The end of Share Transfer?
Many people who own their house or apartment through a share transfer process will have been concerned to read of a recent Ministerial decision to bring an end to share transfer flats. The media headlines were perhaps a little inaccurate. The following will help put people's minds at rest:
What is a share transfer property?
In Jersey there is a principle in property law that if somebody owns land, they own all that is above and all that is below that land. Until the 1990's it was only possible to create boundaries “vertically.” To create a horizontal boundary between apartments on different floors could not be achieved as a matter of law.
In the 1960's as apartments became more common in Jersey lawyers got around this problem by putting the whole block of flats in the ownership of a company. The shares in the company were then divided into blocks, with each block of shares giving a right to occupy an individual flat, as well as a right to come and go across the common parts of that building. The company's Articles (the rules and regulations by which the company is operated) also obliged shareholders to contribute to the overall maintenance and upkeep of the whole block. The shares in the company could then be transferred from owner to owner giving rights of occupation, hence the shorthand “share transfer flat.”
What is a flying freehold flat?
In the early 1990's the law was finally changed to provide that horizontal boundaries between properties could be created. The 1991 law on the co-ownership of property provided that a block of flats could be divided into “lots” by the registration of a Declaration in the Public Registry. That Declaration, in a similar way to the Articles of a company in a share transfer situation, set out a description of the lot, the rights to enjoy the common areas of the block, as well as a duty to contribute to the overall upkeep. Flats sold in this way became known as “flying freehold.”
What is the difference between the two?
After the 1991 law on co-ownership of property came into force, many flats continued to be sold by way of share transfer, despite the opportunity for a flying freehold ownership. There were various reasons for that. Firstly there were many share transfer properties already set up in companies and the cost of converting to a flying freehold arrangement served no particular advantage. The costs of transfer to the new system were relatively substantial.
Importantly however share transfer flats could be sold to people who did not have residential qualifications. Investors without residential qualifications could buy flats, albeit they could never occupy them. They were however able to let them out to people with suitable residential qualifications. Developers building new flats considered the opportunity to increase their potential market and tended to prefer a share transfer arrangement.
Equally several years ago the Population Minister decided that it would not be permissible to buy an individual residential unit, either a house or flat, in the name of a company. Investors were therefore prevented under the Control of Housing & Work Law from purchasing a single unit in a company. Because share transfer sales related to the sale of shares in a company rather than the freehold of a house or the flying freehold of a flat which needed the Population Minister's consent the shares relating to the flat could be purchased in the name of a company. Again this was a temptation to investors as it assisted in administration and tax implications to have their investment apartments owned by a company.
Why has the Minister now changed the policy?
The Minister considers that the ability of people who are not residentially qualified to purchase share transfer property is contributing to the current high prices and rapid
inflation within the housing market. He wants to prevent
non-qualified investors buying up share transfer properties and
ensure that the properties are only available to those who are able
to occupy them.
What does the new Ministerial decision mean?
With effect from 24th December 2021 whenever a developer applies to purchase a property either with an existing block of flats or on which to develop flats in the future, the Population Ministers Consent issued to permit the purchase in the name of a company will contain a condition. That condition will say that at the end of the refurbishment or development of the flats all units have to be sold out of the company. In effect the only way that that can be done will be by way of a flying freehold sale. Developers will therefore need to register a Declaration of Co-Ownership describing the flat and rights and duties which attach to it and buyers will buy a share in the freehold of the underlying property in that way.
Importantly however it does not mean that existing share transfer properties have become illegal overnight. Consents to purchase issued to companies prior to the 24th December 2021 remain valid and legal. Those share transfer companies which existed prior to the recent Ministerial decision can remain in operation as before. There is no material impact on the underlying value of the property. Indeed it is arguable that the historic share transfer status is advantageous because the flats can continue to be sold to non-qualified investors or held in investment companies as before. New apartments will not have that advantage.
There will be many buyers who have signed up in the last year or so to buy an apartment “off-plan” who are waiting to complete a formal share transfer purchase once the apartment is built. There are numerous sites around the Island which are being developed in that way. All of those developments would have received their Housing consent prior to 24th December 2021 and the new condition that the Minister proposes cannot be applied retrospectively to those developments. If you have signed up to buy off-plan and all Housing consents have been received prior to 24th December 2021, then you will still be able to proceed with your share transfer purchase.
I hope this provides a little more clarity than the somewhat succinct media reports upon the Ministerial decision that has been published. Of course individual circumstances may vary and if you are concerned as to the status of your existing share transfer property, or a property that you have agreed to purchase, then you should take legal advice.
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.