Andrew Wade and Julie Melia consider the differences between England and Wales and Jersey in relation to the sale of land, leases and taxation
Real estate practitioners in the UK may well have dealings with professional services firms in Jersey and it is easy to assume that, because of its familiar features, the legal system is much the same as that of England and Wales.
Indeed there are many similarities, but there are also traps for the unwary. What are the main differences between the jurisdictions, particularly in relation to commercial property transactions?
The starting point is that Jersey law originally derives not from the law of England and Wales, but from ancient Norman French customary law, and this is reflected in some features of the system. There is also an English connection: in 1602 Sir Walter Raleigh (as governor of Jersey) decreed that all contracts relating to land in Jersey (in addition to passing before the Royal Court) must also be recorded in the rolls of a newly founded Public Registry. As a consequence, Jersey established a process for recording property documents long before HM Land Registry was established.
Contracts and transfers
The key institution in relation to Jersey property transactions is the Royal Court. To take legal effect, all freehold property documentation (including leases for more than nine years) must be passed before the court.
This is a formal process: the parties (or their representatives) appear before the judge of the court for their documentation to be passed. The Royal Court sits for this purpose on a Friday afternoon – something to bear in mind if the transaction is time critical.
Property transactions in England and Wales usually proceed by way of exchange of contracts, followed by completion. In contrast, Jersey property transactions normally proceed straight to completion. The parties can enter into a sale and purchase agreement, but these are generally used only for higher value transactions where there is an appreciable delay before the parties wish to complete, or for commercial transactions when agreed conditions (such as the completion of landlord’s works) can usefully be provided for. There is no right to an order for specific performance for failure to complete a freehold transaction.
A private individual purchaser or tenant of Jersey real estate must also hold a valid registration card under the Control of Housing and Work (Jersey) Law 2012.
Title registration
Once passed by the Royal Court, the documents must be recorded at the Public Registry. However, the registry plays a much less significant role than the Land Registry in England and Wales. It simply records details of property documents, and does not provide a state guarantee of title. Claims to title are based on the contents of the documents that are recorded at the registry; the documents are not title deeds as such.
Leases: creation and assignment
Jersey property leases have both similarities and differences to leases of property in England and Wales.
In Jersey, there are different legal requirements depending on the length of the lease term. Leases of up to nine years’ duration can be dealt with by the parties between themselves; leases of more than nine years must be passed before the Royal Court at the Friday afternoon sitting. This is something to keep in mind, for example, if fit-out contractors are being lined up to commence time critical work. The parties may need to consider entering into a prelet agreement and detailing matters such as early access to the property.
This contrasts with the position in England and Wales where leases for terms of more than seven years are registrable at the Land Registry, but will be completed when the parties decide.
If the tenant wishes to assign its leasehold interest, in England and Wales its freedom to do so is usually restricted by detailed stipulations and preconditions in accordance with section 19 of the Landlord and Tenant Act 1927 (as amended). These often include a requirement for the outgoing tenant to enter into an authorised guarantee agreement, guaranteeing the incoming tenant’s obligations.
In Jersey, there is no such statutory background and leases invariably set out the basis on which the landlord may give or withhold consent. Landlords usually require that an assignee be shown to be of sufficient financial standing to undertake the lease obligations, failing which, they must provide one or more guarantors. On an assignment, unless agreed to the contrary, the outgoing tenant is released from any ongoing liability.
Security of tenure
Practitioners in England and Wales will be familiar with the Landlord and Tenant Act 1954 procedures under which (unless security of tenure has been excluded or is otherwise inapplicable) the occupying tenant will have a prima facie right to the grant of a new lease, except where one of the specified grounds of opposition can be established.
In Jersey the tenant has no such rights. There is no equivalent of the 1954 Act, and the tenant must vacate the premises when the lease expires.
However, note that it can be easy to create a new lease by default, which might suit one party but not the other. If the tenant fails to vacate and the landlord accepts rent after the lease expiry date, the parties may be presumed to have renewed the lease – or entered into a new lease – on the same terms.
Breach or termination
A lease of property in England and Wales will include a forfeiture clause, permitting forfeiture for inter alia non-payment of rent or breach of covenant. This may be effected by re-entry of the premises, or by legal action, as appropriate.
In contrast, Jersey has no concept of forfeiture of leases, and there is no equivalent of the Law of Property Act 1925 section 146 procedures. The landlord is likely to have the right to cancel the lease on specified grounds if the tenant is in breach, subject to obtaining an appropriate court order. There is no provision for “relief” from cancellation.
If both parties wish to terminate the lease, they can enter into a contract of cancellation on agreed terms.
Property taxation
Stamp duty is payable on freehold property acquisitions in Jersey, on a progressive scale that follows a different format to stamp duty land tax (SDLT) in England and Wales. It is also payable on leases of more than nine years, but is calculated in a different way to SDLT.
Note that stamp duty is also payable on a loan, in contrast to England and Wales where no SDLT is payable. The rate is 0.5% of the amount advanced plus registration fee.
Land transfer tax, calculated in a similar way to stamp duty, is payable on share transactions where the articles of the company grant rights of occupation, and on loans secured in connection with those transactions.
On both new leases and assignments, duty is calculated by multiplying the annual rent by the length of the term or the remaining term in the case of an assignment (capped for this purpose at 21 years) and also on any lease premium. The rate of duty is 0.5% on the first £100,000, and 0.75% on amounts over £100,000.
Jersey does not have VAT; goods and services tax (GST) is usually payable on the rent due under a commercial lease. The rate of tax is 5%. Like VAT, this can often be recovered by businesses as an input.
As is the case in England and Wales, if a property is acquired with the benefit of an occupational lease, GST will not be payable if it can be shown that the transaction qualifies as a sale of a going concern.
There is neither capital gains tax liability on Jersey property, nor inheritance tax. Income from Jersey property is taxed at 20%, but this is subject to deductions and relief for normal outgoings.
In addition, as in England and Wales, capital allowances may be claimed for plant and machinery.
Why this matters
It would be easy to assume that Jersey property law is similar to property law in England and Wales, but its Norman French customary law origins inform a number of differences.
The formalities for documenting and completing transactions are very different. There is usually no “interim” stage, and the parties proceed straight to completion.
In particular, it is important to be aware of the key role played by the Royal Court of Jersey in relation to freehold property transactions. Freehold land transactions and security over freehold land will not take effect in law until the contract has been passed before the Royal Court. The court only sits on Friday afternoons, something to be aware of if deal timing is critical.
Additionally, while there is a public documents registry in Jersey, it plays a very different role to the Land Registry in England and Wales, and provides no state guarantee of title. Therefore in each case title must be meticulously researched.
Turning to leases, the terminology may seem quite familiar but the legal effect may be very different. For example, in relation to assignments there is no equivalent of section 19 of the Landlord and Tenant Act 1927 (as amended) to regulate the granting of landlord’s consent.
Likewise, when it comes to lease termination and renewal, there is no Jersey equivalent of the Landlord and Tenant Act 1954, and consequently no security of tenure for the tenant. The same applies if the lease is terminated (“cancelled”) for breach; there is no procedure for the tenant to obtain relief from forfeiture.
Finally, the provisions for taxation of Jersey property are different to those in England and Wales. Jersey does not have VAT, inheritance tax or capital gains tax. However, it does have goods and services tax, stamp duty on freehold transfers and leases (calculated differently to SDLT), land transfer tax on certain share sales and share security (payable where a company’s articles grant rights of occupation), and even stamp duty on loans.
It pays to be aware of these differences, and to take appropriate professional advice before embarking on any Jersey property transaction.
Further reading
The Jersey and Guernsey Law Review
Andrew Wade is a consultant at Farrer & Co LLP and Julie Melia is a partner at Ogier Jersey
