The Tribune

• Accountant recalls subdivision approval nightmare

• ‘Suffered damage’ on lost deal for land bank sold him

• Says banks ‘have duty’ to ensure subdivision straight

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent accountant has urged Bahamian financial institutions not to leave clients “holding the bag” by selling them repossessed properties in unapproved subdivisions.

Kendrick Christie, president of the Association of Fraud Examiners (ACFE) Bahamas chapter, told Tribune Business had had personally “suffered damage” when he was unable to sell land previously acquired from a bank because the area it was located in lacked the necessary approvals under the Planning and Subdivisions Act.

Speaking out after the recent Privy Council ruling, which affirmed that all land and property sales in unapproved subdivisions are “null and void” after the Act’s 2011 implementation, he said he has also encountered cases in his role as an accountant/auditor where persons had purchased properties from financial institutions to which they no longer have good title due to this law.

“I have been personally affected by this,” Mr Christie revealed to this newspaper, while not naming the bank involved. “I can speak from experience. The reason I know about this is that I attempted to sell a piece of land that I bought from the bank, and could not sell it.

“I suffered damage. I thought I had the contract in the bag, the sale in my hands, but the buyer’s attorney said: ‘This has no subdivision approval’ and I lost the sale... I can also speak to this as an accountant and auditor who has liaised with attorneys on some land matters like this. I know of one or two instances where there have been conveyancing issues that had to do with subdivision approval.”

Expanding further, Mr Christie argued: “Some Bahamian banks have been disclaiming liability to customers for a long time now as a result of selling land parcels to customers which did not have the proper subdivision approval.

“These banks and other entities often sell repossessed land to customers in an outright sale, using the land as collateral and extending a mortgage on the property. The customer then realises there is a lack of subdivision approval after the sale, usually when they attempt to sell the land to another party or through other activity.

“In other words, and in my non-legal opinion, the title is blemished and one can say the customer has no title to the land at all as it was not conveyed within the law.” Financial institutions, though, are likely to cite the “caveat emptor” or ‘buyer beware’ legal principle, and argue that Mr Christie should have hired an attorney to satisfy himself of subdivision approval and good title.

However, David Morley, a former Bahamas Real Estate Association (BREA) president, recently said not all attorneys ask for proof of subdivision approval before giving title opinions on property purchases - something that could expose them to potential lawsuits for professional negligence.

And Mr Christie argued that there is “a high degree of responsibility on banks” given that they should have “strong knowledge” of whether their inventory of repossessed properties - and those that they are selling under “power of sale” - are situated in subdivisions that have the necessary approvals.

Pointing out that they often extended mortgage financing to persons acquiring their distressed properties, he added: “The banks being the one selling the property, and knowing about it, has the duty to ensure subdivision approval was done and that the title is proper.”

While asserting that he was not seeing “to attack the banks”, Mr Christie added that too often purchasers were left “holding the bag” in such situations as they lacked the necessary financing to resolve the subdivision/title issues or seek potential legal recourse in a court system where cases were likely to be tied up for years.

Instead, he urged financial institutions to be “good corporate citizens” in resolving the plight of purchasers of repossessed properties who - thanks to the Privy Council ruling - may have been alerted to their predicament concerning good title.

“I am calling on banks and institutions to accept this landmark ruling by the Privy Council, and to actively reach out as good corporate citizens to reimburse all mortgage payments, real property tax, damages and legal fees to these Bahamian consumers who were sold a blemished piece of property,” Mr Christie told Tribune Business.

“They are also encouraged to offer the consumer an opportunity at the bank’s and developer’s own expense to have the property approvals done as per the Planning and Subdivisions Act 2010, and land properly conveyed. I will be monitoring to see if the banks and other lenders do the right thing under the law, and call on the regulators and Parliament to do the same.”

Bahamian attorneys have been divided about the ramifications of the Privy Council ruling, and how widespread these potentially are. Some view the impact as limited, given that the verdict confirms that all conveyances executed for land in unapproved subdivisions after the Act took effect are “null and void”.

And, while conveyances made before the Act became law are affirmed as valid, the only question relates to sales agreements that existed prior to the Planning and Subdivisions Act where the parties went through with the transaction post implementation despite there being no subdivision approval.

This, some have suggested, mean any fall-out from the Privy Council ruling will be limited to a small group of purchasers who had valid sales agreements prior to the Act and went ahead with concluding conveyances for land in unapproved subdivisions post-Act.

Andy O’Brien, the Glinton, Sweeting & O’Brien partner, told Tribune Business: “I’ve been looking at everything, and talking to some of my colleagues at other firms. There is a genuine issue of concern that likely requires legislative action, and that is the circumstances where a conveyance was done pre-Act so is valid and the person goes out and sells it post-Act.

“That could be major issue both for banks and owners of property without some legislation. The 2010 Act says all conveyances post-Act are null and void in unapproved subdivisions. That interpretation is how the Act reads, and is supported by the decision in the Privy Council case, but it sets the groundwork for this to be an issue and we have to come up with a solution for those folks.”

The Planning and Subdivisions Act was passed to ensure developers are either supposed to finance the infrastructure works themselves or secure a performance bond that guarantees the necessary work will be completed and there is sufficient funding available.

The Privy Council case, which revolved around the interpretation of the Planning and Subdivisions Act and the transition provisions for when it became law in 2011, was sparked when Malik Momin, a US citizen, agreed to acquire lot 36 in Exuma’s Elizabeth Harbour Estates for $895,000 via a sales agreement that was executed on February 18, 2008.

The transaction involving Mr Momin was caught in the transition to the Planning and Subdivisions Act. While the sales agreement had been executed prior to the Act coming into force, the conveyance - the legal instrument recording the transfer of title - did not occur until after the Act came into law.

The Planning and Subdivisions Act’s section 62(1) treats all conveyances made after the Act came into effect as “null and void” if they involve lots in subdivisions where the latter have not been approved by the relevant government authorities.

Given that the Act took effect for Exuma on December 1, 2011, Mr Malik argued that this provision meant February Point could not convey good title to lot 36 as the Elizabeth Harbour Estates subdivision had not been approved. Therefore he demanded his purchase price be returned.

However, February Point argued that section 62(2) created a ‘carve out’. This, it asserted, said the failure to obtain subdivision approval did not make the conveyance to Mr Malik “null and void” because it upheld the validity of conveyances or sales agreements made before the Act came into effect - just as had occurred here. The Privy Council found for Mr Malik.