The Complexities of Jersey Property Transactions - 23 July 2008

Castle Quay at the St Helier Waterfront, possibly the largest combined commercial and residential development so far in Jersey, was recently released for sale “off plan” by the developer. The legal framework at Castle Quay incorporates all the different forms of property ownership presently available in Jersey including freehold, flying freehold, share transfer and long leasehold. It is a framework which would have been unrecognisable and indeed incapable of being put in place as little as twenty five years ago.

Voisin were invited by the developer to represent over forty individual purchasers at Castle Quay and, as such, were involved in the latter stages of refining that framework and the sales documentation.

So how have these different forms of ownership developed?

In the 1960s apartment living and the desire to “own” an apartment became more popular but at that time it was not possible to convey the freehold ownership of an apartment. Tenure by long leasehold was not popular and rarely used.

The mind of the Jersey legal profession has never been closed to innovation and creativity. This is particularly so where the law of Jersey on the face of it prevented the achievement of an otherwise desirable objective. The ability to “own” an apartment being such an objective, the means now universally referred to as “share transfer” was conceived.

The freehold title to a block of apartments is held by a company, which has to have specially drafted articles of association. These divide the share capital into specific parcels of shares and confer the exclusive right to use and occupy a specified apartment within the block on the holder of that parcel of shares, which carries those rights for as long as the company continues to own the freehold of the property. The company is obliged to insure, maintain and repair the property, and recovers the costs from the shareholders.

With share transfer the “owner” of the apartment never acquires any direct interest in the freehold title to the property. This remains vested in the company. There was, however, one major impediment to the expansion of the share transfer method. The law in Jersey prohibited the hypothecating or charging of any property other than immoveable property. This made it extremely difficult to secure a loan on the shares in a share transfer company and the market in share transfer apartments was effectively restricted to cash buyers.

This changed in 1983 when the Security Interest (Jersey) Law 1983 was adopted. This provided for the first time in Jersey a clear legal framework to obtain a charge over shares in a company. As might be expected, the ability to secure a loan against, effectively, an apartment led to a huge increase in the share transfer property market. Furthermore, and unlike a freehold purchase, no stamp duty was payable on the transfer of shares.

Nevertheless and notwithstanding that share transfer had been refined to such a point that it was well accepted as a means of “owning” an apartment it was still contrived and somewhat artificial. In 1991 the States adopted the “Loi (1991) sur la Co-Propriété des Immeubles Bâtis”. This established a framework for conveying freehold title to an apartment which is generally referred to as “flying freehold”. A declaration of co-ownership registered by the Royal Court identifies the separate individual private units and the common parts of the co-owned property. The owner is then able to sell a specific apartment by freehold conveyance and the apartment is just as capable of being security for a loan as is a freestanding house. Developers now had a choice as to whether to market the development by share transfer or flying freehold although because share transfer was free from stamp duty these were considered more marketable. However this may change in view of the States’ recent decision to impose stamp duty on the purchase of share transfer residential accommodation.

While share transfer was the more popular means of selling apartments it was not satisfactory for the sale of commercial property, because only the owner of the freehold title to a property can grant a lease of that property in excess of nine years and commercial investors usually wish to secure a long tenancy.

To overcome this required some ingenuity and innovation using the available legal framework. The solution involves the owner of the freehold registering a declaration separating the building into commercial units and apartments. The freehold ownership of the apartments alone is transferred to a new company with share transfer articles. The apartments could thus be sold by share transfer and the commercial units by freehold conveyance.

Other parts of the St Helier Waterfront caused different difficulties. The States decided not to part with the freehold title to the land but to grant ground leases for 150 years. A new law enabling the charging of leases was adopted in 1996 so that developers could raise funds. However a declaration of co-ownership cannot be made out of a leasehold tenure no matter how long the lease. This was the situation with which Voisin had to deal when advising Spinnaker Developments, the developer of the Harbour Reach development adjacent to the Elizabeth Marina. The development comprises a multi-use building including forty-two apartments, basement car park, offices, a marina services unit and other commercial accommodation. Spinnaker wished to sell the apartments off plan by share transfer, but having only been granted a 150-year lease, it could not put a declaration of co-ownership in place. The solution was to grant a long sub-lease of the part of the building comprising the apartments to a new company with highly bespoke share transfer Articles taking into account the terms of the sub-lease.

Even at Castle Quay, where the developer owns the freehold, nevertheless a long lease of parts of the development was still required to put the whole framework together.

Different means may well be needed in the future, particularly for the proposed development of the Esplanade Square, but the evolution over the last forty years provides several alternatives to accommodate even the most complex of today’s developments.

For further information on large scale or commercial property transactions, please contact Andrew Le Quesne who has advised developers, funders and purchasers in relation to several large multi-use developments in Jersey.