Issues regarding enforcement of positive covenants in mixed-use resorts.

A five-star boom

The Turks and Caicos Islands (TCI) have experienced an enormous growth in luxury tourism development in recent years. As the territory has developed, the size and sophistication of resort development has increased significantly. The early days of pioneer stand-alone projects are rapidly disappearing as large scale mixed-use branded five star resorts become the norm. Recent developments include:

  • Amanyara, the first Amanresort opened in the Caribbean, is located on TCI's commercial centre, Providenciales – main elements: hotel and villas.
  • Work is progressing on the prestigious Dellis Cay project which will feature a Mandarin Oriental hotel – main elements: hotel, condominiums, villas and over-water villas
  • A Ritz Carlton resort on West Caicos is near completion – main elements: hotel, condominiums and villas
  • Ambergris Cay, a large-scale private-island retreat, with its own jet-strip – main elements: villas and sporting club

The early resort developments in TCI, primarily on Grace Bay beach on Providenciales, tended to be stand-alone condominium developments which benefited from TCI's flexible, modern and straightforward Strata Titles Ordinance which allowed for the vertical subdivision of real estate. In recent years, as projects have expanded in size, scope and sophistication, resorts have become more mixed-use, featuring hotels, condominiums, villas (standing on their own land parcel), and over-water villas. Several of the developments currently underway include a variety of other large scale amenities such as golf courses, marinas and beach clubs. The demands that this increased sophistication imposes on the resorts' TCI lawyers are significant, but hardly unique.

The "legal glue" problem

A major concern of any sensible of any developer of expensive mixed-use resorts is the enforcement of ownership restrictive covenants, the legal glue that binds such developments together. When projects in TCI were stand-alone condominium resorts, there was little problem: the Strata Titles Ordinance provides an excellent legal framework for the governance of such developments. However once other components (such as villas) were introduced, matters became more complicated, due to a legal problem common in many common law jurisdictions in the English-speaking Caribbean and elsewhere.

At common law, only covenants which are negative in nature are said to "run with the land" and bind successors in title to the original villa owner. For example, a covenant which obliges a villa owner to refrain from doing something is enforceable as a negative covenant, both against that villa owner and against any buyers from that villa owner (assuming that the covenant concerned is registered on title). However positive covenants (an obligation to do something rather than to refrain from doing something) do not run with the land and, whether registered on title or not, do not bind the original villa buyer's successors in title. This poses a major problem for large mixed-use developments where many covenants are positive (such as covenants to pay annual owners' association or club dues and covenants releasing the branded hotel operator from liability in relation to representations regarding return on investment or rental income, breach of US securities laws in that regard, and so on). If a buyer from the developer's original client can ignore positive covenants, the resort may come unstuck, as enforcement of covenants against delinquent owners becomes spotty.

The TCI solution

In TCI, the problem has been resolved as follows:-

  1. By TCI law, all condominium units in a development must be the subject of a strata plan. The positive covenants can be laid out in those bylaws and will therefore bind both initial buyers and their successors in title under the Strata Titles Ordinance. Enforcement is by the relevant strata corporation (the homeowners' association for that condominium development).
  2. In the case of villas, negative covenants set out in the duly-registered restrictive covenant affecting a villa owner's parcel will bind that villa owner and his successors in title will be similarly bound.
  3. However, whilst positive covenants will bind the original purchaser from the developer (as a matter of contract), they will not bind that villa owner's successors in title unless additional steps are taken.
  4. It is possible by means of a restriction1, to impose a prohibition on disposal of the villa concerned without the consent of the applicable homeowners' association or HOA (which the developer will usually control). It will be specifically stated that such consent may be refused where the villa owner concerned is not compliant with the restrictive covenant and where the new buyer does not himself sign a restrictive covenant in identical terms with the developer or its successors (thereby imposing a new and enforceable contractual obligation on that new buyer).
  5. Inherent in this arrangement is a requirement that villa owners must be members of the villa owners' HOA. The HOA will typically be a company limited by guarantee, the articles of association (bylaws) of which will require, amongst other matters, compliance with the all covenants, positive and negative. An owner who is not compliant will not be in good standing and the HOA will have no obligation to consent to a sale or disposal by him of his villa unless and until he cures his various defaults.
  6. The articles of association of a company constitute a contract between each member and the company, and therefore that HOA will be empowered to enforce its bylaws against its members.

In this way it is possible:

  1. To preclude a transfer of any villa parcel to someone who is not approved by the HOA;
  2. To require each villa owner as a matter of contract arising out of the restrictive covenant to abide by all of the covenants, including positive ones;
  3. To oblige each purchaser from an existing villa owner to sign up to a new restrictive covenant in identical terms, thereby creating privity of contract between him and the developer/HOA in relation to positive covenants; and
  4. To require each villa lot owner, as a precondition of ownership, to be a member of the HOA, the bylaws of which will require compliance with the all covenants, including positive ones.


1. It's important to distinguish between a restriction and a restrictive covenant. Restrictive covenants limit how an owner can use his villa. Restrictions limit how he can deal with his villa.

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.