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Property due diligence before a purchase in Georgia

Mariam

RegHub Georgia Specialist

Article 183 of the Civil Code sets two conditions for the transfer of an immovable thing by transaction. The parties put the agreement in writing, and the acquirer registers the ownership right in the Public Registry. Signature alone does not yet establish that the buyer has become the owner, so property due diligence extends well beyond the signed contract.

Even where the ownership right is already entered, the asset may carry a mortgage or a seizure, an easement, a tax lien or another restriction. An investor or a company that commissions such a review learns in advance which risks the purchase carries. Those risks arise from the ownership right, from any encumbrance, from the standing of the seller and from the lawfulness of the construction. Preliminary analysis is of particular significance where the asset is a dwelling, commercial space or a land holding.

This article explains how to buy property safely in Georgia and which data a buyer should request from the Public Registry. It goes on to the reading of the cadastral information, the confirmation of the transferring party's authority and the history of the asset itself. New developments and construction permit documentation each receive separate treatment, as do agricultural land, preliminary entry of rights and the procedure for state registration.

What the review covers, and which statutes govern it

The National Agency of Public Registry (NAPR) maintains the principal registers. Those systems record data on properties and entrepreneurs, on public-law prohibitions and on tax liens and mortgages. The enquiry rests primarily on the registers themselves and on the documents that gave rise to each entry.

Georgian legislation nowhere makes the review of a property a separate mandatory procedure with a fixed set of steps. Its scope is set by the characteristics of the asset and by the terms of the intended transaction.

A property title check in Georgia examines the grounds of ownership, the cadastral information and the encumbrances entered in the register. It extends equally to the legal position of the seller, the construction documents and any special prohibition or restriction.

Five instruments supply the statutory frame:

• the Civil Code of Georgia;

• the Law of Georgia on the Public Registry;

• the Instruction on the Public Registry;

• the Tax Code of Georgia;

• the Code of Spatial Planning, Architectural and Construction Activity.

A review has regard in addition to the Organic Law on Agricultural Land Ownership, to the Law on Homeowners' Associations and to the Law on Cultural Heritage.

The Public Service Hall operates as the centre for state services, where applicants file requests and obtain registration documents. Analysis of the asset should nevertheless close before the final settlement with the transferring party. Once the buyer has paid, a seizure that comes to light, a defect in the title or an unauthorised reconstruction becomes the acquirer's risk.

A full legal review brings to light the circumstances that block registration or that leave a restriction in force after the asset passes to its new owner. Its scope includes:

• ownership of the asset and the legal ground on which the title arose;

• mortgage obligations, seizure, tax lien, easement, usufruct and lease;

• correspondence between the cadastral information and the actual state of the asset;

• authority of a private individual, of a legal entity or of a developer;

• construction permit documentation, the approved design and the putting of the building into operation;

• legal regime of the plot, the common property of the building and restrictions in the field of cultural heritage.

Title verification in Georgia and the documents behind the entry

Every check starts from the cadastral code, the unique number the registration system assigns to the asset. A buyer obtains a fresh NAPR extract against that code and places it beside the contract and the owner's own documents.

An extract names the owner and states the share held. Address, area and cadastral number stand on the same document, together with the designated use of the asset and the legal ground of registration. A buyer compares those particulars with the seller's passport data and with the title documents for the specific apartment, house or land plot.

The check does not stop at the current line naming the owner. From the registration file a buyer requests the documents that brought the right into existence. That file may contain an earlier transfer agreement, a gift or an inheritance, and equally a court judgment, a privatisation act or an administrative act. Such a chain shows the origin of the title and exposes discrepancies a short extract leaves invisible.

Older housing stock draws the check into the archive of the Technical Inventory Bureau in addition. Counsel then reads the historical inventory plan and the descriptive particulars against the present area and layout of the premises.

Title verification in Georgia depends on current data. NAPR issues a standard extract for 20 GEL within one working day, or for 75 GEL on the date of the application. Electronic delivery costs 13 or 52 GEL respectively.

Encumbrances: mortgage, seizure, tax lien and rights of third parties

The encumbrance position comes from several interconnected state systems rather than from one. A NAPR extract records registered rights and public-law prohibitions, the tax lien and the mortgage. Even so, a seller named as owner may be unable to pass the asset free of restriction.

An examination of an apartment takes account of the following entries:

• seizure imposed by a court or within enforcement proceedings;

• mortgage established in favour of a bank or another creditor;

• easement or usufruct;

• tax lien or mortgage security;

• lease, sublease and registered obligations;

• prohibition on disposal and other public-law restrictions.

Where the review discloses a mortgage, a buyer must establish who the creditor is and on what conditions that security ends. Where a bank financed the asset, parties sometimes use the mortgagee's consent to removal of the entry once the stipulated conditions are met. Such a letter belongs to the contractual machinery of one transaction and is not a universal document for every sale.

An entry connected with tax arrears calls for particular care in a property title check in Georgia. Article 239 of the Tax Code treats the tax lien or mortgage as a security measure of the State, registrable against the property of the liable person. In the cases the Code sets out, the encumbrance survives the passing of the asset to a new owner until it ends on a lawful basis.

Restrictions extend to the manner of use as well. An easement may confer on a neighbour a right of passage or of vehicular access across the plot. A usufruct vests the use of the asset in another person. On land, counsel asks in parallel whether a legally formalised route to a public road exists. A track on the ground or an approach across a neighbour's plot does not stand in place of a registered access right.

Pre-transaction review examines the lease agreements in force and the persons who hold a right of use. Where the register carries a disputed entry, a buyer requests the document behind it, because the short designation discloses nothing of the obligation's full content. Counsel repeats the check immediately before registration, to rule out restrictions that appeared after the first analysis.

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Seller due diligence: individual, company and developer

A review of the seller starts with identification of the transferring party and with confirmation of its right to dispose of the asset. For a private individual, counsel matches the passport particulars against the NAPR data. Where a representative signs, counsel checks how long the power of attorney runs, what it authorises and whether any prohibition on disposal stands against the principal.

The rules on recognition of foreign acts govern any official document issued abroad. Recognition follows from an apostille, from consular legalisation or from an international treaty that dispenses with such formalities. Property belonging to a minor calls for separate analysis. The legal representative of a minor may dispose of it only on the conditions the Civil Code lays down; where the law so prescribes, the court's consent is among them.

Property acquired by spouses during the marriage qualifies as joint property under the general rule. Notarised consent of the second spouse cannot, however, be treated as a mandatory document for every sale. Article 312 of the Civil Code protects an acquirer who relies on the data of the Public Registry and has no knowledge of another owner. A known family dispute, pending court proceedings or information about an unregistered co-owner still warrants its own enquiry.

Where a legal entity transfers the asset, whether a developer or another company, the NAPR entrepreneurs' register carries the next stage of seller due diligence. An extract yields the official name of the organisation, its identification number and its current status. Particulars of the manager and the rules on representing the company's interests appear alongside. Examination extends in addition to the charter and the limits on authority, and to the need for corporate approval of the particular transaction. Liquidation, rehabilitation and insolvency belong to the same enquiry.

For a developer the enquiry extends beyond the corporate extract. Counsel establishes who owns the land plot and which mortgages already stand against it. That enquiry extends to the terms of the bank financing, to the buyers' rights entered in advance and to the authority of the signatory.

Where the land or the complex under construction is pledged to the creditor, the buyer of an apartment has to settle in advance how the unit will be released from that security. Legal analysis of a developer weighs the terms of the contract against the data of the registration system.

Cadastral and construction checks, and land due diligence

This part of the enquiry measures the register data against the asset as it actually stands. NAPR issues a cadastral plan within one working day for 7 GEL, or on the date of the application for 26 GEL. An electronic cadastral map of a territory of up to 10,000 square metres takes four working days and costs 7 GEL.

A cadastral check establishes the boundaries and area of the plot, its configuration and the position of the adjacent registered territories. The official map helps to detect a potential overlap of contours, yet it does not replace a fresh geodetic survey where the actual coordinates are in dispute.

Comparison of the cadastral code runs across several documents at once: the extract, the contract, the plan and the seller's own materials. Access to a public road belongs equally to land due diligence, because an approach across someone else's territory without a registered easement leaves the owner dependent on a neighbour.

Enquiry into a plot addresses the designated purpose of the land together with the permitted type of use. An agricultural category does not amount to an absolute prohibition of construction. Whether a particular object may be erected follows from the Code that governs spatial planning and construction activity. Functional zoning, the urban planning documentation and the applicable permit regime bear on the same question.

In an apartment counsel compares the actual layout with the technical and registration materials. Risk arises where premises have been merged, where a balcony or an attic has been annexed or where a basement is in use. Building an additional storey or taking in part of the common property raises the same question. New developments bring the parking space and the storage room into the same enquiry, since use on the ground proves no separate registered right.

A construction permit review includes the approved design and its amendments, the class of the building and the applicable permit regime. Records of construction supervision and the document on the putting of the building into operation belong to the same file. For the relevant classes the Code forbids the operation of a building before that act is issued. Where the asset forms part of a multi-apartment building, the enquiry draws in the homeowners' association. That association may register a member's debt above 500 GEL against the immovable property itself.