May 2019 | By Nateisha L. Anderson-Bain
Extinguishment of Purchasers’ Rights – The Importance of Priority in an Unregistered Land System
The Bahamas has an unregistered land system that is based on the conveyancing laws of England and Wales prior to 1925. Therefore, deeds and documents should be recorded in the Registry of Records in The Bahamas (“the Registry”) as soon as possible in order to:
- put the world on notice as to the existence of ownership and interests in the property and
- secure priority against the subsequent recording of any mortgage, charge or agreement in the Registry which can potentially affect title to the property.
Priority becomes particularly important in high net-worth commercial and condominium development transactions. Take, for example, an instance where a developer purchases property to develop a condominium project and records the conveyance in the Registry. During the course of the development, the developer agrees to sell units in the condominium. A number of purchasers enter into agreements for sale with the developer and pay deposits, installments and construction stage payments, but these agreements are not recorded in the Registry.
The developer later enters into a loan agreement with a mortgagee (lender) to assist with the construction, development and completion of the condominium project. The mortgagee lends funds to the developer and in return, the developer mortgages the property to the mortgagee as security. The mortgagee records the mortgage in the Registry subsequent to the existence of the numerous unrecorded purchase agreements mentioned above. The developer then defaults on the mortgage and the mortgagee seeks to exercise its power of sale remedy contained in the mortgage to recover the debt owed.
In an unregistered land system, we must look to priority to determine whose interests are protected.
Section 23 of the Conveyancing and Law of Property Act, 1909 states that a mortgagee exercising the power of sale has the power to convey the mortgaged property free from all interests and rights that the mortgage is in priority to, but subject to all interests and rights which have priority to the mortgage.
Further, section 10 of the Registration of Records Act, 1928 states that any conveyance or mortgage lodged and accepted for recording in the Registry first in time has priority and shall not be defeated or affected by the time or date of the execution of another document.
Extinguishment of Purchasers’ Rights – Are you Protected?
As we know, the mortgagee’s interest is in priority to any and all interests arising after the date of recording of the mortgage. However, it is important to note that the mortgagee’s interest also ranks in priority to, and overreaches, the interests of all of the pre-mortgage purchasers with unrecorded agreements regardless of the execution date of the agreements for sale. The recording date in the Registry governs priority.
This means that pursuant to the Registration of Records Act, the mortgagee may sell the condominium project or units to recover the debt owed to it by the developer without regard to the purchasers or the deposits, installments and stage payments that the purchasers previously paid to the developer. In this instance, the purchasers’ main recourse would be to bring an action against the developer to recover the funds paid.
However, if, in the example above, the purchasers’ agreements were recorded in the Registry prior to the recording of the mortgage, the mortgagee’s exercise of its power of sale remedy would be subject to the purchasers’ interests in the property.
It should also be noted that title and priority may also be affected by:
- unpaid real property taxes which create a first charge on the property in priority to all other encumbrances for so long as they remain due (section 25 of the Real Property Tax Act, 1969);
- actions, orders or judgments entered up in the Supreme Court of The Bahamas (section 63 of the Supreme Court Act, 1996); and
- unpaid home owners association fees (Law of Property and Conveyancing (Condominium) Act, 1965).
Therefore, in the context of a development where there could be financing, we ensure that our clients who are purchasers or mortgagees:
- are made aware of any and all recorded mortgages, agreements, interests, judgments, statutory charges or liens that may affect their interest in the property and
- record their interests in the Registry as soon as practicable for protection and priority purposes.
The Way Forward
It is important that you engage a competent attorney who is able to recognize issues that can potentially affect title and inform you of any risks involved in completing a sale or mortgage of the property. In the event title issues go unnoticed or are not settled or communicated in a timely manner, you could be at risk of losing the property or your deposits and installments paid to the developer. This may require you to engage in litigation and incur expenses in bringing or defending an action.
The Bahamian legislature has circulated a number of Bills with the intent of repealing the current conveyancing laws of The Bahamas in favour of a registered land system. These Bills are presently under review and have not yet been passed into law. If the Bills are eventually passed, it will take some time before all Bahamian land is registered therefore, The Bahamas may not have a fully registered land system for quite some time.
Regardless of whether or not The Bahamas moves from an unregistered to a registered land system, it is recommended that you engage a competent attorney to ensure that:
- the agreement for sale is negotiated in your best interest,
- the conveyance is drafted to ensure the proper transfer of title from one owner to the other,
- title to the property is thoroughly reviewed and approved and all issues affecting title are raised or settled prior to completion, and
- your deeds or documents (specifically, in a development context where the developer may seek financing) are recorded for your protection and in compliance with all applicable Bahamian rules, regulations and laws.
Nateisha Anderson-Bain is an associate in the Real Estate Group in our Nassau office. She specialises in representing purchasers and vendors in buying and selling residential and commercial property, as well as representing mortgagees and mortgagors in secured financing transactions. Her practice extends generally to private client, corporate, commercial, estate planning and residency matters. Some of Nateisha’s most notable transactions in her career to date include assisting with the representation of a secured lender in the sale and transfer of a mixed-use, multi-brand mega resort in New Providence; representing mezzanine secured lenders in a $1.65 billion refinancing transaction of another multi-use mega resort in The Bahamas; and assisting with the representation of the purchasers of a $150 million luxury hotel and resort in The Bahamas. (Read more)