House Approves Business/Real Estate Bill

Mr Speaker, I am pleased to introduce the Companies Amendment Act 2014. This bill proposes a number of important amendments to the Companies Act 1981 that affect the ability of both local and exempt companies to acquire and hold land in Bermuda. The Bill is accompanied by a comprehensive Policy on corporate landholding which was tabled earlier this week.

Mr Speaker, as Honourable Members will recall, Government indicated in the November 2013 Speech from the Throne that the Ministry of Economic Development, working with the Ministry of Home Affairs, would move forward with proposals to improve property market conditions.

Issues with holding, acquiring and conveying land would be clarified and streamlined through amendments to the Companies Act 1981. We are now following through with that commitment.

There are a number of reasons for introducing these amendments and they include:

• 1] To provide, for the first time, a clear and transparent written policy on corporate landholding in an otherwise cloudy area of law, practice and ministerial sanction
• 2] To rectify some problems in the passing of clean title due to lack of, or deficient, ministerial consent being given under Section 120 of the Companies Act
• 3] To stimulate turnover in the real estate market and create jobs in the construction sector, and
• 4] To make Bermuda a more attractive and competitive jurisdiction and to further strengthen the bond that exempt companies and their senior executives have with Bermuda.

Mr Speaker, this Bill specifically addresses the Companies Act provisions relating to corporate land holding. The provisions have been overhauled in order to modernize the law governing corporate landholding and to ensure clarity, transparency and consistency in the application of ministerial sanctions.

At the same time, the Bill seeks to safeguard the longstanding policy of protecting land in Bermuda for Bermudians under the provisions of Part VI of the Bermuda Immigration and Protection Act 1957.

Mr Speaker, I think it may help to briefly set out the law as it currently stands for corporate landholding.

Under the existing Section 120 of the Companies Act, with the previous sanction of the Minister, local companies are able to acquire and hold land that is bona fide required for the purpose of the company.

With the exception of certain existing exempted companies that have been incorporated by a Private Act, exempted companies are currently not able to acquire and hold land fee simple.

In the case of both local and exempted companies; they are only allowed to hold commercial land that is required for their business purpose by way of lease or tenancy agreement. They can lease such land for up to 50 years.

Also, with the consent of the Minister, they can rent or lease land for up to 21 years in order to provide accommodation or recreational facilities for their officers and employees.

Mr Speaker, based on the way the law is currently written, if the principals of a company believe that, at some time, they want the company to hold land; under Section 7[1][g] of the Companies Act, the company is required to set out in its memorandum of association its maximum landholding powers.

For many years, up to approximately the year 2000, the standing practice [although there seems to be no written policy to support this] was that companies would list up to half an acre. The Registrar of Companies would review the memorandum and would accept applications that cited reasonable landholding powers.

When a Company came to the point of actually seeking to acquire land, again, per section 7[1][g] they would then need to submit a full description of the particular parcel of land they proposed to hold. To further complicate the situation, under Section 120 of the Companies Act, the company was required to obtain the Minister’s consent for each and every land acquisition within its maximum landholding powers [accompanied by a full description of the particular parcel of land each and every time].

A further complicating factor is the Section 11 requirement for Company to list their objects in their memorandum of association and the Section120 requirement to list their bona fide purpose in their application for Ministerial consent. These applications have to be assessed and considered without the benefit of an established/formal policy. Subsequently, the processing of applications for consent is, at times, protracted.

Furthermore, the inclusion of the bona fide purpose wording in section 120 and the requirement for a company to set their land holding powers became more confusing and essentially moot in 2006 when the Companies Act was amended to allow companies to have unrestricted objects and the capacity, rights, powers and privileges of a natural person.

Indeed, Mr Speaker, the combination of this requirement and the absence of an established policy appear to have been the root cause of some previously issued and defective ministerial sanctions.

In addition, for unexplained reasons, there appears to have been periods, after the year 2000 when ministerial sanctions under Section 120 were simply not issued, or issued irregularly. All of this has resulted in questions about valid title for some properties.

If this sounds complex and convoluted – that’s because it is – that’s why we are seeking to clarify it by modifying the law, producing a clear policy and providing a mechanism to address inherited problems.

Mr Speaker, there are other problems as well. The Ministry has been advised by the Bermuda Bar Association that several local companies hold property to which they do not hold proper title due to the lacuna between the ministerial consent they hold and their memoranda of association and/or submitted descriptions of their land parcels.

An example would be as follows:

• A company has sufficient landholding powers listed in its Memorandum of Association.
• The company correctly applies for consent and lists the parcels of land it intends to hold.
• The company is granted a Section 120 Consent.
• The company goes about its business. In the ensuing years – the company subdivides the property, changes its boundaries or makes other amendments that mean that their parcel descriptions no longer comply with those that were consented to. The company may well have performed such actions in good faith thinking they were acting within their powers and within the overall limit of their landholding they declared in their Memorandum of Association.

In such a situation, any conveyance or financial transactions entered into by the company, relating to those pieces of land, is questionable with regard to the validity of the title to the land.

This title is now ‘suspect’ because it could be argued that the ministerial consent is null and void due to the fact that it no longer corresponds to the description of land for which the consent was given. This has become a significant problem for certain companies who need to be able to pass on clean title in order to remain commercially viable.

Mr Speaker, the Ministry is aware of at least ten such cases that have been brought to its attention over the last couple of years. There may be many more, as some companies will not realize there is a problem until they attempt to sell their property.

The current Act enables a company to alter its memorandum of association; however Ministerial consent can only take effect from the time of the altered memorandum of association, not retroactively.

In order to rectify such deficiencies and to allow clean title to be conveyed, the Act is being amended to:
a] allow the Minister to give retroactive consent to companies; and
b] repeal the provision in 7[1][g] that requires a memorandum of association to set out the maximum landholding powers of a company and the particular parcel of land that it proposes to acquire

Mr Speaker, in reviewing the act to accommodate the aforementioned rectification, it became apparent that there were other areas of uncertainty and that there was not a clearly articulated, written policy to guide the Minister in his decision making on providing consent.

In seeking an expedient method to progress the amendments, it was determined that landholding by corporate entities should become a restricted business activity.

By making corporate landholding a restricted business activity the amendment removes the confusion about whether landholding is a power or an object that the Company must set out in the Memorandum of Association.

Also, in order for the Minister to give his consent, the Bill requires that he must be satisfied that this restricted business activity is in accordance with the corporate landholding policy. The policy must be approved by the Cabinet and will be published on the Ministry’s website.

Mr Speaker, I wish to make it very clear that our approach toward corporate landholding is one of caution. Our land is a scarce resource. It is precious. We are very careful to balance this fact with the need to stimulate our economy. With this in mind we have crafted the Policy to ensure that restrictions remain on the capacity of companies to acquire and hold land.

The main change between the previous situation and the new Policy is that now local and exempt companies will be allowed to purchase residential property. Let me be clear here.

The residential properties companies will be allowed to purchase are very specific and are the properties that are already available to “restricted persons”.

This restricted person category is a designation that the Department of Immigration uses for foreign nationals or persons who do not possess Bermudian status. Residential properties with an Annual Rental Value, or ARV, of $177,000 and above are the properties available to restricted persons.

There are about 250 high end residential properties in this category, as well as about 420 condos that are similarly designated. The Policy will prevent companies from renting these properties in the market.

The proposed policy changes will also allow, within certain criteria and restrictions, exempt companies to hold commercial property if it is used for the specific purposes of their business. Similar provisions will apply to local businesses. Another change is that companies will now be able to hold mixed use properties. This is where no more than 20% of the property is for residential purposes while the remainder is commercial.

Mr Speaker, to further ensure the best interests of Bermuda are protected, when considering whether to consent to a license, the Minister will have regard to the following factors:

• the economic situation in Bermuda and the pool of available property
• the nature and previous conduct of the company and the persons having an interest in the company whether as directors, shareholders or otherwise
• any advantage or disadvantage to Bermuda and/or Bermudians which may result from the company acquiring and holding residential property; and
• the desirability of retaining in the control of Bermudians the economic resources of Bermuda

Mr Speaker, the Minister will be allowed to impose conditions deemed appropriate. For example, if an exempt company seeks to purchase a building for commercial use, they must declare what it is they intend to use if for. If they say it is for a dry goods warehouse, then the minister can impose the condition that the building must be used for storing dry goods.

If the owner then demolishes the warehouse and builds a restaurant, then the Minister is likely to ask the company to explain themselves.

In order for such conditions to have the force of law, the Minister retains the power to modify or revoke his consent. The company will be given notice of the Minister’s intention, in writing, specifying the grounds on which the Minister proposes to revoke his consent. The company will be afforded the opportunity to make representation to the Minister with regard to the potential revocation.

A non-exhaustive list of conditions is contained in the Policy. As an example; In the case of a private trust company, a Policy condition is that the beneficiaries must be Bermudian and the company must fully comply with the restrictions imposed by the Bermuda Immigration and Protection Act 1957. Further, the company must file a report annually with the Department of Immigration confirming that the beneficiaries are Bermudian.

It is important to note that these proposed revisions to the Companies Act do not impact on the Bermuda Immigration and Protection Act. The decision making of the Minister of Home Affairs with regard to Immigration consent still applies on landholding.

Mr Speaker, this Bill is another example of the initiatives we have introduced to create a more welcoming environment for companies. Strengthening the bond that companies have with the island will encourage them to retain existing jobs in Bermuda and hire new people.

Like the Incentives for Job Makers Act, this Bill is designed to send a clear message that those who create jobs in Bermuda, for Bermudians, are valued members of our social and economic fabric.

Those in senior decision making positions are far more inclined to make a long-term commitment to Bermuda when they feel they are welcomed and valued. We want their jurisdictional decision to be more than just a numbers game. It should also be emotional.

Individuals and companies that truly feel that they are appreciated in Bermuda are also more likely to contribute their financial and human support to charitable causes and our community.

Mr Speaker, the proposed amendments in this Bill are also important for attracting new businesses. Companies who are considering a move to Bermuda look for a barometer. That barometer is the group of existing companies and job makers who are already in Bermuda. If existing stakeholders are not happy, and do not believe they are welcome; it is more difficult to attract new business.

Mr Speaker, we believe that with passage of this Bill, several properties that are currently on the market will be acquired. This will produce revenue for the government via stamp duty. And, most importantly, this will produce jobs in the construction sector. Many of the properties, once acquired, will undergo renovation and redevelopment.

Mr Speaker, I will point out that there are a number of floor amendments that I would like to propose that relate to the Bill. Most of these are for clarification purposes. One is a little more material. I will address these later on in Committee but wanted to point it out up front.

I also would like to advise that, following a question from the Honourable Independent Member, we have made one small modification to the policy as it relates to ministerial consideration on whether to grant permission to an exempted company at the bottom of page 4 of the Policy. This consideration will now apply to both residential and commercial property.

In addition, to avoid ambiguity, we will change the phrase “for accommodation of the company’s employees or corporate hospitality/recreation” currently in the Policy on pages 1, 2 and 4. This will be changed to “to provide accommodation or recreational facilities for its officers and employees” which is the phrase currently used in Section 140 [4][b] and Section 129[1][A][ii] of the Act.

Thank you.

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