Jersey: The Real Estate Law Review Jersey Chapter

I INTRODUCTION TO THE LEGAL FRAMEWORK

Jersey is the largest of the Channel Islands. It is a self-governing British Crown dependency with its own financial and legal systems and its own courts of law. Jersey property law is derived from a mixture of local legislation and customary (common) law, which has its roots in the ancient customary law of Normandy.

i Ownership of real estate

Ownership of real estate in Jersey (immoveable property) can broadly be separated into the following rights of tenure:

  1. ownership à fin d'heritage (freehold): this is the most comprehensive and preferred form of ownership. While not directly equivalent, this is often compared to the English law concept of fee simple absolute. Ownership à fin d'heritage, as the term suggests, gives rights in perpetuity;
  2. leasehold: there are two types of lease in Jersey. Shorter-term tenancies with a term of nine years or less are documented by means of private agreement between the parties and are known as paper leases. There are no registration formalities. Leases with a term of more than nine years are referred to as contract leases and must be registered before the Royal Court of Jersey to be legally valid and binding;
  3. flying freehold: flying freehold properties are established in accordance with the Loi (1991) sur la copropriété des immeubles bâtis.1 This type of ownership is typically used for apartment blocks and mixed-use properties. An owner of a flying freehold lot (i.e., a specific part of a building) has exclusive ownership of the lot and a shared interest in the common parts. The extent of the lot and the rights and obligations of the various owners are specifically defined within a co-ownership declaration that must be registered before the Royal Court of Jersey to be legally valid and binding; and
  4. share transfer: share transfer ownership structures are used as a method of dividing ownership of a property (usually apartment blocks) into separate units. The freehold of the property is acquired or owned by a Jersey company, and individual owners hold shares within that company rather than any direct interest in the underlying freehold. The company's articles of association confer on the holder of certain shares the exclusive right to use and occupy a specified unit (or units). Rights relating to common areas and other shared or communal services are defined within the company's articles of association.

ii System of registration

Jersey does not have a system of registered title, and there is no state guarantee of title available. All hereditary contracts relating to land in the island must be passed before the Royal Court of Jersey, and thereafter such contracts are registered in the Jersey Public Registry and are available for public inspection.

To confirm good title to a property, it is the responsibility of the purchaser's lawyer to undertake research within the Jersey Public Registry to track the route of title and to examine the registered contracts for restrictions and benefits (servitudes) affecting the land in question.

Until November 2006, all hereditary contracts (other than contract leases) were written and registered in the French language, and consequently researching title to Jersey real estate requires specialist knowledge. While hereditary contracts are now written and registered in English, practitioners are required to understand and interpret original French clauses as created in earlier contracts in order to establish good and marketable title to a property.

As all hereditary contracts must be passed before the Royal Court of Jersey, there is no requirement for them to be signed or executed by the parties. Each party (either personally or by attorney) must appear before the Royal Court to register the hereditary contract. The Royal Court of Jersey sits to register property contracts on Friday afternoons.

Share transfer properties (see above) are transacted differently, with the parties entering into a share purchase agreement for the acquisition of the shares. Such agreements are private, and do not require registration in order to be perfected. Such transactions can be exchanged and completed on any day of the week by agreement between the parties (and not only on Friday, as with transactions involving freehold or flying freehold properties).

iii Choice of law

Jersey law will apply to most transactions involving Jersey real estate. Contracts may include express provisions relating to the choice of governing law (which in general the Jersey courts will uphold), but formalities for concluding transactions, including registration of contracts in the Jersey Public Registry and the taking of security over real estate, will be governed by Jersey law and practice.

II OVERVIEW OF REAL ESTATE ACTIVITY

The commercial real estate market in Jersey has seen continued growth during 2016. A number of high-value investment acquisitions were completed and several key development projects entered the construction phase following successful take-up of the available space.

The local residential market also continued to strengthen, particularly through Q1 to Q3 of 2016. Prices have stabilised and are increasing in the majority of sectors, while the availability of residential lending continued to improve.

A number of high-profile commercial construction projects are nearing completion, which will increase the availability of good-quality office accommodation. The scale and complexity of the new projects is in marked contrast to the conservative approach adopted in recent years, as the economy recovers from the global financial crisis.

The local government continues to implement policies designed to foster and sustain activity in the real estate market. Upcoming changes include relaxation of development controls by revision of permitted development rights, and the reduction of stamp duty for low-value residential lending transactions. State-funded development is also on the increase, with both residential and commercial development sites being progressed.

The lending sector continued to show good levels of activity, with several large-scale portfolios being refinanced during the year. Development funding remains conservative, with lenders still seeking a greater degree of control and broader asset coverage than in previous years.

III FOREIGN INVESTMENT

Land is a scarce resource in Jersey. Due to the high levels of demand, the real estate market (particularly the residential sector) is regulated by the States of Jersey. Certain transactions involving the sale, acquisition or transfer of Jersey real estate (including the registration or assignment of contract leases) may require prior notification to, or the consent of, the States of Jersey Housing Minister.

The residential real estate market in Jersey is highly regulated to preserve the housing stock for locally qualified residents. In order to acquire the freehold of a residential property, a purchaser must meet the requirements under the Control of Housing and Work (Jersey) Law 2012. Non-resident investors who do not qualify under this Law may nevertheless purchase share transfer properties (see above), but will not ordinarily be able to occupy without the necessary consents.

The commercial real estate market in Jersey is more accessible, with foreign investors being able to freely acquire commercial assets, although certain transactions (e.g., freehold acquisitions by corporate entities and the leasehold acquisition of mixed-use properties with residential units) may still require the prior consent of the States of Jersey Housing Minister. The implementation of the Control of Housing and Work (Jersey) Law 2012 in July 2013 has simplified the process of acquiring commercial real estate by significantly reducing the number of commercial real estate transactions that require ministerial consent.

IV STRUCTURING THE INVESTMENT

The structure of each transaction involving Jersey real estate will ordinarily be determined by the tax and accounting requirements of the investor, and it is advisable to obtain specific advice on the tax implications both in Jersey and in the investor's home jurisdiction. Internal corporate or investment restrictions may also dictate how an institutional investor is permitted to acquire an interest in Jersey commercial property.

i Corporate entity

Foreign investors can acquire the freehold of Jersey commercial property directly into their existing structures; however, it is usual for non-resident investors to establish a Jersey company to be used as a special purpose vehicle to acquire and hold the asset. Where the freehold is already held by an existing company, investors may wish to acquire the asset indirectly (by acquiring the issued shares), which in some circumstances can minimise exposure to stamp duty and goods and services (GST).

Under the current 'zero/ten' income tax regime, a company resident in Jersey will, subject to certain specific exceptions, be liable to income tax at a rate of zero per cent. The principle exception is income earned from Jersey real estate, which is liable to income tax at the (current) standard rate of 20 per cent. A non-resident landlord scheme provides for the withholding of tax from rental income (by either the tenant or the managing agent) unless the non-resident investor can obtain a certificate of good standing from the Comptroller of Taxes in Jersey enabling the rent to be paid without deduction (but subject to settlement of any tax due).

ii Partnership structures

Other investment vehicles, such as limited partnerships, are not often used to acquire Jersey real estate.

Jersey 'classic' limited partnerships are broadly equivalent to limited partnerships in England and Wales. They have no legal personality, and must have both at least one general partner (who is responsible for the management of the limited partnership and who has unlimited liability for the debts of the limited partnership) and one limited partner (whose liability is limited to the amount they have agreed to contribute to the limited partnership but who may not take part in the management of the limited partnership without losing such limited liability). Jersey separate limited partnerships are similar, but are more akin to Scottish limited partnerships in that they have legal personality. Incorporated partnerships (which are bodies corporate) have also recently been introduced.

Jersey limited partnerships are transparent for the purposes of Jersey income tax. Accordingly, non-Jersey resident limited partners of Jersey limited partnerships are assessed for Jersey income tax in their own names. Their liability to Jersey income tax is limited to Jersey-source income. The receipt of any monies in respect of non-Jersey situated assets (such as non-Jersey situated real property) does not constitute Jersey-source income for these purposes.

iii Trust of Jersey real estate

The law of trusts in Jersey is largely based upon the law of England and Wales, but with several important differences. In particular, it is not possible to have a trust of immoveable property in Jersey. The Trusts (Jersey) Law 1984 renders invalid any trust that purports to apply directly to immoveable property situated in Jersey. This does not, however, prevent a Jersey law-governed trust from acquiring and holding shares in a property holding company.

To read this Chapter in full, please click here.

Footnote

1. Jersey statutes, particularly those relating to immoveable property, were traditionally drafted in the French language (being the original official language of the Royal Court and the States of Jersey). Most modern legislation is now drafted in English, save where original French legislation is being amended, or occasionally where legislation relates to the Loi (1880) sur la propriété foncière, which provides the statutory foundation of Jersey property law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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