Condominium and villa investors will have a more affordable, flexible and attractive opportunity to invest in the Turks and Caicos Islands' (TCI) real estate following the enactment of the Fractional Ownership Ordinance. The Ordinance has not yet come into force, but shall do so once a notice has been published in the gazette, to this effect.
The Ordinance allows investors to buy a fractional interest, akin to schemes elsewhere in North America, in a property in the Turks and Caicos Islands; allowing the purchaser a deeded interest in the property as opposed to a simple right to use, which provides a better capital investment for the purchaser and a larger market for the developer.
A timeshare or not a timeshare?
The Ordinance is, importantly, not a wolf in sheep's clothing; it does not simply re-invent the timeshare wheel.
Fractional ownership is distinguished from timeshare by the legal nature of the investment as the purchaser obtains a registered proprietary interest and therefore "owns" the property. The basic premise is that a 1/12 interest (the maximum number of interests under the Ordinance) in a property is much easier to sell than the whole. This, of course, could see an investors' initial capital investment increase in value, in a prosperous market, but also means less risk of serious diminution in value in a subdued market, as the risk is shared amongst the fractional owners.
Why is it needed?
Under existing laws, anyone owing a fractional interest in TCI real estate needed the consent of all co-owners to sell or transfer it. Also, all co-owners were entitled to occupy the property 100% of the time. The new Ordinance solves both problems, as well as creating an effective statutory regime for the governance of rights and duties affecting fractional ownership.
Mechanics – how does it work?
Under the Ordinance, an applicant has to submit for registration, at the Land Registry, the fractional interest scheme in respect to a particular property or properties. This includes a private villa ("a Non-Strata Property") or all or some of the condominiums in a development ("Strata Property"). If the fractional ownership applies to Non-Strata Property then the Ordinance sets out prescribed provisions to deal with: the disposition of a fractional parcel; easements; administration of a fractional parcel and the destruction of the property/parcel. The Strata Titles Ordinance (TCI's condominium law) applies to a parcel that is a Strata Property.
Following the scheme's registration, the fractional interest can be sold, leased, assigned or otherwise transferred provided that written notice is given to the fractional corporation at least 14 days before completion. Following the completion of each sale, the purchaser will receive a land transfer in the usual form, and will pay stamp duty on the consideration paid, in the usual way.
Within 14 days of registration, of the scheme, the developer is to file with the registrar and publish in the Gazette a descriptive statement, which details, amongst others: the developer; the location of the scheme (to include a survey plan of the scheme); a statement of any easements or interests in the land; an explanation to the form of ownership that is being offered; a general description of the scheme and a statement of the usage rights.
Upon the registration of the scheme the proprietors of all the fractional interests become a corporate body. If the scheme applies to a Strata Property, then the fractional corporation is the strata lot proprietor and it shall comply with the obligations set out in the Strata Titles Ordinance. If the scheme is for a Non-Strata Property then the Ordinance sets out the duties of the corporation to include: insuring the property; keeping the property in good repair; the setting up of a sinking fund for common expenses and a regime for the payment of such.
The proprietor holds the interest subject to the fractional interest by-laws (together with any strata by-laws and any restrictive agreements etc.) being in the prescribed form referred to in the Ordinance or such form as the fractional corporation shall resolve to adopt. In practice, developers will, on registration of the scheme, pass their own preferred by-laws (which notably will provide a usage regime, which is absent in the prescribed by-laws), while the developer owns all the fractional interests. The by-laws shall set out: the rights to use the property; obligations of each proprietor; rules for non occupancy; appointment of an executive committee and fractional manager (most likely to be the operator of the resort), whose role is to manage and maintain the property.
In short, this new Ordinance is designed to benefit everyone.
As a buyer, the key benefit is that the scheme increases one's purchasing power to acquire a registered interest in an asset, which might not otherwise be affordable or which would not, readily, be chosen to purchase. Owning that little bit of paradise is now more achievable, for many. There are no limitations on the right to sell and because the investment is smaller than a 100% interest, risk is reduced. Finally, there is the intangible benefit of having the opportunity to meet and know other scheme owners who share similar interests.
For a developer, the target market is significantly expanded, and the profit potential is increased.
For TCI, the law benefits the tourism industry as a whole with increased visiting owners and their guests, who typically spend more per visit than hotel occupying guests.
With this in mind, the impact of the scheme can only be positive.
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.