Corporate Landholding in Bermuda
About Jessica Kemmenoe
Jessica is an associate in the firm’s dispute resolution practice group. She practices in the area of civil and commercial litigation and advises on a wide range of matters including property disputes, estate matters, mortgage enforcement, employment matters, debt collection and immigration. Jessica started with MJM as a Pupil in July 2013 and is a local Bermudian.
On 27 March 2014 the Government enacted the Companies Amendment Act 2014 (the “Amendment Act”) (58 KB PDF) introducing new provisions to the Companies Act 1981 with regards to the ability of local and exempt companies to acquire land in Bermuda. An accompanying corporate landholding policy (the “Policy”) was issued to run alongside the Amendment Act to help clarify the objectives behind the changes in an effort to assist with the Ministers decision making when making an application for consent.
There were a number of reasons cited for the changes but the key reasons provided by Minister of Education and Economic Development, The Hon. E. Grant Gibbons, in his statement to the House of Assembly were to “stimulate turnover in the real estate market and create jobs in the construction sector and to make Bermuda [a] more attractive and competitive jurisdiction.” (Hansard Report, 21 March 2014, p. 1739)
It should be noted that consent is still required by the Minister in relation to corporate landholding, however, the Minister’s decision will be guided by the provisions of the Amendment Act and the accompanying Policy. It should also be noted that the Amendment Act includes saving provisions for corporate land acquisitions completed prior to the commencement of the Amendment Act. Additionally, the Amendment Act includes retroactive consent to be given by the Minister to correct inaccuracies or problems in title held by corporate vehicles following the previous corporate landholding provisions. Minister Gibbons explained that the new amendments seek to provide for a corporate landholding policy that “ensures[s] clarity, transparency and consistency in the application of ministerial sanctions.” (Hansard Report, 21 March 2014, p. 1739)
Under the previous legislation, exempt companies were only able to acquire land by way of a lease or tenancy agreement. The recent changes allow for exempt companies to purchase land in Bermuda outright for both commercial purposes as well as residential, subject to the Minister’s consent and subject to the other provisos set out in the Policy.
It is no longer required to set out the landholding powers of a company in the Memorandum of Association. Instead, the Amendment Act categorises landholding by a business entity as a restricted business activity and therefore, in order for a company to acquire land, it has to get the consent of the Minister.
The largest change implemented is that both local and exempt companies can now acquire residential property. However, the residential property pool in which businesses can purchase from are those properties that are already available to what is known as “restricted persons” -people that do not possess Bermudian status. These properties include those that have an Annual Rental Value (“ARV”) of $177,000 and above. The Policy restricts a company from renting the properties in the market or to third parties. The intention behind this rule is for the properties to be purchased and used for accommodation or recreational facilities for employees or corporate hospitality and recreation.
Local and exempt companies can now hold commercial property if it is to be used specifically for business purposes. They are required to set out what the property will be used for in their application for consent from the Minister.
Another change is that local companies may acquire and hold land that is defined as a mixed use property. These properties are those that have a combination of offices and residential units. However, no more than 20% of the property can be residential.
The Amendment Act gives provision for the Minister to give consent for a company to acquire land while taking into account the Policy that was approved by the Cabinet. Some examples of Policy considerations the Minister will take into account is “the nature and previous conduct of the company and the persons having an interest in the company whether as directors shareholders or otherwise” (Hansard Report, 21 March 2014, p. 1741). Another example of a Policy consideration is Private Trust Companies reporting on the beneficial owner of the land. As companies can now acquire residential land (subject to the conditions above), this allows for Private Trust Companies to purchase properties as well. The Policy explains that a condition may be applied with the Minister’s consent for there to be an annual reporting requirement to evidence that the beneficial owners of the property are Bermudian.
In summary, the Amendment Act introduces changes that are milestones for the economic development of Bermuda as a competitive offshore jurisdiction. The changes create a more enticing environment for exempt companies to see longevity with their future in Bermuda, while still maintaining the housing stock available for Bermudians.