Partial invalidity of a transaction as a legal remedy for restoring the ownership right of the actual acquirer of immovable property

(Application of Article 62 of the Civil Code of Georgia in a dispute over acquisition based on trust)

The head lawyer of the law firm 'Pkhaladze and Partners' won a case that clearly demonstrates the risks for a foreign buyer in purchasing real estate 'in a friend's name' and how ownership can be restored in such a situation.

Case circumstances

Our client, a citizen of Kuwait, wanted to purchase an apartment in Tbilisi. The construction company refused to register the apartment remotely, without the buyer being present in Georgia. Therefore, the client verbally instructed a friend, also a citizen of Kuwait, to buy the apartment, and in December 2019, transferred 39,000 USD in five tranches. On the same day the friend received the money, he signed a preliminary sale agreement, paid 36,782 USD, and two days later registered himself as the owner of the apartment in the Public Registry. The agreement was as follows: the apartment would later be re-registered to the actual buyer.

Later, the person registered as the owner refused to re-register the apartment, first citing legal restrictions, and then began to evade. The power of attorney he issued turned out to be substantively deficient, and in 2021 the Public Registry suspended registration in the client's name. In fact, our client possessed the apartment and paid the utility bills, but legally the owner remained another person. There was a reasonable suspicion that the apartment could be alienated.

Our legal position

We filed a claim in Tbilisi City Court, requesting that the preliminary sale agreement be declared invalid only in the part concerning the buyer and that the apartment be registered in our client's name. The position was based on:

  • Article 62 of the Civil Code (partial invalidity of a transaction does not result in the invalidity of the remaining part);
  • Article 316, paragraph 2 of the Civil Code (the obligation to be considerate of the other party's rights and property);
  • Article 361, paragraph 2 of the Civil Code (proper and good faith performance of obligations).

We proved with evidence that the apartment was purchased with the client's funds: bank transfers, the coincidence of their dates with the date of the agreement, mutual powers of attorney, the registry's decision, and documents confirming payment of the apartment's maintenance expenses. Due to the risk of alienation of the property, we also petitioned for securing the claim, placing a lien on the apartment (Articles 191 and 198 of the Civil Procedure Code).

Result

The court satisfied the claim and the apartment was returned to the real buyer, our client.

What you should consider

A "trust-based" purchase, where one person pays the money but another is registered as the owner, is always high risk. An oral instruction and friendship do not override the registry record. If you are still buying property through someone else, it is essential to have a written power of attorney agreement, transfer funds only via bank, and have a properly drafted power of attorney. And if you are already involved in such a dispute, promptly apply to the court and request a freeze on the property before it is transferred to a third party.

Pkhaladze et Associés | Pkhaladze and Partners

Tbilisi, Al. Kazbegi Ave. 24g, AXIS, 10th floor | +995 597 117 795 | www.pkhaladze-law.ge