Bahamas - Unfair Terms in Consumer Contracts

In 2007, the Unfair Terms in Consumer Contracts Act came into force. The Act was passed for the purpose of regulating unfair terms in consumer contracts and related matters. The intention appears to be to codify legal principles governing 'unfair terms in contracts concluded between a seller or supplier and a consumer'. The Act will affect contracts entered into before, on and after the coming into force of the Act¹.

It is important, firstly, to clarify that the Act is intended to protect individuals whose bargaining power is likely to be undermined through the typical use of 'standard-form agreements' by sellers and suppliers. The Act defines “seller” as “a person who sells goods and who, in making a contract to which this Act applies, is acting for purposes relating to his business”. Similarly “supplier” is defined as “a person who supplies goods or services and who, in making a contract to which this Act applies, is acting for the purposes relating to his business”. The Act does not specify whether “person” in its definitions of “seller” and “supplier” include natural and legal persons. To differentiate, however, it is useful to note that the Act defines “consumer” as “a natural person who, in making a contract to which this Act applies, is acting for the purposes which are outside his business”. Accordingly, it could be said that the Act is intended to include legal and natural persons in its definitions of “seller” and “supplier”. The Act, however, does not apply to contracts entered into by two companies or partnerships as these are legal entities and cannot be consumers under the provisions of the Act. It does, however, appear that the Act can apply to contracts relating to land².

The definition of “in the course of business” has been explored in R&B Customs Brokers & Co. Ltd. V United Dominions Trust Ltd. [1988] 1 WLR 321. If the contract in question is not an integral part of the business, or if only incidental to the carrying on of the business, the contract would need to be entered into with sufficient regularity. Keep in mind that this case was decided on the provision of the UK Unfair Contract Terms Act, however, the decision can serve as persuasive rather than authoritative for the purpose of the Unfair Terms in Consumer Contracts Act, 2007. I will delve into the details of this case later.

The regulation of unfair terms under the Act only applies to contractual terms which have not been individually negotiated. Of course, it is often the case that consumer contracts are in such a form. Section 3(3) of the Act provides the test for whether a contractual term has been individually negotiated. Such a term must have “been drafted in advance and the consumer has not been able to influence the substance of the term”. Section 5(4) of the Act states that notwithstanding that a particular term of a contract may have been individually negotiated, the Act shall apply to the rest of the contract if an overall assessment of the contract indicates that it is a pre-formulated standard contract. Therefore, the fact that the consumer has been able to influence the contract in a minor way does not prevent the remainder of the contract not so influenced from being treated as not individually negotiated and therefore potentially containing unfair terms.

Where the consumer has had an opportunity to influence the content of a contractual term, the presumption is that the term so influenced is not unfair and thus the Act will only apply to the remainder of the contract. Although the basis behind this provision is understandable, one can still imagine a negotiation itself being affected by the inequality of bargaining power between parties where one is consumer, so that a false assumption to believe that the terms were individually negotiated becomes a guard against unfairness, which will work to the benefit of the seller or supplier.

Under section 4(1) of the Act, a consumer contract term will be regarded as unfair if it, contrary to the requirement of good faith, causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer. It would appear that the notion of 'detriment to the consumer' is unlikely to cause great difficulty as it follows the notion of 'significant imbalance' and the basic purpose is to indicate for whose benefit the control is to be exercised. In the unlikely event of an imbalance existing which acted in favour of the consumer, the contract term will obviously not be regarded as unfair.

Additionally, the identification of criteria for compliance with the provisions of the Act is a process of deduction from what is termed an “indicative and illustrative list of terms which may be regarded as unfair”. Note that the Act provides that such terms may be regarded as unfair rather than 'will' or 'shall'. The list of such terms is contained in the Third Schedule to the Act. The list is long (too long to include here). The terms as listed in the Third Schedule, however, are relatively clear.

In general, as it relates to good faith, the requirement of 'good faith' embodies a general principle of fair and open dealing³. It means that terms should be expressed fully, clearly and legibly and that terms that might disadvantage the consumer should be given appropriate prominence. However transparency is not enough on its own, as good faith relates to the substance of terms as well as the way they are expressed and used. It also requires a supplier not to take advantage of consumers' weaker bargaining position, or lack of experience, in deciding what their rights and obligations shall be. Contracts should be drawn up in a way that respects consumers' legitimate interests.

One criticism of the Act is that it requires complaints to be made to the Minister, who would then consider the complaint and, if the Minister thinks that the term is unfair, the Minister would refer the matter to the Attorney-General to commence proceedings⁴. The Minister is within his authority to refuse to refer a complaint to the Attorney General if the Minister is of the view that the complaint is vexatious or frivolous. Under the Act, it would appear that only the Attorney-General has the locus standi to apply to the Court for an injunction under the Act⁵. There is also no system of appeal set out under the Act to allow a consumer to challenge the decision of the Minister.

Unfair terms in Commercial Agreements

The Act carries with it significant effects on commercial contracts, particularly those that are unilaterally drafted. An example of this are agreements between banks and consumers relating to credit card facilities granted by credit card issuers to their customers. For example, credit card agreements will invariably contain provision for the provider of the credit card facility to charge the customer certain amounts in cases of default. Under the Act, these contracts fall subject to scrutiny of “fairness” under the provisions of the Act. Considerations of fairness as it relates to commercial contracts, particularly default charges on credit cards.

In Director General of Fair Trading v First National Bank plc [2002] AC 481, the question of whether a bank clause in a standard form contract making interest payable on outstanding moneys after discharge of payments under a court order was unfair. The decision is of particular importance as in assessing the fairness of such a clause (more importantly whether a charge is disproportionately high) the charge which would be payable by the consumer upon default must be compared to the damages that would be awarded to the credit card issuer at common law in the event of such default. This brings considerations of remoteness and causation into the picture.

It would follow that, in determining the appropriate charge in the event of default, the credit card issuer needs to assess the costs which arise from a consumer's default. When considering these costs, the credit card issuer should be careful to avoid double recovery. It would help to consider that the credit card issuer may derive some benefit from the consumer's default (actual or anticipated). Examples of this might be where a credit card issuer applies interest rates based on a risk-based pricing policy whereby those falling in the higher-risk bracket have higher interest rates attached to their facility. Additionally, the consumer is most likely required under the contract to pay the full amount of interest due on the outstanding balance in the event of default. Combining these benefits should be avoided by credit card issuers.

UTCCA 2007 and Tenancy Agreements

The Third Schedule of the Act sets out a non-exhaustive list of terms which may be regarded as unfair. Two of particular interest here are terms which will have the effect of:

(a) excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier;

(b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him.⁶

It is not uncommon for landlords to include disclaimers or exclusions of liability arising of a failure of the landlord to comply with its obligations under the common law. Consumers can normally expect the services that they have contracted for to be carried out to a reasonable standard. This can be applied to contracts entered into by tenants when letting premises. These could, for example, include the provision of services set out in the agreement or the landlord's obligations to conduct repairs to the premises. Accordingly, any provision in the tenancy agreement which seeks to relieve landlords from any obligation to take reasonable care in their dealings with tenants could be regarded as unfair. This could also be deemed to include terms excluding the liability of landlords regarding work done by agents or contractors.

There is, unfortunately, not a wealth of authority on this subject, however, it would benefit landlords and those who frequently prepare tenancy agreements to ensure that they exercise a degree of caution in efforts to ensure that their tenancy agreements comply with the Act. The provisions of the Act can be avoided, however, where the prospective tenant has been given a draft of the agreement and is afforded an opportunity to negotiate the terms of the agreement⁷.

This post is for your information only and nothing in this post is intended to constitute a legal opinion.  If you require specific advice, you should contact a Bahamian commercial attorney.  You can contact a Bahamian commercial attorney by clicking here.

1Section 8 of the Unfair Terms in Consumer Contracts Act 2007

2The London Borough of Newham v Khatun, Zeb, Iqbal and the Office of Fair Trading [2004] EWCA Civ 55.

3 Per Lord Bingham of Cornhill in Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 All ER 97, HL.

4Section 7 (1) and (2) of the Unfair Terms in Consumer Contracts Act 2007

5Section 7(5) of the Unfair Terms in Consumer Contracts Act 2007

6Clauses 1(a) and (b) of the Third Schedule to the Act

7 Section 5(4) of the Act

Quistclose Trusts and their importance in banking

There is a long list of authority that supports the view that where a creditor, such as a bank, has advanced money to a debtor on terms that the money should be used by the debtor for a specific purpose, and the debtor does not use the money for that purpose, the money is then held by the debtor for the benefit of the creditor

One method of achieving this outcome is by virtue of the Quistclose trust.

Quistclose trusts enable a party to a commercial contract to retain its equitable interest in property provided as part of a commercial agreement. It operates by virtue of a condition being applied on the purposes for which the money loaned may be used.

In Barclays Bank v Quistclose [1970] AC 56, a resulting trust was created with regard to a loan made for a specific purpose which was not carried out. It must be emphasized that in order to implement the law of trusts the specific loan to the borrower must be such that the sum does not become the general property of the borrower. The specific purpose of the loan identified by the lender must be sufficient to impress an obligation on the borrower to use the amount solely for the purposes as stated by the lender.

In this case the defendant, Quistclose Ltd, loaned £209,719 to Rolls Razors Ltd subject to an express condition that the latter would use the money to pay a dividend to its shareholders. Q Ltd’s cheque for the relevant sum was paid into a separate account opened specifically for this purpose with Barclays Bank Ltd, which knew of the purpose of the loan. Before the dividend was paid, Rolls Ltd went into voluntary liquidation and Barclays Ltd claimed to use the amount to set off against the overdrafts of Rolls Ltd’s other account at the bank. The House of Lords held that the terms of the loan were such as to impress on the money a trust in favour of Quistclose Ltd in the event of the dividend not being paid, and since Barclays had notice of the nature of the loan it was not entitled to set off the amount against Rolls Ltd’s overdraft.

• It is important to note that the money loaned in Quistclose was kept in a separate earmarked account
  • Lord Wilberforce held that there was a mutual intention of Rolls Razor and Quistclose to create the trust
  • Barclays Bank was also aware of the existence of the trust (they had notice)
• This case confirms that trusts can be used as a security device
• where equity impresses a trust on property, the trust may also be enforced against someone who subsequently acquires the legal title to the property through tracing (Quistclose)
• At present the Quistclose trust arrangement has been applied only to moneys however there is no reason in principle why it should apply only to money and not to other forms of property (Worthington, 1996, 63)
• This is different from a Romalpa clause which allows the lender to retain absolute title to the property
  • This is a clause generally used in sale of goods contracts which allows the Vendor to retain title to the goods until full payment is received (Aluminium Industrie Vaasen B.V. v Romalpa Aluminium Ltd. [1976] 1 WLR 676)

Issues

• What is complex about this form of trust is that it is unclear precisely how the lender’s rights arise
  • Causes difficulty in theory, however it is suggested, in practice the source of the lender’s rights will be best explained by the precise terms of the loan contract
  • In theory it is not clear whether:
    • the lender has rights in the loan moneys throughout the contract;
    • or whether the lender has rights in the loan moneys which are held in suspense in some way during the life in the contract;
    • or whether the lender’s rights arise for the first time when the borrower uses the money for an unspecified purpose

The time sequence operates as follows:

Day 1 Loan contract entered into between the lender and the borrower, including a provision that the borrower must use the money only for a specific purpose

Day 2 Loan moneys are transferred at common law to the borrower

Day 3 The borrower breaches the term in the loan contract by using the money for an unspecified purpose

Day 4 Lender seeks to recover the loan moneys as a result of the breach of the term in the contract

• the question therefore which follows:
  • does the lender retain some equitable interest in the loan moneys from Day 1?
  • or are the rights given up on day 2 with the transfer of the moneys?
  • or does the lender acquire rights in the money on day 3?

There are several theories attempting to explain the Quistclose trust:

(a) there is an express trust first for the creditors and then for the lender when the purpose of the loan fails;

(b) there is an express trust for the creditors, but a resulting trust for the lender on the failure of the express trust;

(c) there is an 'illusory trust', ie, the arrangement creates an express trust for the lender, who (as beneficiary of the trust) authorizes the payment to the creditors (see General Communications and Twinsectra Ltd v Yardley, below);

(d) it is 'a new creature ... invented to protect from risk of failure a secret commercial venture for profit by two parties at the ultimate expense of general creditors' (Hackney, p 51);

(e) the loan of money to be used for a purpose gives the lender a right to prevent the borrower from using the money for any other purpose, which becomes a resulting trust if the money is not used for that purpose, because the borrower was not intended to enjoy the benefit of the money for any other purpose.

• For there to have been a trust it cannot be that the lender acquires rights in the loan moneys only on day 4 because that would be to make the trust remedial
  • Not possible in English law (Westdeutsche Landesbank v Islington [1996] AC 669)

NB

• There is an important difference between a payment of money for a specific purpose and a payment of money to be used for a specific purpose.
  • When money is paid for a purpose which cannot be carried out, the payment can often be recovered at common law as money had and received
  • this is a response to 'failure of consideration';
    • e.g., I pay a deposit for the purchase of shares and the company goes into receivership before the shares are issued: Moseley v Cressey's Co (1865) LR 1 Eq 405.
  • However, the Quistclose trust is only possible in situations where the money was paid to be used for a purpose: Guardian Ocean Cargoes v Banco do Brasil [1994] 2 Lloyd's LR 152 (CA).

Explanation

• Lord Wilberforce in Quistclose held that the trust operated as a resulting trust
  • That is that whereas the money had passed from the lender to the borrower under the loan contract, the breach of the loan contract meant that the equitable interest in the moneys passed back to the lender on a resulting trust
  • Lord Wilberforce also considered that there was a primary trust under which the borrower was empowered to use the money for the specified contractual purposes
  • There was a secondary trust which then came into existence once the contractual provision governing the use of the loan moneys had been breached
  • This secondary trust gave effect to the resulting trust

Dissent

• Lord Millett suggested in Twinsectra v Yardley [2002] 2 All ER 377 that the lender in these situations could be considered to have retained some form of right in the loan moneys throughout the life of the transaction
  • The breach of contract caused those rights to crystallise
• Therefore the Quistclose trust did not arise by means of a resulting trust but rather resulted from some form of express trust under which the lender’s rights had existed throughout the life of the transaction
• Lord Millett considered the nature of the Quistclose trust as being ‘akin to a retention of title clause’ ([2002] 2 All ER 377 at p 398)
  • The lender can therefore be taken to have retained the equitable interest in the loan moneys throughout the life of the contract
• He stated that money normally advanced as a loan becomes the property of the borrower and, if no security is taken, the lender takes the risk of the borrower’s insolvency
  • Where the loan is given for a specific purpose it gives rise to a fiduciary duty on part of the borrower
    • An arrangement described as a “Quistclose trust”
• There is however a problem where Lord Millet states at p. 399 that ‘The property remains the property of the lender’
  • Can be taken to suggest that the loan moneys will remain the absolute property of the lender
  • If this were true then the borrower would not be able to spend the money as is the purpose of the loan contract
    • This is why a retention of title clause would not work for loan contracts
  • The least satisfactory analysis of the Quistclose trust would be that the lender retains absolute title to the money
    • Would deny the existence of a trust
  • A better reading of this expression would be that it is the equitable interest in the money which remains vested in the lender, except that the borrower must nevertheless still have the power to spend the money for the purpose identified in the loan contract
  • Consequently the lender’s equitable interest must be capable of defeat upon the proper use of the money by the borrower

• Lord Millett’s approach tries to give a universal answer to the nature of all Quistclose trusts whereas, in truth, the nature of such trusts will depend on the terms of the loan contracts which give rise to them
  • Will have to look at the clause in the contract or the undertakings given

View expressed by Business Report Online (www.busrep.co.za)

…there co-exists a contract and a trust institutional structure. A contract creates personal claims enforceable by and against parties to the agreement in question, who intended to create legal relationships thereby.

By contrast, a trust is an obligation creating an equitable proprietary interest in the beneficiaries, capable of binding third parties and enforceable by the beneficiaries though not party to the settlor-trustee arrangement.

The loan device may initially be a primary trust to facilitate a purpose. If the purpose is fulfilled then the agreement is purely contractual, resulting in a simple debtor-creditor relationship.

However, if the purpose of the loan is not achieved, a secondary trust operates in favour of the lender.

• It appears that the following conditions must be met before a resulting trust of money lent will be found:
  • The money lent must have been for an agreed specific purpose
    • In Carreras Rothmans Ltd v Freeman Matthews Treasure Limited [1985] Ch 207 a resulting trust was held to arise where a loan had been made by Rothmans to their advertising agency, who were in financial difficulty, for the purpose of paying third parties with whom Rothman’s adverts had been placed
  • The money must be kept in a separate bank account
    • In both Quistclose and Rothmans the money lent was kept in a separate bank account
    • In Re EVTR [1987] BCLC 646, however, a resulting trust was found even though the loan had been paid into the company’s general account
  • The purpose has filed
    • The meaning of failure was considered in Re EVTR
      • In this case the money had been lent to the company for the purchase of new machinery
      • The money was paid to the manufacturers but before the machinery could be bought EVTR went into receivership
      • The machines were never delivered and the manufacturers refunded the purchase price less an amount to compensate for their loss under the breach of contract
      • The Court of Appeal held that the purpose had not been completed at the moment the money was paid over to the manufacturer therefore excluding a resulting trust
      • Dillon LJ stated:

“True it is that the [money] was paid out by the company with a view to the acquisition of new equipment, but that was only at half-time, and I do not see why the final whistle should be blown at half-time.” ([1987] BCLC 646 at 651)

The Quistclose Trust concept is not that recent.

In an 1819 English case, Toovey v Milne, A advanced £120 to B for B to pay his creditors. B became insolvent and returned an unexpended £95 to A. The plaintiff, B's assignee in bankruptcy, sought to recover this money.

The claim failed, with the court holding that "the money was advanced for a specific purpose. [As such] it was clothed with a specific trust and no property in [the trust] passed to the assignee of the insolvent party.

"If the purpose has failed, there is an implied stipulation that the money shall be repaid."

The basis for the decision was that money advanced for a specific purpose did not become part of the insolvent estate.

This post is for your information only and is not intended to constitute a legal opinion.  If you require specific advice you should contact a Bahamian trust lawyer.  You can contact a Bahamian trust lawyer by clicking here.    

Establishing a Foundation in The Bahamas

The Bahamas has become the first premier Common Law jurisdiction to introduce Foundations.  The Bahamian foundation, with its flexibility and unique advantages, is an important tool for the jurisdiction’s expanding wealth management capability.

The registration process for a Bahamian foundation is comparable to that of a company registration as it is a legal entity which must be filed with the Registrar General of the Bahamas. Like a company, the name of the Bahamian foundation must be reserved at the Registrar General’s office prior to submission of the necessary documentation. The Registrar will confirm that the proposed Foundation name is valid for use and that the name has been reserved for a period of 90 days.

The following information must be filed with the Registrar:

• The name of the foundation;
• Date of Charter and Articles (if any);
• Summary of the foundation’s purpose;
• Name and address in the Bahamas of the founder;
• Name and address of the Secretary;
• Name and address of the foundation council (if any);
• Address of registered office;
• Value of initial assets; and,
• Period for which the foundation will be active.

The Foundation charter must contain a statement that the value of the assets of the foundation may not be less than B$10,000 or US$10,000 or the equivalent in any other currency.

A foundation can only be established by a licensed bank or trust company, or a financial service provider. It is anticipated that in many cases these service providers will also serve as the founder of record.

Online registration is available. The fee for the registration of a Bahamas Foundation is US$ 500; however, the fee can be prorated by each calendar quarter to take into account that foundations are registered at different times of the year.

More detailed information regarding Bahamian foundations will be posted at a later date.

This post is for your information only and nothing in this post is to be construed as a legal opinion.  If you require detailed advice you should contact a Bahamian corporate attorney or a licensed Bahamian corporate services provider.  If you would like to talk to a Bahamian corporate attorney you may do so by clicking here.

Bahamas - The Nature of Real Property

The Bahamian government is actively encouraging external investment in the Bahamas. Accordingly, Bahamian law firms advise foreign investors on numerous matters including the acquisition of real estate, property for resort development purposes, or a second or retirement home; the residency and immigration requirements to meet the foreign person’s objectives; investment guidelines, various pieces of legislation concerning incentives, concessions and encouragement to foreign investment; application and licensing procedures and the formation of the Investment plan for the project; and tax advantages.

Real Property

There are two categories of property in The Bahamas: real and personal, otherwise commonly defined as immovable and movable. Immovable property consists of things which cannot be moved, such as land itself. In addition, land includes other items such as buildings, minerals, and other things which are affixed to or constructed into land which are not so easily removed. On the other hand, movable property consists of items which are easily moved, such as personal property like clothing, automobiles, money, food, furniture, stocks, debts and the like.

In a conveyance, real property may be referred to as hereditaments, or property that can be inherited. Inherited property can be corporeal, meaning tangible as in lands and buildings, or incorporeal, meaning rights such as patents or copyrights. Generally, all forms of property can be inherited.

The nature of property is such that it is possible to own shared land together with others, where each member owns a portion or percentage. Such persons are often called tenants. There are two types of tenants, joint tenants or tenants in common. Joint tenancy is characterised by the “four unities” which are unity of possession, unity of interest, unity of title, and unity of time. Its foundation is based upon the “right of survivorship”. This dictates that on the death of one joint tenant, his interest must pass to the other joint tenant or tenants. In a tenancy in common, when one tenant dies, his heir takes his share and it does not pass to the other surviving tenants.

Estates

The doctrine of estates is concerned with the length of time for which land is held. There are two principal categories of estate: freehold and less than freehold, i.e. leasehold. The duration for holding a freehold estate is uncertain, while that for an estate less than freehold is one for a period, the duration of which is fixed or capable of being fixed, e.g. a lease for five years.

The four types of freehold estates are:

a.	The fee simple;
b.	The fee tail;
c.	The life estate;
d.	The estate during someone else’s life.

The fee simple is the largest estate the investor can have in terms of duration. It is potentially infinite, and is as near to absolute ownership and can be achieved. The word “fee” means the land is inheritability and the word “simple” means that the right to inherit is unrestricted. The fee simple lasts virtually forever, in that it continues as long as the investor/owner has “heirs” left to inherit.

A fee tail is less than a fee simple and lasts only for as long as the investor/owner or any of his lineal descendants live.

The life estate arises when there is a grant of an estate to a person for his life.

The other estate is created where the right to the estate exists for the duration of someone else’s life.

The rights of a fee simple owner include:

i.	Natural rights;
ii.	Rights of alienation which allow the investor/owner to dispose of his land as he chooses, either by deed or will;
iii.	Rights of enjoyment generally of everything on, beneath, or above and attached to the land; and
iv.	Others.

Easements

There is another category of rights which falls under the term easement. Easements are limited rights to make use of or to do something on property owned by another. These may also be inherited. The essentials of an easement are that there must be a dominant and a servient tenement. This means that there must be one piece of land which carries the benefit, and another which carries the burden. For example, the benefit is given to a piece of land (the dominant tenement) where there is a right to go across the other piece of land (the servient tenement) in order to access the dominant tenement. The right is to benefit the dominant tenement or a business carried on there. The dominant and servient tenements must not be occupied and owned by the same person, and the easement must be capable of forming the subject to a grant. These rights are classified as incorporeal hereditaments.

Restrictive Covenants

Covenants frequently affect the use and enjoyment of freehold property. An owner/investor or developer may enter into a covenant or promise by a deed whereby he undertakes to another person that he will or will not carry out specific activity on his land. The covenant may be either positive (i.e. to construct or maintain a building) or negative, not to carry on business on a residential parcel of land. In deeds involving land in gated communities, and subdivisions, restrictive covenants are common. Investors usually promise to abide by a list of covenants for the benefit of all owners/investors in land in those communities.

Where a covenant can be enforced by and against successive owners or purchasers of the land, it is said to be affixed to the land.

A restrictive covenant is permanently discharged where the dominant land (i.e. the land which is benefiting) and the servient land (i.e. the land which has the burden of the covenant) come into common ownership.

Exceptions and Reservations

Certain exceptions and reservations over property may also be granted by an investor to another person. For example, a lot owner may grant to a developer of a subdivision the right to lay wires or pipes along a strip of his land to supply water or electricity to other owners of the subdivision.

Encumbrances

Notwithstanding that the fee simple title gives absolute ownership to the investor, yet he may be prohibited from disposing of the land freely because it may be subject to encumbrances.

Encumbrances are interests which are adverse to the particular property. The most important encumbrances are mortgages, leases, judgments, property taxes, and condominium fees.

A mortgage is essentially a pledge of land as security for the repayment of a loan. The investor/owner cannot give a good title to a purchaser unless the mortgage is paid off or satisfied.

A lease is an interest or estate in land given for a defined period of time. The landlord/owner gives to the tenant, for a specified rent, a right of exclusive possession of the property. If the investor/owner wishes to sell the property, he must bring the lease to an end unless the purchaser is willing to accept the property with the lease.

Oftentimes, the investor/owner may be sued and the claimant enters a judgment against him, or the Court orders costs or other damages against him. In these circumstances, these judgments or orders against the investor/owner are attached to his property. He cannot pass a clear title to a purchaser of his property unless those judgments and orders are paid off and removed from the court records.

Real property taxes which are outstanding are encumbrances to land. The investor/owner must pay these off before he could pass good title to a purchaser as outstanding real property taxes will form a first charge over the property to which it applies.

Condominium units are also encumbered with maintenance and other fees which remain outstanding at a point of sale.

Taking Title to Real Property

Many investors prefer to take title to their real property investments in their own names. It is not uncommon, however, for investors to incorporate companies to hold real property on their behalf.

In The Bahamas, the corporate entities which are used to take title to property are the domestic corporation and the international business corporation. Each has its own unique purpose and legal requirements, and these are discussed elsewhere in this website.

The Agreement for Sale

Like many other countries, the laws of The Bahamas govern contracts for the sale of real estate. They are provided for by Section 3 of the Conveyancing and Law of Property Act, Chapter 38. Such contracts by Section 4 of the Statute of Fraud, Chapter 154 are required to be in writing, otherwise, no legal proceedings can be taken in respect thereof. It is perhaps necessary to emphasize that while many contracts which are made verbally are enforceable, no agreement for the sale of land can be enforced unless it is in writing.

Therefore, the investor would be well advised to read and understand the contents of the contract which are usually set out in three parts:

1.	The particulars of sale;
2.	The conditions of sale; and
3.	A memorandum to meet the requirements of the said Conveyancing and Law of Property Act.

The Particulars of Sale

The Particulars of Sale show:

a.	The parties involved in the sales agreement;
b.	The physical description of the property which may include an attached property plan as part of the description;
c.	The description of the estate or interest of the Vendor in the land, usually assumed and stated as a fee simple (outright ownership) in possession free from encumbrances;
e.	The document must state whether the property is freehold or leasehold;
f.	The benefits passing with the land, such as easements and restrictive covenants which are for the benefit of the land being sold; and
g.	The burdens affecting the land such as restrictive covenants, easements, leases, exceptions and reservations.

The Conditions of Sale

The Conditions of Sale are the second part of the Agreement for Sale. The special conditions commonly related to this section are:

a.	The date of completion when the conveyance executed by the Vendor is exchanged with the Purchaser for all purchase monies;
b.	The purchase price to be paid on or before the completion, the deposit to be paid usually upon signing the agreement, and the payment of the balance at completion;
c.	The deposit which is usually ten percent (10%) of the purchase price paid over to the Vendor’s attorney to be held in escrow (money held conditionally) until the Purchaser’s attorney is satisfied that all the Vendor’s obligations under the contract are met;
d.	The root of title as stipulated in Section 3 (4) of the Conveyancing and Law of Property Act requires the land title to be searched for a good root of title over a period of thirty years. This consists of the conveyances of the property from one person to another for valuable consideration over that thirty year period. The period may be shortened by commencing with a Crown Grant or lease, or a Certificate of Title issued pursuant to the Quieting Titles Act; and
e.	The conditions of sale must state the capacity in which the Vendor is selling, that is, as the beneficial owner, a trustee or mortgagee.

Standard Conditions

The third part of the Agreement of Sale consists of Standard Conditions. These standard conditions are provided for by the Conveyancing and Law of Property Act. They include:

a.	The giving of vacant possession to the Purchaser by the Vendor at completion;
b.	The production of an Abstract of Title, if required. The Abstract of Title is a schedule list of relevant back title documents which confirm the ownership right of the Vendor going back to a good root of title. The abstract may be waived, but the Vendor must still produce the back title information;
c.	Requisitions on Title are also required. The contract provides for a specified period of days within which the Purchaser’s attorney can raise questions on the documents and information provided by the Vendor’s attorney. He also poses questions which may result from his own searches in the Registry of Deeds and Documents, the Cause List where judgments, orders and rulings, if any, are recorded against the Vendor or his predecessors in title, and the Companies and/or Probate Registries. The Vendor’s attorney is also given an opportunity and time frame within which to respond. The contract usually provides for remedies if material requisitions are not satisfactorily answered after the stated period;
d.	There is usually a provision for the Purchaser not to take possession until completion;
e.	Sundry expenses and obligations attached to the land, such as real property taxes, utility charges and other contractual arrangements which must be paid in full to completion date are accounted for;
f.	The contract may provide for notices to complete to be given by either party in cases where the other fails to meet his obligations at the times stated in the contract; and
g.	The agreement may provide for real estate commissions to be paid to the realtor.

Preparation Sales

of agreements are usually prepared by attorneys, but in many instances, the real estate agents provide their own. It is important to remember that once a contract is executed, the parties involved will be bound by its terms, and it does not excuse the performance of any provision if a party has not been advised by an attorney, or if a party states that he did not understand what he signed.

The Conveyance

When property is acquired, the purchaser/investor is given a conveyance, which is sometimes referred to as a deed, or sometimes as an Indenture, as evidence of ownership. A conveyance is a document which legally transfers ownership from one party to another. It gives details of the actual transfer. It is divided into various parts:

1. Date
2. Parties
3. Recitals
4. Testatum
5. Receipt
6. Operative Words
7. Description of Property
8. Easements et al
9. Habendum
10. Testimonium
11. Affidavit of Due Execution

a.	A Conveyance commences with a date even though it takes effect from the date it is actually delivered to the purchaser.
b.	The Parties include the full names, street addresses, and occupations of the Vendor and the Purchaser for purposes of identity.
c.	The Recitals are the narrative and introductory recitals which indicate whether or not the Vendor owns the property free and clear from encumbrances. If there are encumbrances or restrictions, these are usually indentified. The purchase price is stated in a certain currency.
d.	The Testatum, Latin for “known on good evidence”. This commences with the words “Now this conveyance witnesseth”.
e.	The Receipt clause confirms the payment from the purchaser and the receipt by the Vendor of the purchase price, which is also referred to as the Consideration.
f.	By Operative Words, the Vendor conveys as beneficial owner to the Purchaser the named property. The phrase “as beneficial owner” is very important and in a conveyance for valuable consideration implies that: <><> <><> <><> <><> i. the Vendor has good title to convey; ii. the Purchaser can enjoy the property quietly without interference; iii. the land is free from encumbrances; and iv. the Vendor will execute any further deeds to assure the Purchaser of good title.
g.	The Description of Property is a written brief description of the land which is generally placed in a schedule with a land surveyor’s plan exhibited to the conveyance.
h.	Easements, such as rights of way over some other property, which are to be granted, are inserted in the conveyance, as well as references to restrictive covenants (solemn agreements that are binding on all parties) to which the property is subject and any exceptions and reservations in favor of the Vendor.
i.	The Habendum basically specifies the owner’s rights as well as how those rights are limited. It may also specify time frame or certain prohibited activities. It usually commences with the expression, “To Hold” and continues “unto and to the use of the Purchaser, his heirs personal representatives and assigns in fee simple”. Where the Purchaser is a company, the expression is, “To Hold unto and to the use of the Purchaser, its successors in title and assigns in fee simple”.
j.	The tenth item on the conveyance is the Testimonium clause. This clause indicates the proof, evidence, and witness and in layman’s terms “seals the deal”. The clause may state that, “In WITNESS whereof the Vendor and Purchaser have hereunto set their respective hands and seals”. Only in cases where the Purchaser enters into a covenant with the Vendor, e.g. to observe restrictive covenants, is his name mentioned in the Testimonium, and he does not execute the conveyance.
k.	Finally, an Affidavit of Due Execution is executed. An affidavit, (in Latin literally means “trust affirm”), is a written declaration made on oath before somebody authorized to administer oaths. The affidavit is sworn by the witness to the signing of the conveyance by each party and such affidavit will have to be annexed to the conveyance.

The above notes describe a simplified form of a conveyance. Depending upon the situation involved, many conveyances can become quite complicated. For example, there may be more than one Purchaser or Vendor, and the Vendor may be acting in the capacity of a mortgagee or personal representative.

So far, the investor has found a property to invest in, and has entered into an Agreement of Sale; and the attorneys have drawn up the conveyance. The next step in the process is to stamp then record the conveyance.

Stamping and Recording

As a matter of raising government revenue most deeds and documents are required to be stamped in accordance with the Stamp Act.  The Stamp Act also makes provision for stamp duty exemption for first-time home buyers and transfers of home mortgages between licensed lending institutions

The stamp duty rates currently are as follows:

Amount	Rates
Up to $20,000	4%
Over $20,000-$50,000	6%
Over $50,000-$100,000	8%
Over 100,000-$250,000	10%
Over $250,000	12%

Upon stamping, the Registration of Records (Amendment) Act 1989 provides for deeds, documents and property grants to be recorded. Any deed which is first lodged and accepted for record in the Registry has priority and preference over other deeds and documents for the same property notwithstanding the latter was executed before the said deed was lodged for recording.

The further purpose of recording is to provide notice to the world of all transactions pertaining to the property.

Investing in Condominiums

Condominiums, which are very popular forms of investments, are governed by the Law of Property and Conveyancing (Condominium) Act, Ch. 139. They are acquired as second or vacation homes usually by foreign investors.

The Act makes it possible to own the fee simple of a unit while certain areas like paths and laundries are owned in common. Moreover provision has to be made for the passage of water pipes, electrical and air conditioning conduits, and similar services, through the privately owned individual units. The common areas are managed by a Management Company which is operated by the unit owners.

The unit owner holds an undivided share of the common property in proportion to the value of his unit, and the latter determines the extent of his voting rights in the Management Company.

The Act requires that there be drawings and plans (section 5), and the Company must have bye-laws (sections 14 and 15).

The cost of the maintenance of the common property is met by the unit holders in proportion to their entitlement.

The basic document is the Declaration by which property is subjected to the provisions of the Act, and section 4 sets out the contents of this instrument. These include a description of the property and its precise location, a schedule presenting the unit entitlement of each unit, a description of the common property, the bye-laws applicable to the property, a statement of the rules and restrictions covering the use of and transfer of the units, and other relevant matters.

The International Persons Landholding Act

This Act requires non-Bahamian investors in property to apply to the Secretary of the Investments Board for a permit or to register the purchase or the acquisition.

Certain purchases do not require a permit. They are:

a.	The acquisition of an interest in a condominium; and
b.	Property vacant or otherwise to be used by the investor as a single dwelling or for the construction of such a dwelling. However, the property must be less than five contiguous acres.

Also, property acquired by a non-Bahamian by devise requires no permit. However, in all cases where a permit is not required, the acquisition document must be lodged with the Investment Board for a Certificate of Registration.

In all other cases, i.e. where land is required for development purposes, an application with relevant details must be forwarded to the Investments Board for approval in advance. The Board is headed by the Prime Minister.

Other Property Considerations

The foreign investor in real property should be aware of other legal provisions affecting real property in The Bahamas.

Real Property Taxes

The Real Property Tax Act requires that an annual real property tax is payable to the Government on all lands in The Bahamas. The present rates are:

Property (Market Value)	% of Assessed Value
Vacant land (Owned by Non-Bahamians)
First $3,000	$30
$3,000-$100,000	1%
More than $100,000	1 ½ %
Owner Occupied Property (Residential)*
Up to $25,000	Exempt
$250,000-$500,000	¾ %-1%
More than $500,000	1 ½ %
Other Property/Commercial
First $500,000	1%
More than $500,000	2%
*Subject to change

The Real Property Tax Act provides for the tax to be a prior change upon any land, and so it is important to ensure that such a tax is paid current at the date of completion of the purchase. Certain transactions are exempt from the provisions of the Act.

Time Shares and Fractionals

The development and operations of these types of property are governed by The Bahamas Vacation Plan and Time Sharing Act, 1999. Certain incentives are available but the projects are strictly regulated.

Subdivisions and Gated Communities

These are also subject to special statutory provisions for the protection of the public.

Environmental Provisions

In many cases environmental impact assessment studies must be prepared and submitted to Government before a resort or industrial project can be considered.

Exchange Control Regulations

For the protection of the investor, he must apply to the Central Bank of The Bahamas to register his investments as approved, in advance of completing his acquisition. By so doing, he is assured of repatriating his capital when he sells at some time in the future.

Building and Construction

The foreign investor will be well advised to seek assistance in reviewing building contracts, and those involving, architects, engineers, surveyors, and appraisers.

Legal Assistance

In light of the many transactions involved in the property purchase and development processes, the investor is encouraged to engage the services of a Bahamian real estate attorney to assist him.

This post is for your information only and nothing contained in this postis intended to constitute a legal opinion. If you require any detailed advice you should contact a Bahamian real estate attorney. You can contact a Bahamian property lawyer by clicking here.