VLP Legal Press #33: Key Points in Real Estate Transactions (Sale and Purchase)
Question 1: The seller of a property I am interested in is asking for a 30% deposit to secure the purchase. Is this normal, and what happens if the seller disappears or refuses to return my deposit?
A request for a 30% deposit (we have seen more!) is not uncommon in Cambodia. In many other countries, the standard deposit for a property purchase, whether set by law or by established practice, falls between 10% and 20%. These same countries also go one step further - any deposit paid above that limit loses its legal character as a deposit, meaning the seller cannot forfeit the excess as a penalty if the sale falls through.
In Cambodia, Article 518 of the Civil Code does set out some rules - the buyer can terminate the sale by forfeiting the deposit, while the seller can terminate by returning twice the deposit amount. What the law does not do, however, is limit how much deposit a seller can ask for or cap how much they can keep if the sale does not go through. If you agree to pay 30% and later decide not to buy, the seller may be entitled to keep the full 30%.
Protection
Clients ask us regularly whether they can register a caveat, or apply for pre-registration, with the land authority after paying a deposit. A caveat is a legal notice lodged with the land authority to protect a buyer's interest in a property. Once registered, it prevents the owner from selling, transferring, or charging the property without first seeking your consent. Think of it as putting an official lock on the property while the sale is still in progress.
Cambodia's land law does not provide for either of the above. This means a deposit paid directly to a seller is, legally speaking, unsecured. If the seller refuses to return your money, your main option is to take the dispute to court.
So what can you do to protect yourself?
One practical option is to use an escrow account. Instead of paying the deposit directly to the seller, you pay it to a neutral third party - the escrow agent, who holds it until the conditions of the sale are met. In Cambodia, this typically means the funds are released once both parties sign a release instruction. Do note that the escrow agent charges a fee for this, so factor that into your budget.
If you want to explore more about the escrow account, you can refer to our VLP Legal Press #19 for more details.
There are also other protective mechanisms that can be structured depending on the specific details of your purchase. If you would like to explore what options are available, we are happy to advise on the most suitable approach for your situation.
Question 2: Some people say foreigners cannot own property in Cambodia, but others say they can. What is the actual position?
Both answers have some truth to them, but this is the full picture:
The starting position
Under the Cambodian Constitution, as reinforced by Article 8 of the 2001 Land Law, only natural persons or legal entities with Khmer nationality have the right to own land. Legal entitles with Khmer nationality refer to enterprise registered in Cambodia, which 51% or more of the shares are held by natural persons or legal entities with Khmer nationality.
The exception: co-owned buildings such as condominiums
In 2010, the Law on Providing Foreigners with Ownership Rights in Private Units of Co-Owned Buildings was promulgated. Legally qualified foreigners have the right to own private units in co-owned buildings and to use and enjoy the common areas, subject to the following conditions:
The units in the co-owned building must be registered with a strata title under the law.
This right applies only from the first floor upwards. Ground floor and underground units cannot be owned by foreigners, as these levels are considered to be in direct contact with the land.
Foreign ownership across all units in any single building cannot exceed 70% of the total floor area of all private units in that co-owned building. At least 30% must remain in the ownership by natural persons or legal entities with Khmer nationality.
Is Borey linked house considered unit in a co-owned building? The answer is no. Only natural persons or legal entities with Khmer nationality can own such property.
The Trust Law: a pathway to hold interest in land
In 2019, the Law on Trust was introduced to allow the establishment of trust in Cambodia.
By a trust instrument, a licensed trustee, meaning a Cambodian trust company or an individual approved by the Cambodian Trust Regulator, holds the legal title to the property and the foreigner is the beneficiary. This means the foreigner holds the economic interest in the property and is entitled to use it and earn income from it. The trust must be registered with the Trust Regulator, a government body that oversees the trust industry.
Once registered, the trustee is legally bound to manage and deal with the property solely for the benefit of the beneficiary, and is subject to ongoing oversight by the Trust Regulator. The trustee cannot act outside the scope of the trust instrument.
Long-term leases: another practical route
A long-term lease, known in Cambodian law as a perpetual lease, is a widely used option for foreigners who want to use or develop land without owning it directly. A perpetual lease is a lease of immovable property for a minimum of 15 years, and it must be made in writing to have legal effect.
The maximum lease term under the law is 50 years. Any agreement that tries to set a longer term is automatically reduced to 50 years by law. When the lease expires, it can be renewed, but the renewed term also cannot exceed 50 years from the date of renewal.
In practice, a foreigner can therefore secure use of a property for up to 100 years in total. Under Article 246 of the Civil Code, the lease must be registered with the land authority to be enforceable against third parties. Once registered, the lessee's rights are protected even if the property changes ownership during the lease period.
Question 3: The seller says they do not have a copy of the property title. Is this normal for property in Cambodia?
In principle, no, it is not normal for a seller to say that they do not have a property title, although there may be reasonable explanations.
Why is it important to have the property title?
Under the Cambodian Land Law, ownership of immovable property is protected through the land registration system administered by the Ministry of Land Management, Urban Planning and Construction (MLMUPC). The Cadastral Administration is responsible for identifying land parcels, issuing ownership titles, registering transfers, and recording encumbrances affecting the land. Land ownership registered in the cadastral register is the primary evidence of ownership. Accordingly, a person claiming to own a property has to be able to provide an ownership title as evidence of such ownership.
Why do different types of property title matter?
There are several types of property titles you may come across in Cambodia, each offering different levels of legal protection and reliability. Understanding the differences can help buyers assess the status of the property and ensure they receive the appropriate ownership documentation.
Hard Title (Registered Ownership Title)
A hard title is issued and registered by the MLMUPC and recorded in the national cadastral system. It is generally regarded as the strongest evidence of ownership and is the title typically required for a formal transfer of ownership.
Common forms include:
LMAP Title (Land Management and Administration Project Title): issued through systematic land registration.
Certificate of Ownership (Ownership Certificate): issued through sporadic registration.
Certificate of Ownership of Private Unit (Strata Title): issued for condominium units and other private units in co-owned buildings.
Certificate of Possessory Rights
Prior to implementation of the current registration system of the MLMUPC, individuals who possess land could obtain a certificate evidencing their possessory right. However, a possession title is evidence of possession and not, by itself, definitive proof of ownership. Based on the Cambodian Land Law, the qualifying possession may be transformed into ownership through registration. The transfer of property under a Certificate of Possessory Right may be made in form of a transfer of possessory right.
Soft Title
A soft title is a contract-based form of ownership evidence, usually certified at commune/sangkat or district level, evidencing possession or local recognition of rights over the land. It is not registered in the national cadastral register and therefore does not provide the same level of definitive protection as a hard title.
What should the buyer do if the seller claim that he/she does not have the property title?
The reason why the seller does not have the title should be clarified immediately.
Loss of the property title
If the seller claims that the original title has been misplaced, the buyer should:
request the seller to apply for issuance of a replacement or duplicate title through the competent cadastral authority before completion of the sale.
independently verify the ownership information with the relevant cadastral office or via online portal of the MLMUPC.
postpone signing of the final transfer documents until ownership can be verified through official records.
Title is held by a lender
It is common in Cambodia for the original hard title to be deposited with a bank when the property is used as a collateral for a loan.
In such case, the buyer should:
request written confirmation from the lending bank that it holds the title.
independently verify with the relevant cadastral office or via online portal of the MLMUPC whether any other encumbrance is registered against the property.
structure the transaction so that the collateral is discharged before or simultaneously with the transfer of ownership.
The fact that the seller cannot provide a copy of the property title should be treated as a red flag requiring further investigation, particularly where the property is represented as having a hard title. In all circumstances, including where the seller provides a copy of the title, the buyer should independently verify ownership (and encumbrances) with MLMUPC and ensure that any issues relating to the title are resolved before committing to a property purchase. This is important because Cambodian law relies heavily on the land registration system to establish and protect ownership rights.
Question 4: The property I want to buy is being used as collateral for the seller's bank loan. Can I still purchase it, and what do I need to be careful about?
Yes, but there are additional steps that you should proceed before the property can be transferred to you.
The bank typically registers a hypothec over the property and holds the original title document until the loan is repaid. In this case, the collateral must generally be discharged before, or at the same time as, the transfer of ownership to the buyer.
How does the process usually work?
The exact process may vary depending on the relevant bank policy and the transaction structure, but it generally involves the following steps:
Step 1: Confirm the status of the property
Before proceeding, the buyer should confirm:
whether the property is charged (hypothecated) in favor of the bank and any other creditors;
the amount of the outstanding loan; and
whether the bank is holding the original title and will release the title upon the loan is fully repaid.
The buyer should not rely solely on the seller’s explanation. Where possible, confirmation should be obtained directly from the bank and through a search of the relevant land records at MLMUPC.
Step 2: Agree on how the loan will be repaid and the collateral will be discharged
The parties should determine how the outstanding loan will be settled in order to discharge the collateral and get consent from the bank on such arrangement.
In practice, one of the following approaches is commonly used:
the seller repays the loan in full before the sale; or
part of the purchase price is used to repay the loan directly to the bank at completion.
This arrangement should be clearly documented to avoid disputes.
Step 3: Obtain the Bank's release of collateral
Once the loan has been fully repaid, the bank will issue the necessary documents to release the collateral and return the title.
The release must then be registered with the competent cadastral authority so that the property is no longer subject to the bank’s security interest.
Step 4: Transfer ownership to the buyer
After the collateral has been released, or simultaneously with the release where the authorities permit, the parties can proceed with the transfer of ownership.
The transfer is completed by registering the change of ownership with the relevant cadastral authority, after which the title will be issued or recorded in the buyer's name.
What should the buyer be careful about?
A buyer should avoid paying the full purchase price directly to the seller before confirming that the collateral will be discharged.
In particular, the buyer should:
obtain confirmation of the outstanding loan amount;
ensure that sufficient funds are used to repay the bank;
verify that the bank will release the collateral upon repayment;
confirm that the original title can be obtained from the bank; and
ensure that ownership transfer documents are properly prepared and registered.
Purchasing a property that is used as collateral is not unusual in Cambodia and can be done safely if the transaction is structured properly. The buyer should work closely with the seller, the bank, and their legal adviser to ensure that the collateral is fully discharged and the property can be transferred with clear title.
Question 5: What tax obligations do I need to fulfil after buying property in Cambodia?
You may refer to our VLP Legal Press #5 for more information.
The information in this article reflects the law as at the date of publication and is for general reference only. It does not constitute comprehensive legal advice. If you need further guidance, feel free to reach out to us at connect@vlplaw.co.