By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former attorney general is warning that legal reforms intended to combat real estate-related VAT evasion will have “disastrous consequences” for the industry and all related sectors if passed as is.

Sean McWeeney KC, now consultant counsel at Graham, Thompson & Company, in an e-mail analysis seen by Tribune Business sounded the alert that, if proposed changes to the Conveyancing and Law of Property Act are not altered, they threaten to create multiple “title woes and legal controversies” when the Government’s new fiscal year begins on July 1.

Asserting that the present Bill should be “abandoned”, he added that its intent - rendering all real estate transactions closed since July 1, 2022, “void” unless they have been recorded in the Registry of Records - creates numerous unanswered questions such as whether, and how, a “void” conveyance can be “resurrected from the dead” and brought into compliance with the amendment.

Mr McWeeney, acknowledging the Government’s legitimate desire to promptly collect all VAT due on real estate sales, amid the belief that it is losing $100m in revenue per year to avoidance and evasion in this area, argued that the problem could be tackled by reform measures of a much different nature.

Instead of amending the Conveyancing and Law of Property Act’s section 40 to stipulate that  “all conveyances of land, or of any interest therein, are void for the purpose of conveying or creating a legal estate unless made by deed and duly registered”, he suggested it instead focus on reforms to the VAT and Stamp Acts.

Mr McWeeney recommended that a transaction be blocked from closing unless the due VAT is “first collected and held” in an escrow account controlled by either of the attorneys representing the buyer and the seller. These taxes must then be paid within either 30 days of closing, 30 days from the Department of Inland Revenue determining the amount of VAT due, or within 30 days of a court or appeal ruling.

And, in addition, he suggested that the Government finally enforce a provision in the Stamp Act which makes it a criminal offence for attorneys to hold on to taxes generated by real estate sales “for their own benefit rather than paying it over to the Government”. These provisions were also thought to be contained in the VAT Act.  

Mr McWeeney was said not to be in office when Tribune Business attempted to contact him last Thursday prior to Labour Day, and an e-mail sent to his work address seeking further comment was not responded to before press time. A source familiar with the legal profession, and who confirmed they had seen the e-mail, said it was sent to around 100 attorneys just before the four-day holiday weekend.

However, in his analysis he pointed out that the Bill presently before the House of Assembly is clearly retroactive for three years and stipulates that any post-July 1, 2022, conveyance and transaction will be deemed “void” if not registered in the Registry of Records come July 1, 2025.

“No time limit for registration is stipulated, nor is any grace period given, before the conveyance becomes void. On the contrary, as stated above, if a conveyance is unregistered after July 1, it’s void,” Mr McWeeney wrote. 

“Registration will now become a pre-requisite for the validity of a conveyance going forward. Similarly, an unregistered conveyance made in the last three years, although presently valid under the existing law, will automatically become void on July 1 unless it has been registered before that date.....

“It means that your conveyance may be perfectly good and valid right now, on June 5, 2025, but come July 1, when the Bill becomes law, presto! your conveyance - if it hasn’t been registered before then - automatically becomes void.... In real terms, therefore, the only grace period you have is the one you’re in right now which will expire on July 1 when the Bill becomes law.”

The Government’s move is being seen as an attempt to drive purchasers, and their attorneys, to ensure VAT due on real estate acquisitions is paid in a timely manner and in full because they will be unable to register the conveyance - and prevent it from being treated as “void” - without proof they paid the tax.

The reforms have also been backdated, as the Bill mandates that all land and property deals since July 1, 2022, will be treated as “void” and of no effect if the deeds have not been brought forward for recording in the Registry of Records.

Mr McWeeney, though, suggested the Bill and the proposed reforms it contains will unleash multiple unintended consequences for the Bahamian real estate market and its participants, such as attorneys, banks and other lenders, and realtors, it it becomes law on July 1 without any changes.

“If your conveyance is void, can you resurrect it from the dead if you subsequently register it? The Bill is completely silent on this,” he said. “Indeed if your conveyance is void, can the Registry even accept a void document for recording? And, while we’re at it, can Department of Inland Revenue lawfully accept payment of VAT or Stamp duty on a document which the law says is already void?

“More worryingly, if your conveyance is void because you didn’t register it..., who owns the property? Where does the title go? You don’t own it because the Bill says that the conveyance under which you thought you had obtained title is void. If it’s void, it means you have no legal title. So, who owns it?”

Mr McWeeney said this raised questions as to whether the vendor, or seller, still owns the property’s legal title and whether they are free to sell it to someone else or are merely holding it in trust for the purchaser who has already paid the price that was set.

“And what about mortgage lenders? Where are they left in all this? If the borrower had good title when he mortgaged the property to the lender but will have a void title come July 1 because he hasn’t recorded his conveyance, where does that leave the lender and its mortgage?” he asked.

“Surely the mortgage lender’s own title can be no better than the borrower’s. So, if the borrower’s title becomes void, the mortgage lender’s title must, by extension, become void as well, no?... With all these (and other) questions left unanswered by the Bill, it’s clear that it simply hasn’t been thought through properly.

“It should be abandoned. If it isn’t, come July 1, an extraordinarily complex plethora of title woes and legal controversies will be visited upon us with disastrous consequences all round.” Mr McWeeney, though, said alternative solutions were available to the Government.

“Understandably and correctly, the Government is anxious to see to it that VAT or Stamp duty, as the case may be, is paid fully and promptly once the relevant transaction closes,” he acknowledged.

Instead, the former attorney general recommended reforming the VAT Act and Stamp Act “to prohibit the parties from paying over the purchase price for land or a business unless the provisional VAT or Stamp Duty (as the case may be) is first collected and held in an escrow account in the names of the vendor’s or purchaser’s attorneys, or both jointly”.

The tax must then be paid depending on which condition is met last - within 30 days of closing, 30 days from the Department of Inland Revenue determining the amount of VAT due, or within 30 days of a court or appeal ruling.

“It bears emphasis that the purchase price is not to be paid over unless such an escrow account is set up and maintained, and it should be made a criminal offence to knowingly breach this requirement,” Mr McWeeney said, while suggesting that it be accompanied be other reforms.

“Enforce the existing provisions of the Stamp Act, which I believe are now mirrored in the VAT legislation as well, which make it a criminal offence for lawyers etc to hold on to escrowed Stamp Duty for their own benefit rather than paying it over to the Government,” he added. 

“I personally conceived and drafted this, and the related loophole-plugging provisions of the Stamp Act under both prime ministers Ingraham and Christie, so I’m extremely familiar with it but, to my knowledge, this particular provision, long ago enacted, has never been enforced. It should be.”