Dionne Rose, Business Reporter

A workman hammers a nail into the roof of a house under construction. The Real Estate Board says single-unit developments are not required to register. - file

The Real Estate Board (REB) is seeking tougher legal penalties against developers who fail to register their projects.

The law currently stipulates a fine of $50,000, and eventually a prison term of up to six months, but REB General Manager Sandra Watson said Monday that the penalties were insufficient to force compliance.

"The fine is now very small and that is why the Act is being revised," said Watson.

She refused, however, to go public with the recommendation on the new fines, saying only: "We have a nice round figure coming up."

Projects

The board doesn't know how many projects go unregistered annually - such data, according to Watson, have never been compiled.

But, in a construction boom where real estate transactions last year topped $50 billion, the more than 40 compliance letters issued per month to developers is a sufficient enough indicator of the problem.

"It is a problem but it is a problem that we are definitely on a move to address," Watson told Wednesday Business.

"We have tried for a long while to get cooperation, we are still trying to get cooperation but without cooperation, we will have to take legal action."

It hardly ever gets to that point for the board however, whose tactic is to take a soft approach - first informing developers of their legal responsibilities and then monitoring them to ensure they follow through.

Watson said the failure to register was more pronounced among new developers, largely because of ignorance.

Indeed, this seemed to be the case with Tara Estates, which is in the process of developing what appears to be a fairly substantial scheme at East King's House Road on the approach to Barbican, Kingston.

On Tuesday, Tara, which has ceased activity at the project site, told Wednesday Business it was in the process of having its project approved by the REB, having been apprised of its obligations.

Under the law, no developer may start a scheme or accept deposits from purchasers without registering the development with the Real Estate Board.

"As long as you construct in excess of five lots or units; or if you do less than five and do any number the second year, you automatically have to register," said Watson.

"Unfortunately, the industry sometimes has new people coming in. The seasoned developers we tend not to have a problem with, because they know that they need to register and that it is in their best interest to register."

Costs

It costs upwards of $20,000 to register developments.

To monitor the sector, the board tracks the projects approved by the island's 13 local planning authorities or parish councils.

A developer is registered only after the board does a check on the candidate to ensure he/she is not bankrupt nor have a bad record.

"And that of course would be an added protection to members of the public to ensure that whoever you are dealing with has a good financial record," she said.

Additionally, where a downpayment from the purchaser is required, which in turn is used to finance construction, Watson said the developer has to register a charge with the board, which means the property cannot be sold without its approval.

The developer, she said, must place all of the purchaser's deposit in a trust account at an authorised financial institution.

The developer may use up to 90 per cent of the deposit but this has to be backed by certification - that is, the work to be done on the ground must be verified as having the same value as the monies spent.

The charge on the land, she said, functions somewhat like a bank mortgage to protect the purchaser's deposit.

"Where a scheme fails and the bank moves in, if the purchasers' deposits are not protected, the purchasers have very little recourse open to them, short of maybe a legal matter against the developer," she explained.

"But where the board has a charge on the land, this charge rank equal to any bank charge. So it is definitely a source of protection for the purchaser," she said.

Charge

Watson said the board had seen four schemes fail under such circumstances since its 1987 inception, but in each case, the buyers were able to recover from the charge on the land.

As for the developer, registration, she suggested, represented a hedge against taxes in situations where the property value might have changed over the life of the project.

"Where there is improved value on the land, the transfer tax is calculated based on the developer's rate and that, to my understanding, is a considerable reduction to the normal transfer tax," she said.

"And it is based on the board's letters that they use this to prove that they are registered developers that these rebates are given."

dionne.rose@gleanerjm.com

Cost of registering a development

Six to 20 lots or units:

application fee: $20,000

development fee: $1,500 per lot or unit.

21 to 40 lots or units:

application fee: $30,000

development fee: $1,500 per lot or unit.

41 or more lots/units:

application fee: $50,000development fee: $1,500 per lot or unit.