The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Attorneys yesterday argued that The Bahamas’ most important planning law should be reformed to provide greater protection for buyers of lots in unapproved subdivisions.

Tavares LaRoda, Sunshine Holdings’ general legal counsel, said the Privy Council’s upholding of the Planning and Subdivision Act’s meaning “puts too much” of a burden on Bahamians to obtain redress for land purchases deemed “null and void” because they lie in subdivisions not approved by the Government.

He spoke out after the highest court in the Bahamian judicial system ruled that an Exuma developer should not be granted “any further indulgence” when it came to returning almost $900,000 to a US citizen who had sought to purchase a lot in its project.

February Point Resort Estates had previously been given “one final chance” by the Court of Appeal to produce the subdivision approval necessary to resolve its dispute with investor Malik Momin, but the London-based Privy Council ruled that the developer was now out of time and should return the $895,000 purchase price plus interest to him.

The dispute, 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 Mr Momin agreed to acquire lot 36 in Elizabeth Harbour Estates via a sales agreement that was executed on February 18, 2008.

The $895,000 price was to be paid in installments, with an initial $350,000 deposit to be followed by a further $125,000 on August 1, 2008, and another $120,000 on February 1, 2009. The remaining balance was to be paid in monthly installments from March 1, 2008, carrying interest at 7 percent.

February Point was “to retain rights and interest in the lot until all payments had been made”. The Privy Council added: “The full price had been paid as of February 2013. A dispute then arose between the parties.

“The plaintiff purchaser argued that he was entitled to the return of the money he had paid because the defendant vendor [February Point] had not obtained the subdivision approval required by the 2010 Act and, by reason of section 62(1), there could be no valid conveyance to him.

“The defendant argued that it was able and willing to convey the property to the plaintiff and that, applying section 62(2), that conveyance would not be null and void even though there had been a failure to obtain the necessary approval for the subdivision. The plaintiff was therefore not entitled to the return of the purchase price paid.”

The transaction between 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.

Justice Indra Charles, in the initial Supreme Court ruling, found for February Point on the basis that section 62(2) “was enacted to preserve the validity of the agreement for sale [made prior to the Act] and prohibits any party from cancelling the said agreement due to its enactment”.

She found this section was enacted by Parliament to protect persons “already in a contractual relationship for the sale of any property” prior to the Planning and Subdivisions Act taking effect, and added: “It would have been nonsensical or illogical for Parliament to preserve an agreement for sale under the Act but to thereafter consider a conveyance made pursuant to that agreement null and void.”

However, this was subsequently reversed by the Court of Appeal, which ruled that such an interpretation of section 62(2) meant developers would be protected from what was a criminal offence - selling lots in unapproved subdivisions.

“It would be nonsensical to think that Parliament would make provision for a vendor who acts in breach of legislation, and is thereby guilty of a criminal offence,” Appeal justice Milton Evans found in the Court of Appeal’s ruling.

“The learned judge seems to have been beguiled by [counsel for the defendant’s] submission that it would have been illogical for Parliament to preserve an agreement for sale under the Act but to thereafter consider a conveyance made pursuant to that agreement null and void.

“However, it must be noted that Parliament’s primary intent is to ensure compliance with the law and to preserve regulatory control over the development of subdivisions. The validating of the agreements preserves the parties’ rights while, at the same time, ensuring that both parties comply with the law. There is nothing illogical about requiring persons to obey the laws enacted by Parliament where they still have an opportunity to do so.”

Candice Hepburn, February Point’s attorney, argued in favour of Justice Charles’ interpretation. She argued that, given the sales agreement with Mr Malik was entered into prior to the Planning and Subdivisions Act, it was still valid and “there is no need, as a matter of contract law or property law, for the conveyance to have the necessary approval.

“The purchaser is therefore bound to accept, and is in breach of contract if he does not do so, a conveyance from the vendor even though the subdivision does not have the necessary approval,” the Privy Council recorded as her argument.

However, it rejected her contention “that it is illogical to treat the agreement made prior to the Act as valid, and then to argue that the conveyance made pursuant to that agreement is null and void”.

“As regards a post-Act conveyance, it does not matter whether the agreement to convey was made before or after the Act because any post-Act conveyance without the necessary approval is invalid,” the Privy Council found.

“A pre-Act agreement to convey is a valid contract so that (subject to any express term to the contrary) the purchaser may recover damages for breach against the vendor for not having obtained the necessary approval.., and the purchaser may be able to terminate the contract for breach and to be granted restitution of the purchase price paid for a total failure of consideration.”

This is what Mr Momin was seeking. The Privy Council also rejected Ms Hepburn’s argument that equitable title had been obtained by purchasers through conveyances made prior to the Act even though legal title may not have been.

The Privy Council ruling has potentially significant ramifications for lot purchasers who may have possessed sales agreements prior to the Planning and Subdivisions Act’s implementation in 2011, and then went through with their acquisitions in the belief - like Justice Charles - that the later conveyance cannot be deemed “null and void” even if there is no subdivision approval.

This situation, which would likely have the greatest potential impact for such transactions that took place around 2011, 2012 and 2013, would mean that buyers caught up in such circumstances - owning properties in unapproved subdivisions - will not hold good title to their land as the conveyances are “null and void”. This, in turn could impact mortgage security for banks and other lenders.

Mr LaRoda, meanwhile, said the Privy Council’s ruling was in effect “good in theory, not in practice”. He added that its upholding of the clause rendering all post-2011 conveyances in unapproved subdivisions as “null and void” effectively allows an unscrupulous developer to retain land ownership, while lot buyers may now struggle to recover their purchase prices from the same.

Persons who may have by now built a home on such lots “get nothing”, and he added: “In the best of times we have struggles with land ownership, particularly in the Family Islands, and now we are adding this extra layer..... At some point land ownership has to crystallise into something. The most vulnerable among us bear the brunt of these decisions.”

The only recourse for buyers who find themselves in such situations, if they are unable to persuade the developer to obtain subdivision approval or return their funds, is to either take them to court or sue their attorneys who conducted the pre-acquisition title search for negligence - a process that could take years in the court system and be cost prohibitive.

As a result, Mr LaRoda suggested that Parliament may have to reform the Planning and Subdivisions Act by inserting a clause - similar to that found in the International Persons Landholding Act - that mandates the purchase price be refunded if no subdivision approval is forthcoming.

“There’s no such provision in the Planning and Subdivisions Act. It declares it void without saying what happens next,” he added. “Many attorneys thought there would be a finding, at a minimum, that you get some sort of equitable interest. The court made clear you get nothing.

“The only redress is to get funds back from the vendor or sue the attorney for negligence and, in the context of The Bahamas, you’re talking about years easily...It cannot be equitable for persons who did the wrong to be in a position to get the benefit of the land without any interest to the purchaser, and get funds for a purchase that is void.

“The purchaser is put in a position where they have to fight to get their money back.... It protects the vendor because they have nothing to lose, but they did the wrong. That would be my suggestion; that the legislation speaks to how we redress these issues when they happen, and having simple solutions,” Mr LaRoda said.

“The way it is written the vendor continues to own the land, the purchaser gets nothing and has to sue for their money.”