Are caveat notices strangling the condominium industry in Sri Lanka?

The condominium developers of Sri Lanka are being terrorized by a new kind of threat that is smothering the continuation of the industry in addition to other limitations that developers currently face. A group who has made it a practice to blackmail condominium developers with the threat of submitting caveat notices for planned projects has been breeding in the recent past. As a result, many condominium projects have experienced prolonged legal processes, immensely endangering the progress. The submission of a single caveat can bring 10 to 15, or in certain instances, 100 to 200 transfers of properties to a standstill.

A property developer has to undergo a rigorous approval process from a series of regulatory bodies, including the Urban Development Authority, Local Government Authorities, Condominium Management Authority and several others before registering the Condominium property in the relevant Land Registry. Once the approvals and clearances from all these institutes are obtained, and the Condominium Deed of Declaration is submitted to the Land Registry, the so-called Caveat notice becomes a major barrier to the developer, and is fast becoming a regular occurrence.

Since all registered Sales and Purchase Agreements become un enforceable, due to registered Caveat Notices, all transfers of apartments to the purchasers who had paid in full, come to a halt. The rest of the buyers who are prepared to pay the balance through Bank loans also become helpless as the banks deny issuing loans.    

Property developers are also unable to continue loan repayments and face unwarranted interest rates as a result while having no fault from their end. As the prices of the projects are already agreed and finalized with the buyers, the developers cannot increase the unit prices in order to cover this additional cost.

The ease in which a caveat can be registered has made this situation lucrative for a group who have transformed it into a means of business through pure extortion. According to the Section No. 26 of Registration of Document Ordinance, a caveat has to undergo proper inspection prior to registration. However, in a letter sent to the Attorney General by the Registrar General, dated 19.02. 2020. practical limitations have been cited as the cause of not being able to conduct substantial investigations. Even though the letter states that the Registrars of Lands have been notified regarding the same, there does not seem to be any inspection in reality.

Condominium developers are facing a loss of millions of rupees as a result of a Caveat Notice that can be registered for a mere Rs. 2,500/-. The simple solution given to the affected is to file a case in the District Court, which is a time consuming and drawn-out process. Property developers are drowned in debt as interests continue to add to their borrowings. Also the Condominium property developers have to continue to pay unwarranted interests and potential buyers face longer waiting periods to claim ownership unless this matter is sorted out.

Kapila Gamage

Attorney-at-Law and Condominium Consultant