If you have an interest on a property and this interest is registered, it will have legal effects on third parties. The idea is the third party knew or should have known of a prior interest registered before the acquisition of his own interest. Government enhances certainty and security of land transactions by providing a registry system. The purpose of this registry system is to register anyone who has prescribed interests (such as mortgage) on a land so that third parties would have a chance to inspect the registry and decide whether to make another transaction. There is of course a practical question of as to whether the current registry system provides such service to inquirers. Leaving this aside, another question is what if the interest is not registered because the law does not require such interest to be registered in the first place or because of other reasons. Consider the following:
X owns a building part of which is rented to Y on the basis of a written but unregistered contract for a period of 15 years. Y has undertaken to pay the rent quarterly in advance. X developed a business idea and borrowed money from Easymoney Share Company by providing his building as collateral. The contract of mortgage is registered. Now that X defaulted in paying back the sum he borrowed, Easymoney plans to foreclose the building. The question is now as to whether Easymoney or any purchaser of the building will have the right to evict Y?
The above set of facts presents two competing interests. On the one hand, there is the property interest of the bank which did not know of the existence of this long-term contract of rent. On the other hand, you have the contractual interest of Y which has planned all his business on the understanding that he would have the right to the use of the building for the agreed period of time. It is true that this contract was not registered but it is also true that the law does not require such contracts to be registered. In a recent case, the Cassation Division of the Federal Supreme Court decided that Article 1723(1) does not include contracts of leases (Rental Houses Administration Agency v Sosina Asfaw [2005] File Number 15992). Article 1723(1) provides that "a contract creating or assigning rights in ownership or bare ownership on an immovable or an usufruct, servitude or mortgage of an immovable shall be in writing and registered with a court or notary". It should be noted that Article 1723 is concerned with the validity of the contract between the parties and not with its effect on third parties. Therefore, it can be argued that contracts of lease for whatever period of time could be made in any form and will still be valid. The question relates to the effect of contracts of lease on third parties. In this regard, Article 2899(1) provides that "leases for a period exceeding five years shall not affect third parties until they are entered in the registers of immovable property at the place where the immovable is situate". It follows therefore that even if oral or written but unregistered contracts of lease are binding on the parties, their effect on third parties depend on the period of time they are made and whether they are registered. If the lease is made for a period of time exceeding five years, it should be registered for it to have affect third parties. In the above example, the contract of lease is for a period of 15 years but not registered. In such cases, Article 2899(2) provides that the contract of lease affects third parties only for five years from the day when the the third party has registered his/her right on the immovable. It follows therefore that the contract of lease between X and Y affects Easymoney for a period of five years. If on the other hand, the period of time for which the contracts of lease is made is not certain and the contract of lease is not registered, Article 2933(1) and Article 2899(3) provide that this contract is deemed to have been made for indeterminate period of time. Assume in the above case the period of time for which the contract of lease is made is uncertain; in such cases, Easymoney can presume this contract to have been made for indeterminate period of time. The question is what will be the effect of that presumption? According to Article 2966, contracts of leases for an indeterminate periods of time can be terminated by giving default notice. To conclude, it can be said that contracts of lease is binding on the parties in whatever form and for however it is made. But is the effect on third parties depends on two factors:
