Law, says Kirthimala Gunasekera; if the laws are not known or are not mandatory to be complied with or are selectively applied, how can there be a rule of law that would safeguard land rights? Strangely, the rules governing the registration practice for land and the notarial practice have non-mandatory rules, allowing deeds to be registered even if the rules are not complied with.

Undoubtedly a dependable law, a dependable land registry and a dependable document are vital tools for land owners to protect themselves against Real Estate Fraud.

Ajithaa Edirimanne explains deeds relating to condominium apartments.

The condominium industry in Sri Lanka is managed by extra-legal methods for registration of documents under the said non-compulsory rules without adhering to the Apartment Ownership Law. The industry has expanded and understandably new laws are required to manage the expansion of the industry, however it seems easier to apply extra-legal methods ignoring the provisions of the law.

For example, the Apartment Ownership Act No. 39 of 2003 specifically requires provisional condominium plans to be prepared so that units are clearly identified and registered before selling such units to prospective purchasers says experienced lawyer Edirimanne. She says that developers do not adhere to the law, they sell the units without preparing provisional condominium plans depicting the units and register the sales agreements in the land registry under the main land on which the building is to be constructed or they remain without tendering the agreements for registration.

To add to this, even the banks continue the extra-legal process in granting loans. They do not insist on the registered provisional condominium plan from the developer or they merely comply with the request of the developer and disregard the mandatory registration. She says that as a result, mortgage bonds are not executed since the unit cannot be legally identified. To safeguard the rights of the lender, Tripartite Agreement is executed and registered under the e main land in the registry. This prevents the bank from following the normal recovery procedure in the event the borrower defaults.

Land title procedures continue in this manner says Gunasekera without any intervention from the responsible authorities, while research to improve Sri Lanka’s land rights are managed by outsiders from a far. [Reports of the World Bank and other organisations]

 

Justice Dr A.R.B. Amerasinghe’s contribution

“Land title reform and the process of stabilising ownership of land is for us to mould and develop,” said Dr. A.R.B. Amerasinghe in the 1960s, when the International Bank for Reconstruction and Development (IBRD, now referred to as World Bank) recommended the Australian Property Law – the Torrens system (which was introduced as Bim Saviya in 1998) – as a possible solution to the problems connected with defective titles in Sri Lanka (page 149 of the book on Title Insurance by Dr. A.R.B Amerasinghe).

Dr. Amerasinghe made valiant attempts to preserve Sri Lanka’s land laws in accordance with the existing principles of the Common-law (the Deed system) and the customary laws of our country. I was very fortunate to have been closely associated with his work from about 1972 says Gunasekera; till his recent demise, he trained a few of us to think outside the box and demolish the mental barriers that shackle the progress of our profession.

It was the studied opinion of Dr. Amerasinghe that land title reform was a crying need in Sri Lanka since the Australian Torrens system to be introduced by the IBRD, was not a healthy and viable option for the country. He assisted Gunasekera in writing papers on this subject and he often pointed out that laws relating to ‘land rights’ and the concept of the ‘rule of law’ cannot be transplanted in toto from one country to another.

In his book Title Insurance the learned Doctor emphasised the need for a great deal of in-depth study and research to escape from our kraal of thinking in finding solutions, considering the vacuum of literature on the subject in the country; he espoused the need to look beyond borders to widen our horizons of knowledge and to enrich our law with the research done by other countries.

When discussing the subject of property rights with him, he would often point out that foreign laws were introduced to developing countries on a ‘one-fit-for-all’ basis. The measurements of wellness of property law would be the measurements of need of the developed nations and not necessarily the measurements of need of the developing nations.

They require us to climb up the ‘Doing Business Index’ by implementing reforms that they introduce which suit the developed nations and which are not necessarily suitable to the developing nations. He advocated the use of an index which would rather reflect the needs of a poor farmer than the ‘Doing Business Index’ which is geared towards the objectives of multinationals.

His preliminary challenge was to meet the objective of the International Bank for Reconstruction and Development (IBRD) presently referred to as World Bank which pointed out that our lands were not credit worthy as most of the loan applicants to banks were rejected by banks on the ground of ‘bad title’ (the reason for introducing the Torrens law). He established a domestic support system, when he created the new insurance system referred to as ‘Defective Title Insurance’ where he provided fair access to local banks for all those who were deprived earlier he was successful in removing the ‘unmarketability’ feature pointed out by the IBRD, for about 200,000 plots of land.

It was unfortunate for the country that he had to move out into other vistas that beckoned him and to which he brought his analytical thinking and vast experience; he was indeed an eminent judge of the Supreme Court. It is also unfortunate that the laws pertaining to property rights stagnated from the time he left the organisation we worked.

What can landowners do to protect themselves against title the under these circumstances? Acquire a knowledge of the law relating to real estate transactions, says Ranjini Jayasuriya.

McQuire, a company of which Jayasuriya is a Director, focuses on objectives goals and problems and other concerns. They had organised several seminars and will continue to do so in order to disseminate the knowledge relating to real estate transactions.

Inevitably the mentioned Torrens law was eventually introduced to the country in 1998 to stabilise the rights (Act 21 of 1998 Bim Saviya). It is very important for owners and land buyers to be aware of the dual system of registration and the dual system of land documents operating in Sri Lanka.

However, land fraud will continue; fraudsters will assume false identities so that they can pass themselves off as landowners to steal land title. The new law under Bim Saviya has placed statutory limitations on judicial intervention; it is not easy to regain lands back from fraudsters. Therefore land owners need to be extremely vigilant says Jayasuriya, they should acquire a very good knowledge of the dual system of law governing transactions relating to real estate.