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.