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What is the role of a notary in property acquisition?

1. What is the role of a notary in property acquisition?

A notary is a legal practitioner whose intervention is required in property transactions. It is therefore a necessary step to buy a house, land, apartment or any property right (usufruct, leasehold rights, or through a corporation).

We will see the need for this obligation if we examine the rationale behind it.

The notary is the only legal professional to hold a delegation of power from the State, and is defined by law as a “judicial officer”. This State power allows him/her to confer the character of authenticity to his/her deeds. An authentic deed has two main characteristics: conclusiveness and enforceability.

Conclusiveness means that your deed of property purchase drawn up by a notary provides definite proof of your ownership of the property. Nobody can undermine this right (except in rare and extreme cases of fraud).

Enforceability is especially important. As stated by a former Chairman of the Conseil Supérieur du Notariat, a notarial deed “has the effects of a judgment and shall have immediate effect.” This is a significant difference compared to private agreements (without the involvement of a notary), which must be the subject to a court’s decision to have full effect in the event of a dispute.

In addition, the notary is appointed by the State to collect the land transfer tax, registration duty and various stamp duties, and remit them to the Registrar-General’s Department – Conservator of Mortgages on registration of a deed of sale.

However, seeking the services of a notary is not just an obligation. His/her involvement is especially useful for both the seller and buyer.

The notary actually has a duty to advise his clients. He/she will first explain to both the seller and buyer the implications of the provisions of the contract that they are about to sign (this is called the “reading” of the deed), and ensure that they understand the extent of their commitments.

The notary also has a duty to ensure the effectiveness of the deeds. In the case of a sale, he/she verifies that the seller effectively has a property right that can be freely transferred to the buyer. Among other things, he/she will make sure that there is no mortgage (or fixed and floating charges) on the property for sale.

As a judicial officer, the notary has a duty of impartiality. This makes him/her an essential trusted third-party to a sale. Without the notary, the seller would refuse to sign closing documents until he/she gets paid and the buyer would refuse to pay until he/she obtains ownership of the property. The notary allows the parties to resolve this dilemma by guaranteeing the seller that the buyer has the necessary funds in his/her client account, and assure the buyer that the funds will only be disbursed on actual transfer of the property.

2. How to choose a notary?

It is important to note that the principle of free choice of notary by clients is enshrined in the Code of Ethics for the Notarial Profession.

As an exception to this principle, a property developer may appoint a single notary for initial sales within the development, and this notary must draft all relevant deeds. But even in this case, buyers can also seek advice from the notary of their choice, in addition to the involvement of the notary engaged by the property programme (who remains in any case bound by a duty of impartiality).

From a legal perspective, all notaries are equal and the same. In practice however, the following factors will determine the choice of a notary by a client: the fact that he/she has specific experience or specialisation in a particular field (succession, corporate, complex sales, etc.).

It is also very common for a notary to recommend the services of a colleague to a client.

Finally, the choice will be based on personal affinities. Keep in mind that the client may give confidential information the notary, subject to the professional secrecy of notaries (the existence of natural children, the intention to transfer an asset to someone outside the family, etc.). The client must therefore have confidence not only in the professional, but also the person of the notary.

3. Please explain the different “administrative” steps involved in property acquisition?

The first step may seem obvious, but tends to be omitted by many people: it is simply to visit the property in order to make sure that it physically meets the buyer’s expectations.

Secondly, the property’s documentation (seller’s title deed, co-ownership regulations, etc.) must be filed with the notary for the necessary verifications. The notary will check that the seller can freely sell his/her property, and inform the buyer of any identified obstacle or legal risk – usually a mortgage on the property.

Thirdly, the seller and buyer will sign a sale agreement at the notary’s office. All parties commit themselves to the future sale, but only subject to certain conditions, called “conditions precedent”. For example, the buyer undertakes to buy the property on condition that the seller’s bank removes the mortgage held on the property. Alternatively, the seller undertakes to sell, provided that he/she holds a property subdivision permit. There are various scenarios, and the notary must adapt the wording of the agreement to the specific circumstances of the transaction.

Various formalities will be completed in the period between the signing of the agreement and the effective sale date. The buyer will make funding arrangements with a bank, and will in any case have to demonstrate the source of funds to the notary with regard to anti-money laundering legislation. The seller shall have an updated site plan drawn up with a PIN certificate, have the property released from any mortgage and apply for the necessary permits (subdivision permit, property conversion, managing agent’s certificate, etc.).

On the day of the sale at the notary’s office, the buyer and seller must sign the deed of sale – often at the same time, but they can also sign the document at different times or dates, the notary being there to ensure their free consent after the reading of the deed. Both the seller and buyer must also pay the notary the registration fees and transfer taxes as provided under the law (generally at the rate of 5% for each party).

Finally, the notary must file the signed deed for registration with the Land and Mortgage Registry – Registrar-General’s Department and for taxing purposes. He/she will pay the duties and taxes on behalf of the clients and obtain a TV number to make the sale binding on third parties, i.e. the buyer becomes the legitimate owner of the property vis-à-vis the public.

It’s then that notaries who have adopted French practice will release the funds to the seller in order to minimise any risk to the buyer. Others may choose to disburse the funds before actual registration of the deed.

4. What are the sales costs or “notary fees”?

These are mainly the duties and taxes to be paid to the State on all property transactions.

The seller pays land transfer tax representing 5% of the selling price on the sale of freehold property (which may be adjusted upwards if the authorities consider that it is lower than the market price). The same rate applies for registration fees payable by the buyer.

In case of sale of property situated on Pas Géométriques (reserved lands along the coast), an additional tax representing 20% of the value of the right to the lease is split equally between the seller and buyer.

The notary’s fees are based on a sliding scale ranging from 2% to 0.5% of the selling price as set out in the Notaries Act. Practically speaking, the rate is around 0.7% for sale value exceeding Rs 5 million.

5. Can you explain the following terms?

  • Sales agreement

The sales agreement, also called a bilateral promise of sale, is a mutual commitment to sell and buy at an agreed price. The seller promises to sell and the buyer promises to buy.

The main advantage of this type of contract is that it comes closest to the will of the parties in most cases; it is regarded as a “quasi sale”. Sellers and buyers who are ready to sign a sales agreement indeed firmly intend to sell and buy, but are unable to reach a final agreement for reasons beyond their control: release of a mortgage, a pending permit, an application for funding, etc. The signature of a sales agreement usually involves the payment of 5% to 15% of the price in escrow with the notary as a security deposit, evidencing the buyer’s firm intention to purchase the property.

The bilateral promise of sale – the sales agreement – will make the sale mutually binding upon the seller and buyer once the conditions precedent are met.

In the event that the buyer refuses to sign the deed of purchase after these conditions are met, the seller may either appropriate the deposit or bring an enforcement action to compel the buyer to fulfil his/her obligation to purchase.

On the other hand, if the seller refuses to execute the notarial deed of sale, the buyer may also take legal enforcement action.

  • Unilateral promise to sell

Only the seller undertakes to sell a property in this type of contract. This commitment holds for a specified period. The buyer simply reserves the right to buy: he/she makes a purchase option, which he/she is free to exercise or not. Naturally, the price of the property is set in the agreement.

On expiry of the validity period of the promise, provided that the conditions precedent are met, the buyer can either exercise his/her right to purchase or abstain from buying.

Please note that in most cases, there will be costs involved with this purchase waiver. If the seller has taken care of requesting payment of a deposit by the buyer in exchange for the option, then failure by the buyer to exercise that right will result in the loss of the amount in favour of the seller.

However, the seller won’t be able to take an enforcement action to compel the buyer to sign the deed of purchase before a notary.

On the other hand, once the buyer has exercised his/her purchase option, he/she may obtain a court decision compelling the seller to sign the notarial deed of sale in the event that the latter refuses to honour his/her promise to sell.

  • Preliminary reservation contract

The preliminary reservation contract – known as “CRP” – is a special type of prior commitment. It is used for the sale of buildings to be constructed, i.e. mainly off-plan property programmes sold under Vente en l’Etat Futur d’Achèvement (VEFA). The prospective buyer of a lot promises to buy if all the conditions are met by the project developer. On the other hand, if the developer decides not to proceed with his/her project, he/she can disengage himself/herself from his commitments to the prospective buyer.

It should be noted that Mauritian legislation is highly protective of buyers in terms of residential property sale under VEFA. The CRP must therefore contain various mandatory provisions in order to perfectly inform the prospective off-plan property buyer about its future characteristics.

The CRP must therefore be clear about:

  • the identification of the parties (developer and future buyer);
  • the accurate description of the property to be constructed (location, number of rooms, parking spaces, swimming pool, etc.) and the development;
  • a detailed description of the lot’s pieces of equipment and finishing ( called the “descriptive note”) – for example, the developer not only has to state that he/she will provide kitchen equipment, but also specify the make, performance and references;
  • the estimated selling price of the lot and terms of payment;
  • any loans that the prospective buyer wishes to apply for;
  • the security deposit amount (capped at 25% of the price) that the prospective buyer must pay in escrow with the property programme’s notary or bank to pledge his/her intention to definitely purchase;
  • the obligation for the developer to obtain a guarantee of completion (GFA) before closing the sale;
  • the estimated date of signature of the notarial deed of sale;
  • the expected timeframe to complete construction work on the property development and lot; and
  • a reminder of the provisions set forth in the Civil Code, which in certain circumstances allow the purchaser to recover his/her security deposit and be released from his/her obligation to purchase: for example, if the development does not materialise or if the lot that will actually be built is substantially different from the one initially promised, or if the purchaser fails to obtain a loan that he/she had specifically mentioned in the CRP.

Please note that unlike in France, there is no withdrawal period in Mauritius. Once the CRP has been signed, the parties are bound by its terms. A party cannot change his/her mind and cancel the CRP within 7 or 10 days of signing (failing which he/she will lose his/her security deposit).