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Legal Malpractices in the Egyptian Property Market

Part (1): Purpose of Building Permission

Building permission is the legal instrument which a developer / constructor utilizes as the essential and compulsory guideline upon constructing a building, a resort…etc.

Building permission is issued by the government, which issues the license only in compliance with many other significant criteria i.e. criterion of safety, criterion of convenience, criterion on general image…etc.

Criterion of safety could be the most obvious criterion amongst the others. For example the permission of a certain building may fix its height to three floors only, considering the width of the building and the expected amount of concrete to be used therein. On the other hand, fixing the height to a certain number of floors can take place to preserve the general image of a certain city, in order not to block the sea view or the mountain view…etc.

The subject matter of this article today, however, is the criterion of convenience, whereas the government issues a building permission to a certain construction / development, in order to serve a certain purpose within a bigger integral plan. Hypothetically, if a certain city has got only seven vacant land plots, whereas three of them are permitted as residential, it is not logical to permit the rest of land plots the residential license, otherwise there would be an absence of vital services i.e. hospital, entertainment, agricultural, hotel…etc.

The malpractice we discuss today is represented in this very point, where a developer is granted the license to build a hotel, but despite the permission originally granted, a residential complex is constructed instead, marketed for fairly good prices, blessed and cherished by real estate agencies' good marketing, and purchasers' funds.

It must be highlighted that in the Egyptian law a hotel is a single unit, and that single unit adheres to the laws of Tourism Law. Tourism Law regulates hotels' operation, while Civil Law regulates property trade. Property Law is a branch of Civil Law, and it has nothing whatsoever to do with Tourism Law.

It is not logical, let alone illegal, for one to enter a hotel for example, express how they admire the room's atmosphere, and receive a response such as "Sir you can buy it if you want!". The logical thought that would come to mind at that point would be "what would happen when they sell all the rooms? Are they going to stop operating?"

The aforementioned scenario, for obvious reasons, cannot make any sense. Moreover it does not make any difference from the legal perspective whether one purchases a hotel unit whilst it is operating, or when it is still off plan. The only difference is practical; the off plan hotel is marketed as a residential complex, and it looks like a residential complex, but on the legal paperwork it remains a hotel! There have been a few cases in Hurghada city where the authorities knocked buildings down for violating the above rules, and investors who purchaser properties therein are still struggling to get refunded. The scenario did not occur in Sharm el Sheikh city as of yet, but since the violation has taken place already, it is expected to take place in months, or in years, but it will take place, because this is the right thing for the government to do.

The smart investor shall check the due diligence of the complex he / she wishes to purchase a property in, as a must. Building permissions vary according to the area in the city. A building permission may take the form of a normal permission, holding the title of Building Permission in the event it was issued by the governorate / city council, or may take the form of engineering drawings bearing the stamp of the state, whereas the margin elucidates the purpose of license, with further illustration of the buildings therein, since a permission is very likely to be mixed. The permission shall always show which part of a given project is residential, and which part is permitted for a different purpose.

Some agents, unfortunately, try to convince purchasers that the developer is on the process of changing the license's purpose, which may be true. This, however, is not granted, and not a guarantee per se, since the developer's endeavour to change purpose may fail. In the event a purchaser is very happy with a certain project, and there are reasons to trust that the permission will be changed, then it is safer to include a clause in the purchase contract acknowledging the developer's warranty to refund the purchaser in the event the permission was not changed before a given date.

Finally, it is more advisable to purchase a property granted the residential permission already. Make a good choice of your estate agent, of your lawyer, and of your developer. Read the due diligence report before you purchase, and make sure that it is written based on governmental documents and facts, not a mere expression of a lawyer's opinion / point of view.

Hopefully this article has helped to shed light on this common malpractice. Kindly follow us on the malpractices' series. Next article will shed light on sales via a power of attorney; explanation and potential consequences.

All the best,

Written by:

Mr. Zeiad Yehia

Barrister