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Thou Shall Not Rent?

Over the past few months a very important issue has been on the boil in Anguilla-in fact, an issue which has been a concern for many years: the rental of villas owned by expatriates. Unfortunately, this issue was revisited this past summer when Government made a unilateral decision (without discussion or consultation with relevant private sector stakeholders) to approve new Alien Land Holding Licenses only with a specific "no rent" clause in the license itself-a policy which had immediate effect, as the sale of at least one piece of land died due to the restriction.

Ultimately, in a second home environment (which is how Anguilla is viewed by the vast majority of foreign investors from North America and Europe) real estate values have a direct relationship to rental rights and opportunities-due to the fact that most investors do not have the time (or the inclination) to live in Anguilla full time at the time of their investment, they look to rental income as a sensible way to offset maintenance costs, improvements, depreciation, etc…and, if they are lucky, their rental income might also cover their mortgage or provide a positive cash flow. However, take away the right to rent, and the value of all property on the island is devalued-not to mention the general devaluation of the economy itself. For example, in the one land deal referenced above that died as a result of the new "no rent" policy, instead of US$1,00,000 being pumped into the economy (in land payments, stamp duties, customs payments, construction employment, material purchases, heavy equipment rentals, etc), the purchasers deposit of nearly US$25,000 had to be returned and wired off island-not good for anyone.

Apparently the "no rent" policy sprang from concern voiced by hoteliers (primarily expatriate) and villa owners (primarily Anguillian) with regard to the increased competition (and lower occupancy rates) that they feel is due to the growth (and success) of the expatriate villa market--in addition, there is concern with the failure of expatriate villa owners to properly purchase their villa rental licenses and to pay their proper accommodation tax. Prior to the recent "no rent" policy, the guidelines required that an expatriate purchase a license to rent (which was US$1,200 per year) and that they pay accommodation tax (which is 10% of the room rate)-currently "no rent" means just that, i.e. that home owners can not buy a license to allow them to legally rent their homes.

For the sake of clarity, let me reconfirm my belief that every expatriate who rents their home should buy their license and pay their tax, but the villa rental industry should be shut down because it competes with other tourism sectors-the villa rental sector is simply too vital to the economy (not only in terms of the tourism activity generated by rentals themselves, but because of the real estate activity generated by the potential of rental income). Interestingly enough, the reinstitution of the expatriate right to rent was the consensus reached at a meeting chaired by Government that was held subsequent to the implication of the "no rent" rule-after it became apparent that the "no rent" rule was going to have some drastic effects (such as the loss of that afore mentioned US$1,000,000 real estate infusion). In fact, the consensus arrived at during the meeting would ensure that expatriates have the right to rent with the requirement that those properties that are rented retain an authorized property manager to ensure that all appropriate fees are paid to Government-fair enough, in my opinion. However the key items to focus on now are what will be the annual license fee for the right to rent and what will be the annual license fee for those who want to become authorized property managers-ultimately it is still possible to accept rental rights politically but to make those rights too expensive to realize economically (if, for instance, the annual license fee to rent was raised to US$50,000…as per more than one suggestion at the meeting).

Although this article has dealt most explicitly with the "no rent" rule as it is being applied to new Alien Land Holding Licenses, there are also serious implications for those who already purchased or built their homes here-whether or not they have been renting in the past. At the moment, for example, it is the position of the Treasury not to sell new villa rental licenses to expatriate home owners unless their underlying Alien Land Holding license specifically bestows the right to rent-silence on the issue is an implied "no rent" restriction that can only be addressed by appeal to Executive Council. However, insofar as ExCo refused to lift the "no rent" restriction on a deal that they knew was going to be cancelled without the variation, it will be interesting to see if they will issue rental right waivers to those that have already invested on island-and, again, at what cost to the home owner. To further complicate the matter, the current policy of the Anguilla Tourist Board stipulates that expatriates should be allowed to rent their homes as part of a diversified tourism product-and this policy was being published at the very time the "no rent" restriction was being added to all new Alien Land Holding Licenses and at the very time the sale of villa rental licenses was halted pending specific ExCo approval.

Unless clarity is brought to bear on expatriate real estate rights, with particular emphasis on rental rights, the real estate market in Anguilla will be in total disarray-in fact, I believe the real estate market in Anguilla is currently in total disarray because of the confusion over rental rights. Although there will always be some potential purchasers who will invest with out the right to rent, they are (in my experience) a very small segment of the investment community-and a segment that is shrinking. Correspondingly, those who invested in the past based on the knowledge that a rental license could be purchased might now find that they no longer have that option-or that the price they must pay is out of all proportion to their projected rental income. As such, it is crucial that Government addresses this policy quickly, clearly and openly-to that end, their recent meeting is a step in the right direction (let's hope that not too much damage has already been done). In addition, it is crucial that expatriate property owners that want to rent their homes follow the rules by buying their rental licenses and paying their accommodation taxes-to that end, the concept of authorized property managers is another step in the right direction (let's hope, once again, that not too much damage has already been done).

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