Founding principles

Bermuda’s real estate law is derived from local legislation and case law. Case law is often derived from English common law (prior to the codification of the same in 1925).

Primary legislation

• Conveyancing Act 1983;
• Bermuda Immigration and Protection Act 1956, and accompanying regulations;
• Land Title Registration Act 2011;
• Stamp Duties Act 1976;
• Condominium Act 1986;
• Companies Act 1981;
• Landlord and Tenant Act 1974;
• Limitation Act 1984;
• Rent Increases (Domestic Premises) Control Act 1978;
• Development and Planning Act 1974; and
• Bermuda Constitution Order 1968.

Sources

Much of this core legislation is amended from time to time, and consolidated versions of the same are available at Bermuda Laws Online: www.bermudalaws.bm

Trends in tourism

We have noted an increased interest in tourism-linked products, with hotel condominiums such as Azura completing its final three phases of development and selling out during the height of the COVID-19 pandemic.

Legislative trends

We have also noted an increasing willingness on the part of the Bermuda Government to foster international investor links to Bermuda via property holdings, as shown by the Economic Investment Residential Certificate Policy, which will be effective from 31 March 2023 for those willing to invest a minimum of BMD2.5 million in a range of qualifying investments (including real property), giving rise to residency and business opportunities.

Impact of pandemic

Demand for property, in particular within the luxury market, grew over the pandemic, as owners have sized-up to welcome back adult children and to facilitate working from home. This has resulted in a lack of sales inventory in that market. Bermuda was also seen as a safe haven, with many overseas buyers choosing to leave US cities and be based here with easy access to Bermuda’s private air terminal.

Whilst the Bermuda Government is keen to keep up with technological advances, such as digital and fintech, these are not anticipated to have a significant effect over the next 12 months.

Property transactions are generally conducted in an old-school manner, involving wet ink signatures and overseas notaries. The level of AML monitoring for real estate is very high.

Bermuda’s electronic Land Title Registry Office (“LTRO”) became operational in August 2018. This system does not yet capture all real estate, as only certain transactions trigger compulsory first registration. Other transactions may be registered in the Office of the Registrar-General, which is also now maintained by the LTRO, but are recorded by reference to the parties’ names (akin to a land charges register in England and Wales).

Bermuda’s planning and immigration regulations are constantly developing. The Premier and the Minister responsible for immigration matters wish to welcome many thousands of new residents, to counteract an ageing population and low birth rate, and are actively fostering schemes that encourage international investment.

Due to Bermuda’s limited size and scope to expand by land reclamation, city living in higher residential apartment blocks will be promoted.

Classes of title

Title to real property can be held freehold (fee simple) or leasehold.

Fee simple fractional ownership exists in some of the high-end resort properties favoured by second homeowners. Timeshare is technically available but no longer relevant.

Condominium living

Apartments and town homes are generally sold on 999-year leases and include shares in the condominium corporation that owns the freehold reversion. Whilst freehold condominiums can be created, they are rare outside of Government-sponsored schemes only available to Bermudians.

Operative law

Transfer of unregistered land is governed by the Conveyancing Act 1983. Transfer of registered land is governed by the Land Title Registration Act 2011.

Governmental approvals are required for the acquisition of real property by non-Bermudians and companies, under the Bermuda Immigration and Protection Act 1954 and the Companies Act 1981 respectively.

Restrictions on landholding

Companies require landholding powers in order to acquire land (other than for business purposes on leases not exceeding 50 years). Such consents are typically granted where there is a valid business case and/or other benefit to Bermuda.

Whilst such rules typically apply to all user types, international investment is welcomed in the tourism sector and licences are expedited.

Requirements

Transfer of legal title in land must be effected by deed in writing, executed by the parties to be charged. Deeds signed overseas must be notarised.

Registration

Compulsory first registration is currently triggered by:

• a conveyance or lease for valuable consideration;
• a conveyance or lease pursuant to court order; and
• a first legal mortgage.

Once registered, any dealings are recorded by forms created by the LTRO.

Title warranty

Whilst there is no title insurance in Bermuda, title is effectively guaranteed by the LTRO upon completion of any registration with an “absolute” title designation. A “provisional” title designation denotes potential issues that are not warranted, such as missing deeds or a possessory title not perfected by court declaration (such titles can be upgraded over time).

Attorney liability

Applications to register conveyances on sale by the LTRO are submitted with an opinion signed by the purchaser’s lawyer that the title is good and marketable. The Bermuda Bar Council recommends a minimum scale of charges that vary with price, to reflect the law firm’s liability under such opinion. All law firms are regulated and those that hold client funds must have indemnity insurance, based on the number of attorneys engaged.

Impact of pandemic

Closings of real estate acquisitions were delayed during the pandemic, due to the requirement that deeds be signed in person in Bermuda or before a notary public. In addition, many Government registries require personal attendance and access was very limited during two periods of mandatory ‘work from home’.

Whilst the Land Title Registration Act 2011 contemplates electronic conveyancing of registered land, these provisions are not yet in force.

Buyer beware

Caveat emptor applies. Buyers will typically carry out a structural survey via a registered surveyor. If there are red flags, additional reports are sought (eg, signs of termite damage).

Risk

Risk passes at actual completion and it is rare for warranties to survive completion, unless expressly stated.

Statutory covenants for further assurance apply but vary according to the capacity of the seller (beneficial owners owe higher duties than estate representatives).

Most standard sales contracts exclude liability for anything not included in that agreement.

Searches

The purchaser’s attorneys carry out the following checks (between exchange of contracts and completion) to ensure that title is good and marketable:

• reviewing the physical deeds, which must show a good root of title dating back at least 20 years;
• conducting judgment, registry general searches and LTRO searches (to ensure no mortgages or registered monetary judgments exist);
• verifying the ‘Norwood Map’ to ensure no cautions against first registration exist;
• submitting planning searches to ensure the property is not subject to enforcement action; and
• reviewing any leases or other disclosed encumbrances.

Boundary surveys

It is market standard for the seller to carry out a boundary survey at his or her expense and produce a land surveyor’s report confirming no irregularities or encroachments. The survey remains important, as the land title registration confirms indicative boundaries only.

Risk on commercial sales

It is typical for caveat emptor to apply in the commercial field also. Matters that are discoverable by survey or inspection are rarely, if ever, warranted.

Defects liability

Property developers will often hold buyers harmless against defects for a relatively short period (typically six months to two years).

Warranties

Warranties are common where landholding companies are sold by way of amalgamation or merger (with the resulting company inheriting liabilities of the target), but wide disclosures of matters provided to the buyer and discoverable by search or inspection tend to apply.

Misrepresentation

Bermuda’s General Conditions of Sale state that the sales agreement contains the entire agreement and there can be no reliance on matters discussed outside that document, unless recorded in clear correspondence between attorneys.

Where a term is ambiguous it is construed against the draftsperson and parole evidence of intent is allowed.

Buyers should engage an experienced property specialist attorney who has access to corporate, immigration and litigation support. They should ensure that all preconditions are satisfied in timely manner and that deadlines to rescind for failure to satisfy conditions are strictly observed. They should pre-consult with planners and any lender, and must bear in mind that everything is slower on an island where shipping delays can impact timelines and increase costs significantly.

Legally speaking, the successor owner is not liable for their predecessor’s contamination but practically speaking may need to remediate for health and asset protection reasons. If contamination emanates from other land, an action in tort under Rylands v Fletcher may be feasible against the negligent neighbour.

Zoning

The Bermuda zoning maps (Bermuda Planning Map Viewer) together with the Bermuda Plan Planning Statement 2018 (available at www.planning.gov.bm) form a comprehensive guide to development in Bermuda.

The city

Different rules apply to the City of Hamilton, which has its own development plan policies aimed at encouraging a vibrant capital.

Planning access

Planning files are publicly available, except in limited circumstances. There is an active ‘customer self-service’ portal which makes the progress of any planning matter easy to review.

Requirement for planning

Most ‘development’ of land requires planning permission and a detailed building permit. Minor works may be approved under a General Development Order and so only require a building permit.

Planning breaches

Breach of planning law is considered a serious offence, triggering a need for retroactive planning approval in all cases. Unless extenuating circumstances apply, the retroactive application will be automatically refused and an appeal to the Minister is required.

Enforcement

Work that is not approved and/or not completed to Building Code is subject to enforcement action (this may include demolition).

Oversight

As Bermuda sits in the Gulf Stream and within a hurricane corridor, Building Codes are rigorous and traditional materials encouraged (concrete block and slate roofs). Dozens of inspections are carried out during a typical build and fire, health, electrical and building inspectors must all sign off before a certificate of use and occupancy is issued.

Conditional agreement

Where a purchaser is considering seeking a discretionary vs. a permitted use per Bermuda Plan policies for the zoning or an ‘in principle’ approval for development, the parties often contract to make an acquisition subject to planning consent being granted within an agreed period.

Subdivision

Bermuda maintains minimum lot sizes and neighbour setbacks via a system called subdivision. Subdivision is based on the laws of Ontario, Canada.

Only a lawful lot of subdivision may be conveyed, mortgaged or leased for more than 21 years. There are exceptions to the general rules for land that is part of a building with no external land (eg, apartments) and land that was in ‘separate title’ when subdivision was introduced in the 1970s.

A purported subdivision in breach of these rules is void but may be regularised if the relevant approval is secured at a later date.

Concessions

As tourism is one of the largest contributors to Bermuda’s gross domestic product, Government is keen to support development within this industry and has offered hotel/tourism concessions for many projects. Such concessions may include a waiver of duty on construction materials, suspension of land tax and hotel occupancy tax and a 0% licence fee where non-Bermudian purchasers commit to put a portion of their unit into hotel inventory. Applications to develop resort properties are sympathetically received.       

Compulsory purchase

The Government is empowered to compulsorily purchase land pursuant to the Acquisition of Land Act 1970. However exercise of such power is rare and typically only utilised where land is required to improve road safety. Even where there is demonstrable public benefit, most acquisitions are consensual.

Remedies

Rights of compensation and appeal apply. The Bermuda Constitution expressly protects real property rights.

Transfer taxes

Stamp duty is payable on the vast majority of transactions. Ad valorem duty is payable on a sliding scale on land purchases and gifts.

Conveyances

Stamp duty (effectively a document tax) is payable on transfers of land for valuable consideration at the following rates (effective 1 April 2023) and typically split between the buyer and seller:

• 2.10% on the first BMD100,000;
• 3.15% on the next BMD400,000;
• 4.2% on the next BMD500,000;
• 6.30% on the next BMD500,000; and
• 7.35% thereafter.

Gifts

Stamp duty on transfers of land by way of gift (inter vivos) to individuals are payable at the rates noted above.

Voluntary transfers to trusts attract stamp duty at the following higher (death) rates:

• where the property is the first addition to trust the first BMD50,000 attracts nil stamp duty;
• 5% on the next BMD150,000;
• 10% on the next BMD800,000; and
• 15% thereafter.

Grant of a new lease

Stamp duty is payable at a rate of 1.05% of the aggregate rent for the first three years and 0.05% on the aggregate rent for any additional period. Stamp duty is typically split between landlord and tenant.

Mortgages

Stamp duty is habitually payable by the borrower at the following rates:

• 0.25% where the sum secured is BMD400,000 or less; and
• 0.5% where the sum secured is more than BMD400,000.

Exemptions

There are stamp duty exemptions for Bermudian first-time home buyers, provided certain criteria are met. With effect from 1 April 2023, this exemption will apply to the first BMD1 million of consideration.

Corporate structures

Sales of shares in local landholding companies attract duty at conveyance rates, but acquisitions by merger or amalgamation attract only nominal duty.

Generally

Foreign investors will require governmental consents to acquire or take security over Bermuda real estate.

Individuals

A non-Bermudian individual wishing to acquire property must obtain a licence to acquire land from the Minister responsible for immigration matters. Application is via a prescribed form and requires financial and personal references. A non-refundable application fee is payable at submission, and an additional licence fee is payable upon grant of the licence.

Limitations

Property must be ‘made available’ to Bermudians who are willing to pay an equivalent value. Non-Bermudians may not buy raw land (unless building a hotel residence, within a licensed hotel scheme).

Licence fees

The licence fee is based on a percentage of the purchase price, dependent upon the nature of the property and the status of the applicant. For example, purchase of a freehold property attracts a fee of 12.5%, whereas the leasehold condominium fee is 8%. Hotel residences attract a fee of 6.5%, unless the buyer opts to include one key in the hotel inventory, when it is reduced to 0%.

Budget increases

The 2023 Budget announced a 5% increase in immigration fees with effect from 1 April 2023. As of writing, Government has not announced any amendments to the landholding charges payable on issuance of the final licence.

Corporate ownership

Non-Bermudians generally cannot hold residential land in an LLC or trust.

A corporate investor beneficially owned/controlled by non-Bermudians requires further corporate approvals. These may include a licence to do business in Bermuda and/or to take mortgage security. A company where 40% or less of the share capital is foreign owned is deemed to be locally owned.

Local lending

Local acquisitions are most commonly funded by a Bermuda licensed bank. It is relatively rare for an overseas bank to lend funds on the security of a Bermuda asset (save as regards a large hotel project).

Typical lender limits

Local banks tend to limit lines of credit to 50% of the loan to value on raw land and 65% of the project costs as construction progresses. They also require cost overrun guarantees.

Full recourse loans

Mortgages are “full recourse”, and where a borrower enjoys limited liability (eg, a company or trust), the bank will often require personal guarantees for the full amount of the borrowing.

Security

Commercial real estate is commonly secured by way of legal charge or mortgage debenture. Local banks may also require shareholders’ guarantees, an assignment or charge over shares and the assignment of any rental income.

Registration

Legal charges/mortgage debentures will trigger first registration of the property with the LTRO, and the latter should also be recorded with the Registrar of Companies. Whilst failure to register the security does not render the security invalid vis-à-vis the borrower, it impacts priority.

Foreign lenders

There are special rules that apply if a foreign lender wishes to hold a mortgage over real property in Bermuda, including obtaining the prior consent of the Minister of Finance and the Minister responsible for immigration matters. 

Enforcement

If such a mortgage is subsequently enforced, any land obtained by a mortgagee in possession must be sold within five years either to a person or entity having Bermudian status or to another licensed party.

Restrictions on repayments

Generally, there are no restrictions on repayments being made to a foreign lender under a security document or loan agreement.

Fees and taxes

Stamp duty is payable on the mortgage/debenture – see 2.10 Taxes Applicable to a Transaction.

Exemptions

Most assignments of mortgages and similar transactions for the purpose of refinancing are exempt (as of 1 April 2023, this will apply up to a maximum value of BMD1 million).

Registration fees

Any first legal mortgage triggers first registration at the LTRO. Fees are based on the market value of the property and banded, with the highest band being for properties valued over BMD1 million and attracting a fee of BMD1,300.

Generally, a Bermuda company may grant a security interest over real estate in order to secure its obligations as a borrower under a credit facility and as a guarantor of the obligations of other borrowers/guarantors, provided there is a demonstrable corporate benefit to the company (which may be in the form of a benefit to the company group, if applicable) and the company is solvent.

There is no general prohibition or restriction on financial assistance, but loans to directors or security in favour of directors (or loans to persons connected to a director) are restricted.

Court order

A lender with the right to exercise a power of sale may require a court order to effectively foreclose (eg, if the right is disputed or possession is required).

Lender duties

A lender who forecloses must secure the best realisable sales price and account to the borrower for the surplus. Many corporate insolvencies lead to receivership vs. the exercise of the power of sale, to allow for additional time and flexibility.

Priority

The priority of legal charges is determined by registration at the LTRO. Court judgments may take priority over mortgages if correctly registered in a way that creates constructive notice to the lender before the charge is executed/registered. Such judgments would, however, be discoverable by searches at the LTRO. Dealings that lead to first registration enjoy priority from the time of submission (assuming no registered liens). First registrations are backdated to submission once the registration is finalised.

Cautions

Owners and claimants may register a caution against first registration (for example, if they claim an equitable interest under a resulting trust).

Priority of charges

Debt secured by a registered legal charge will rank in priority to any subsequently registered legal charge.

Subordination by agreement

Lenders can agree a different priority as between them, but this is rare. If there is ample equity, lenders may agree that their debts will rank pari passu. Most Bermuda banks will not allow the borrower to grant a second mortgage, as they fear the loss of control this would bring.

The lender’s position is the same as a successor’s - see 2.7 Soil Pollution or Environmental Contamination.       

Moratoriums

Moratoriums do not apply to the enforcement of collateral security, as secured parties generally operate outside of Bermuda’s bankruptcy regime.

Insolvency proceedings

Insolvency proceedings may affect the ability of a secured lender to enforce its rights, as underlying transactions may be attacked. For example, any conveyance or other disposition of property (including the creation of a security interest) made by or against a Bermuda company within six months prior to the commencement of its winding up will be invalid if it was made with the intent to fraudulently prefer one or more of such company’s creditors at a time when the company was unable to pay its debts as they became due.

Interest rates on most local loans are calculated by reference to each bank’s base lending rate. They are variable, in that the bank maintains discretion to change the base rate and give notice to the borrower, who may refinance elsewhere but cannot deny the increase. Higher base rates tend to apply to commercial loans. LIBOR-linked loans were historically rare and became very unpopular when LIBOR fell to historic lows. US dollar loans are linked to the lender’s own USD base rate. These tend to be set on a par with Bermuda dollar base rates for residential or commercial loans.

Bermuda’s laws and controls tend to apply across the board, although the City of Hamilton and the Corporation of St George have conduct of municipal planning policies, which tend to be more flexible on matters such as density, setbacks and building heights. See also 2.8 Permitted Uses of Real Estate Under Zoning or Planning Law.

Stringent regulation

Bermuda has stringent building controls. The Bermuda Plan Planning Statement 2018 and the Building Codes contain very detailed provisions.

Presumption in favour of development

Whilst there is a general presumption in favour of development in residential and commercial zones, the opposite applies in conservation zones, including woodland, agricultural and coastal reserves.

Bermuda design

The Bermuda Plan policies favour Bermuda design features, and development tends to be limited to one or two storeys (outside of municipalities and hotel resorts).

Grandfathering

Fire and electrical codes are updated frequently. Whilst older plant and conduit is grandfathered, if it was to code when installed, any modifications will require retrofitting to current code. Roofs are generally designed to be a water catch for rainwater, and most properties are tank fed with some well or piped water back-up. There is no mains water per se.

Supervisory and DAB

The Department of Planning governs the parishes, and the Corporation of Hamilton is the planning authority for the City of Hamilton. These entities establish planning policy and ensure compliance with broad concepts of approval. The planners make recommendations to a development applications board (DAB) of appointees who largely follow the direction offered. Building Control approves detailed drawings, to ensure code compliance on approved developments.

Third party input

Other departments may be asked to consult, for example:

• Estates, if a new foreshore encroachment is sought;
• Environment and Natural Resources (DENR), for regulated plant or approval of a Conservation Management Plan on woodland/nature reserve or if a cave is suspected; and
• the Heritage Officer, where a building is listed.

Major projects

All major projects require planning approval. Some may require public consultation.

Advertising and notice

The proposal is advertised online at the Official Gazette and prominent signage displayed on site.

Objections

Organisations such as the Bermuda National Trust and Audubon Society monitor these advertisements and tend to object to development on conservation land. In addition, private individuals may lodge an objection within a 21-day period. Objections give the objector standing – the right to know the decision and, if aggrieved, the right to appeal.

Supportable objections

Most objections are lodged on emotive grounds and are insupportable (eg, there is no right to a view, absent a restrictive covenant or easement). Only planning objections made on true planning grounds are supported.

Process

If the planner cannot support the application, he or she will give the applicant the option to withdraw or amend, or take the application to the DAB with the planner’s recommendation to refuse. The DAB is unlikely to ignore the recommendation, but the applicant may feel he or she has better prospects on appeal.

Delay

If an application is not determined within six months, it may be appealed as a deemed refusal.

Time limit to appeal

The applicant may appeal a refusal or unsatisfactory condition within 21 days.

Determination

The appeal is lodged with the Minister for the Environment with detailed grounds in support. The applicant can ask the Minister to personally determine the appeal or that it awaits determination by the independent planning inspector (who visits frequently from the UK). The Minister may support or overrule the inspector, but the latter is relatively rare.

Timing

Appeals may take up to one year. This is especially true of an appeal of a retroactive refusal.

Refusal of appeal

The appellant may challenge the Minister’s decision by seeking judicial review on the grounds that it is irrational. The courts may then quash and substitute their own decision or refer the matter back to the Minister for determination.

Negotiation

The planners will advise how they might support the application in their report to the DAB. This may involve requesting changes, eg, suitable height restrictions, setbacks, etc.

Zoning changes

Technically land can only be rezoned on the periodic island-wide rezoning (when new maps are issued), and appeal rights via a Tribunal apply. It may be possible to offer a ‘zoning swap’ in advance of this so that protected land (eg, woodland) is released and traded for development land that is better suited to conservation (some betterment is needed, eg, a trade ratio of 1 acre:1.4 or 1.6 acres is not uncommon).

Discretion

The planners and DENR may support limited development on conservation land if the applicant dedicates other land to remain as protected land indefinitely, via a Section 34 agreement.

Reporting

Any member of the public may report a breach anonymously, or breaches may be flagged on inspection. The Enforcement Officer will then investigate and can issue an enforcement notice. The Director of Planning can also issue a ‘stop work’ order during construction.

Practical concerns

As most new development cannot be occupied without final inspections and there are many interim inspections, breaches are often flagged early in any build and can be remedied. The penal nature of the system regarding retroactive approvals (and fines and penalties that may be levied) mean that it is never a good idea to proceed with unauthorised work and ask forgiveness. Revisions are normally addressed quickly.

Real estate is commonly owned by individuals, trustees/a trust corporation or (in the case of commercial property) a company/corporation.

Individuals

Individuals act as both legal and beneficial owners. Joint owners may own as joint tenants (survivorship applies) or tenants in common (interests are divisible and pass via the estate of the deceased). Individual ownership offers the most control. There are no limits on the number of co-owners.

Death duties

Stamp duty is paid on the affidavit filed to secure a grant of probate. It applies to the value of all Bermuda assets less accumulated Bermuda liabilities. Exemptions and exclusions apply.

Trusts

Trusts are typically used where owners are older, in order to avoid death taxes or because the owner holds other land and typical exemptions are spoken for. They also offer asset protection against personal liability. Landholding trusts may exist for 100 years. Appointments from trust to a beneficiary attract only nominal stamp duty and hence trusts are easily dissolved.

Number of trustees

Landholding trusts typically have two individual trustees or a single trust corporation, acting as trustee on the terms of a written settlement. Fully licensed trust corporations are able to hold land as trustee without landholding sanctions and can move quickly when compared to companies.

Companies

Companies need landholding powers for most land acquisitions, and this typically takes six to 12 weeks to secure. In addition, the landholding consent when issued will contain conditions and require the company to dispose of the land within three years if the business justification relied upon in the application ceases to apply. Such conditions do not apply to trusts. Companies tend to be useful when there are a mixture of unrelated shareholders who need a set framework to govern relations, and trusts (which involve a certain amount of discretion) are less suitable.

Companies must file annual returns and pay annual government fees and can be struck off for non-compliance.

Corporations

Condominium corporations are formed under statute (when a suitable plan is registered with the Bermuda Government under a specialised process). They are relatively rare, and statutory rules apply which are inflexible. Most condominiums are formed with a company holding the freehold and main structure, and the unit buyers holding 999-year leases of an “internal shell”.

The minimum capital requirement at incorporation could be as little as BMD1. It is generally set at a number that reflects the likely number of shareholders, so that the capital can be easily divided without the need to reduce or increase.

Non-Bermudian individuals must observe land licensing rules. An applicant for a land licence must show that they are fit and proper persons, and compliance checks and references are taken.

Private trustees are fiduciaries for the beneficiaries but not subject to formal oversight.

Trust corporations are also fiduciaries and heavily regulated, and may be audited by the Bermuda Monetary Authority.

Companies must remain in good standing, and accounting practices are subject to audit (eg, payment of payroll taxes).

Compliance

Disclosure notices may be served on all persons suspected of “fronting” (see 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Amount of Time), including service providers and attorneys (such notices suspend attorney/client privilege). The Bar’s AML-ATF regulations also contain reporting requirements for suspicious transactions and prevent tipping off.

A trust corporation normally charges a flat fee (with variance for extra time spent) or a fee based on a percentage of assets managed. The trustee will often provide trust accounting. Trustee fees tend to be a minimum of BMD5,000 annually.

A company is generally administered by a licensed service provider, and annual running costs typically exceed BMD3,000. A private company may waive audit provided all shareholders agree.

Individual trustees are most often (Bermudian) friends and family, and act without remuneration.

Conditional agreement

Typically parties will enter into an agreement to purchase or rent and may agree temporary rights of occupation whilst formalities are addressed.

Fronting

Heavy penalties (including BMD1 million fines and prison terms) apply where a person is found to be fronting for a foreign national (fronting is assuming the rights of an owner without securing the required licence). Hence it is important that any temporary arrangements do not exceed the term that might have been allowed without licence, and further, that a foreign investor does not secure the ability to profit from an unlicensed activity, should the relevant licence to do business in Bermuda not be received.

If in doubt, the Department of Immigration may be consulted, and licences in principle are sought in some cases.

Commercial leases

There is no typical commercial lease. A landlord of a multi-unit building may have a preferred form. Standalone leases tend to vary according to the law firm drafting the same.

Condominium leases

These are often very similar in appearance. They will include a landlord covenant to ensure the same core terms are imposed in all future grants for the relevant estate.

Residential leases

These tend to be prepared informally, by the landlord or his or her rental agent.

Commercial rents

There are no limitations on the recovery of commercial rents, including due to the impact of a pandemic.

Residential rents

The same can be said of residential premises, except those that are subject to rent control.

Rent control

Where rent control applies, the rent cannot be increased above the ‘lawful rent’ except with the consent of the Rent Commissioner. There are limited circumstances where a tenant may agree an increase but he or she cannot be a new/incoming tenant. Should a landlord charge in excess of a lawful rent, the tenant may recover the excess for a period not exceeding two years and a landlord may not recover possession whilst sums are owed.

Typical length

Most commercial leases of new buildings (Grade A space typically rented to international business enterprises and their service providers) are for terms of five, ten or 15 years. Often such leases will include contractual rights of renewal (contingent upon advance notice, strict compliance with covenants and a rent review). Other commercial leases tend to be for a minimum term of two years.

Limitations on length of term

Companies may rent property for business purposes for up to 50 years. Longer leases and leases for non-business uses (eg, to house employees) require Government approval.

Non-Bermudian individuals require a licence to acquire land by lease for terms in excess of five years.

Many condominium managers will only approve subleases that are for more than six months (to avoid vacation rentals) but do not exceed two years.

Maintenance

Many office and retail leases are granted on full repairing and insuring terms that allow the landlord to recover all servicing costs in addition to the rent. Lower grade and older premises are more likely to specify an all-in rent.

Rents are generally paid monthly in advance. Service charge costs are generally paid monthly or quarterly in advance.

Frustrating events

English common law does not assume that a lease is frustrated if premises are destroyed by force majeure events. In the absence of an express term, rent suspension and the ability to break a lease are not implied and the tenant remains liable to pay rent even after a total destruction.

Rent suspension and break options

Most Bermuda leases include a suspension of rent to the extent that premises are rendered incapable of use due to an insured loss. 

Bermuda landlords may insure for loss of rent and often do so with Grade A office space. The landlord will seek to recover the insurance premium from tenants; this is often agreed on the understanding that the insured period matches the rent suspension period and either party may break the lease once the loss of rent period has expired, if the property is not then reinstated. See 6.11 Insurance Issues.

COVID-19

Loss of rent insurance now typically excludes an inability to enter due to a Government ‘work from home’ ruling as a result of a pandemic.

Commercial tenants often secure contents and business interruption coverage, which may include the additional costs of any pandemic-inspired shutdown (at an additional premium).

Trends

The employees of many international business enterprises were able to work from home successfully during lockdown. Whilst an office hub is retained for morale, working from home continues, and desk sharing and reduced office space are now commonplace.

Rent review provisions during the term are common with commercial leases that are granted for more than five years. Rents of residential units are often revised on term expiry.

Rent is generally reviewed either at open market rents, based on comparables at the time of renewal, or increased in line with the consumer price index. Generally rent adjustments are upwards only.

No VAT is payable on rent. Stamp duty on the lease document is paid based on the aggregate rent; see 2.10 Taxes Applicable to a Transaction.

Many tenants will pay a material amount to fit out. Generally they are required to remove that fit out upon expiry, unless the landlord agrees it may remain.

Occasionally a landlord will ask for a security deposit or parent guarantee, dependent on relative bargaining strength.

If a unit is rented via a realtor, the landlord often pays one month’s rent as commission. Occasionally the commission is absorbed by the tenant.

Multi-let buildings

The main structure and common areas are typically insured and maintained by the landlord, with the costs of such maintenance being recouped from the various tenants via a service charge/maintenance fee.

Single tenant buildings

Some tenants negotiate a lesser rent in return for bearing all costs typically paid by a landlord (eg, structural repair, landscaping, insurance and property taxes).

Maintenance recovery

The proportion of maintenance fees payable are typically based on the square footage of the area leased to each tenant, or split equally. Service fees may be divided according to annual rental value (ARV) (which is determined by square footage and location) on estates where there are radically different classes of accommodation.

Tenants are almost always responsible for utilities consumed. Telecommunications services are provided directly from suppliers. Utilities such as electricity and water will typically be provided to the landlord in a multi-occupied building and recouped via service fees, unless separately metered.

Who insures?

The landlord is almost always responsible for insuring the building and common parts, with the tenant insuring own contents. The cost of the landlord’s insurance is frequently passed back to the tenants as part of the service charge.

Insured risks

Insured risks typically include fire, windstorm, flood and civil commotion.  Landslip, heave and subsidence are typically not covered, absent an addendum and additional premium.

Deductibles

Most policies have a deductible for windstorm/hurricane damage.

Occupiers liability

Most buildings insurance policies will include owner and occupier liability coverage as standard but at a relatively low level that can be increased on request.

Suspension of rent

Most Bermuda leases include a suspension of rent if premises are rendered incapable of use due to an insured loss. See 6.4 Typical Terms of a Lease.

It is usual for landlords to restrict use of the demised premises to a “permitted use”.

Use must also comply with the applicable zoning. The landlord does not warrant that the permitted use is lawful, and responsibility to verify this falls on the tenant at common law.

Leases typically prohibit material alterations, additions and improvements to the demised premises without the landlord’s previous written consent. It is usual to secure approval to fit out and simple changes that do not impact the structure at signing.

There are generally absolute prohibitions on structural alterations.

Limitations on agreeing terms

In the majority of cases, landlord and tenant rules and regulations apply equally to all categories of real estate, whether residential, industrial, office, retail or hotel, and the parties to a lease are able to agree its terms in their discretion.

Short-term residential lets

There are limited exceptions for short-term residential leases, where the landlord must maintain essential cooking and plumbing services and cannot transfer that liability to the tenant.

Special provisions apply to rent-controlled properties (residential units below a particular ARV – the threshold is currently BMD22,800 and so applies to lower-value housing, eg, studio/one-bed units and very small cottages). 

Impact of the pandemic

The Bermuda Government recommended a rent deferral scheme during the COVID-19 pandemic, whereby tenants be allowed to defer rent for several months and then make up the shortfall after businesses were allowed to reopen. This scheme was not mandatory but many landlords allowed rent deferrals and reductions, to protect longstanding tenants. Government did not provide rental support or assistance for landlords.

Employees prohibited from working during the pandemic could claim limited financial assistance from Government, and employers were allowed to furlough staff who could not realistically work from home during actual lockdown.

In the event of tenant insolvency or a receiving order in bankruptcy, most leases allow for termination of the lease. The official receiver may also disclaim an onerous lease.

It is market standard for the landlord to receive a security deposit prior to/upon execution of the lease. Deposits are typically the equivalent of one month’s rent but are limited to half of one month if rent control applies (see 6.14 Specific Regulations).

Leases end on expiry

Most leases expire by effluxion of time at the end of the fixed term. There are different rules for periodic tenancies, especially of farming land.

Security of tenure

There is no statutory security of tenure for commercial tenants and hence these leases often include a contractual right to renew. The same is true of the majority of residential leases.

Residential tenants of rent-controlled tenancies (see 6.14 Specific Regulations) enjoy security of tenure after expiry and the landlord needs a statutory ground to determine. Grounds include own occupation, renovation and tenant breaches during the term. Some rent-controlled tenancies are excluded from the security of tenure provisions (eg, a unit in the landlord’s own home and service tenancies).

Enfranchisement

There is no statutory right to enfranchise (ie, buy the freeholder’s interest). An option to purchase may be negotiated in the lease.

Holding over

Where a tenant continues to occupy the premises with landlord consent or acquiescence after the termination of the lease, the tenant will be deemed to be a tenant holding over on a periodic tenancy (generally from month to month, where rent is paid monthly) and otherwise on the same conditions as the expired lease.

Where a tenant continues to occupy without landlord consent after expiry, the landlord may recover ‘mesne profits’ equating to loss of income and losses arising from the failure to yield up in breach of the lease.

Self-help

Where a tenant refused to vacate, a court order for possession is required in all cases – commercial and residential – and the landlord cannot simply change the locks.

Assignment

Typically leases may only be assigned with the express consent of the landlord.

If there is an absolute prohibition on dealings, the landlord may withhold consent without reason. If there is a qualified prohibition, the landlord may withhold consent for cause.

Many leases impose a positive obligation on the landlord to act reasonably when considering a request to assign. 

Subletting

Typically leases preclude subletting of whole (without landlord consent and/or at less than the passing rent) and often preclude subletting of part entirely.

Conditions

The landlord should not seek a collateral advantage as a condition of granting consent (where he or she is under an express or implied duty to act reasonably) but may request any costs arising from the same. The landlord may require direct covenants from the intended assignee, generally secured in the assignment deed. The outgoing tenant is only released from his or her obligation under the lease (privity of contract) if the assignment includes a release. Releases are typically given on dealings with long leases but may be refused unless the lease contemplates the same.

Insolvency events, failure to pay rent and failure to observe covenants typically entitle the landlord to terminate the lease (subject to any cure periods contained in a lease or allowed by Statute). The Landlord and Tenant Act converts the right to forfeit a lease to a right to seek a court order for termination and requires that the tenant is given advance notice and a reasonable period to cure.

Leases granted for term in excess of 21 years are subject to compulsory first registration at the LTRO and standard registration fees apply.

In addition, if the landlord seeks first registration of the freehold reversion, it should note tenancies as ‘overriding interests’ on its own title report.

Many tenancies are evident on inspection, and purchasers may also be bound by actual notice. 

Where a landlord sells with a sitting tenant, they disclose this in the sales agreement and assign any security deposit on closing. A lease automatically binds the new landlord, without the need for a new contract.

A landlord may take a tenant to court to seek an order for termination and possession, following breach or lease expiry. A right of forfeiture is converted to a right to seek termination via the courts. No “self-help” is allowed, even if the lease has expired.

It takes approximately four months to secure an order for possession. The court may allow the tenant a period to vacate (on average two months, if the property is residential in nature). Once the grace period has expired, the court-appointed bailiff will physically evict the former tenant. Time periods for securing possession and the grace period were typically much longer due to court delays during the pandemic but there was no bar on eviction per se.

Protection on termination

A lease may be terminated by a superior landlord or lender (who did not consent to the creation of the same) on taking enforcement action. Where the freeholder approved the sublease, sub-lessees have statutory protection during the court process for termination but may have to step into the shoes of the head tenant (accepting a tenancy of whole at the same rent or remedying breaches), in order to avoid eviction on termination of the head lease.

Compensation for improvements

There are no statutory provisions that award for compensation on expiry. Most leases give the landlord the option to accept or require removal of the tenant’s fit out.

Fixed-price construction is common on new builds and material additions. Renovations are typically “cost and charge” (time spent) contracts, as the extent of the work may not be apparent until substantial demolition has occurred.

Construction contracts vary dependent upon the role of the contractor and the architect. Property developers normally accept liability for both the design and build under pre-sale agreements (generally for a “turn-key” product) and tend to employ an in-house project manager or site supervisor.

Homeowners would normally engage an architect to design a house and are likely to retain his or her services to oversee the quality on the build. The bank would normally engage a QS to manage draw-downs under a construction loan, if applicable.

Most contracts include wide extensions and exclusions for force majeure events (including encountering hard rock and hurricane events).

The contractor should be obliged to maintain contractors all risks liability insurance with the landowner and any lender noted thereon.

Construction contracts

Construction contracts for larger projects are generally documented in architect-driven AIA forms. Smaller projects are often recorded in simple letter agreements.

Target dates and ALDs

The contract may include target dates but agreed liquidated damages are relatively rare. Phased payments are generally linked to progress of work and hence the contractor has a financial incentive to perform. Damages for actual losses that are a reasonably foreseeable consequence of a delay resulting from a breach of the agreement can be pursued.

Limited liability

Most construction is carried out by companies incorporated with limited liability. Directors of LLCs are liable for debts incurred whilst the company is knowingly trading whilst insolvent (knowledge must be proven and cannot be assumed). Subject thereto, liability is limited to the amount of any unpaid share capital and hence nominal at best.

Guarantees

Personal and parent guarantees are not common, except on large projects where there has been a formal tender process (eg, PPP projects, such as a new hospital or new airport).

Other factors

Bermuda is a small place and the “Bermudavine” (local gossip) twinned with an officious planning regime, tend to be an effective deterrent to contractors taking shortcuts. Reputable contractors are protective of their reputations and tend to address defects even after defects periods have expired.

Phased payments

Whilst there may be a small activation payment, most contractors are paid in arrears.

Lender constraints

Where a bank is providing construction financing, it will commonly require the following:

• a fixed-price construction contract;
• a QS report confirming the contract sum is supportable;
• a QS/architect sign-off that the requested value has been added to the site prior to any draw-down; and
• that the borrower bear 50% of the costs of the raw land and 35% of the phase payments from its own resources.

Contractors liens

Bermuda does not recognise contractor’s liens per se. Debts converted to judgments may be registered and so attach to real property but would stand behind any earlier registration. 

Retention of title

Plant may be subject to contractual retention of title provisions but once installed commonly becomes a fixture and part of the land as a matter of law. In such case, the provider would be in the same position as a contractor. If the land upon which the plant is situate is subsequently sold, rights may well attach the proceeds of sale (the defaulting seller being deemed to hold on a resulting trust).

A certificate of occupancy must be issued by the Department of Planning before any new buildings may be lawfully occupied. If a building is substantially complete and a material part is habitable, a partial certificate of occupancy may be sought.

VAT is not applicable in Bermuda.

Tax planning

Stamp duty is payable on the vast majority of transactions. Some transactions are subject to notional duty only – eg, group company transfers, exchanges of land, acquisition of land owned by a company by amalgamation/merger.

Avoidance

Most properties are conveyed by separate instrument, so that each qualifies for the lower stamp duty bands on the relevant part of the consideration for a portfolio acquisition. There are rules limiting tax minimisation by ‘splitting’ (ie, transferring property interests via an unnecessary series of transactions that have no valid justification save tax avoidance – such as transferring partial shares in the same land as part of a series of transactions).

Where a transaction is covered by two heads of duty, the higher head of duty will apply.

Evasion

Tax evasion is a criminal offence, namely conspiracy to defraud the public purse. Penalties may be applied for late or non-payment.

Property taxes – commercial properties

Corporation tax is payable for businesses located within the City of Hamilton boundaries. This tax is levied on the annual rental value of the subject property. There are owner and occupier portions of such tax and both are generally passed on to the tenant.

Land taxes are levied at 9.5% of the Annual Rental Value for commercial properties. 

Other levies

The tenant also commonly bears any levies for piped water and private sewers.

No direct taxation

The Government of Bermuda does not directly tax income or capital gains.

US taxpayers

Local banks may levy a withholding tax on interest paid to US customers. They may also levy a deemed withholding tax on interest charged on a mortgage granted by them to a US customer (this seemingly is to reflect tax deemed denied on loans that would otherwise be made by a US bank). Local banks are often reluctant to loan funds to US individuals due to such complications.

Rents or licence fees

Rental income is not currently taxed. However, a foreign landowner seeking approval to rent licensed land will pay a licence fee equal to hotel occupancy tax on the rental income over the term (ensuring that the hotel industry may compete on a level footing with such persons).

Payroll taxes

Employers and employees of Bermuda entities pay payroll tax on salary, bonus and benefits in kind. Where the shareholders of a local company play an active management role in a company (are a director or acting as a de facto director) dividends or distributions to them are deemed to be the proceeds of their employment and subject to payroll taxes. This does not apply to non-managerial shareholders (simple equity investors) or to the profits generated by exempted companies doing business overseas.

Benefits and deductions

As the Government of Bermuda does not (directly) tax income or capital gains, there are no typical tax benefits (in the form of depreciation, etc) from holding real estate.

Land tax as a wealth tax

Property taxes form an important source of Government revenue and are charged in bands at very different rates, so that lower-value properties pay almost no land tax and high-value properties pay very high taxes. Taxes are levied based on the annual rental value (ARV) of the property.

Tax reductions

A tax band of 50% currently applies to any part of the ARV that exceeds BMD120,000. The only way to reduce tax is to divide the property into units that are each capable of peaceable occupation. This option may not be available to overseas buyers, who need Ministerial approval to create a new assessment.

Appeals

When an ARV is revised, a provisional assessment is issued and the owner may challenge the assessment for a short period. The challenge would be referred to a Tribunal unless settled by negotiation. There is no right to challenge an ARV once the assessment is no longer provisional.