This week I got a call from a man who had come to a consultation with me several years ago, when he wanted to buy agricultural land in a foreign country and develop a residential project on it together with a number of partners. The advice I gave him at the time was to incorporate as a company in the target country and to buy the land through the company (the country in question does not allow foreign citizens to buy land there, but there is no obstacle to setting up a company wholly owned by foreign citizens and buying the land through the company). After the meeting I sent him a price quote for accompanying his activity, and I had not heard from him since.
In this week's call he told me that he had bought the land with the wife of a friend, a citizen of the target country, registered as the owner. His friends bought the neighboring plots, which were also registered in the name of the same woman as owner. As far as he remembers, they signed a document between them under which he gave the woman a loan for the purpose of buying the land, but he cannot find the document or a copy of it. He had intended to call me to check the possibility of returning to my original proposal, setting up a company in the target country and transferring the land to the company's ownership, but the situation got complicated. Just before calling, he asked a friend to pull an extract for the plot for him, and discovered, to his surprise, that no extract could be issued because an application had been filed to divide the land into 10 small parcels (subdivision). He called the friend, whose wife is registered as the owner of the land, who told him it was an old application filed in 2018 (a puzzling matter, since from my familiarity with the country in question, an application for subdivision will be processed by the land registry within a week or two at most).
He was confused and above all frustrated. He suspects that the friend and his wife, alone or hand in hand with some of the buyers of the neighboring plots, are trying to carry out some maneuver.
I explained to him that because he is not registered as the owner of the property, I am unable to request in his name copies of the application filed for dividing the land, and that he needs to request them from the registered owner (of course our local office could do this for him with a suitable power of attorney from the registered owner). Only after we understand what this is about will we be able to advise him how to act. Since no caution notice is registered in his favor on the land either, in the eyes of the authorities in the target country he has, in effect, no connection to the land.
There is no doubt that setting up a company abroad involves costs - not only the setup costs but also ongoing costs of filing reports with the tax authorities and more. Even so, even if you bought land that was registered in the name of a friend or a foreign citizen who is a local resident, as long as no further steps have been taken to protect the money you invested in buying the land, you are dependent on the mercy of whoever is registered as the owner. Worse, a day may come when you are dependent on the mercy of his heirs, who may not be familiar with the arrangements or understandings between you.
You do not want to set up a company in the target country? No problem, just create mechanisms that protect the money you invested in buying the land.
- By means of a loan agreement between you and whoever is registered as the owner of the land on your behalf, which regulates the relationship between you and, above all, your right to the land or the way in which you can get your investment money back.
- By registering a caution notice or a lien on the land registered in the name of the foreign citizen, in order to prevent him from selling the land (and, where possible, from taking any action at all on the land) without your consent.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית