BAHAMAS Law and Practice Contributed by: Alistair Chisnall and Erica Paine, Graham Thompson
6.4 Typical Terms of a Lease In July 2019, The Bahamas government overhauled the tax regime for real estate transactions and made leases (along with many other real estate transactions) subject to VAT. The tax treatment of leases varies depending upon the length of the term of the lease, with leases for five years or more (other than leases of dwellings) attracting VAT on both the capital sum payable for the lease and the periodic rent payments (with the VAT payable on periodic rent payments only being able to be claimed as an input tax deduction). Under a typical Bahamian lease agreement, the fol - lowing is generally industry standard: • the tenant is responsible for repairing the leased premises; • the landlord insures and maintains the building and the common parts; and • rent and additional charges (such as common area maintenance charges and/or utility charges) are paid monthly or quarterly, and generally in advance. 6.5 Rent Variation The variation of rent is freely negotiable and subject to the contractual agreement of the parties. Well-drawn commercial leases often make provisions for rent to be reviewed or updated at a certain agreed stage or date but, practically speaking and more commonly, the issue is addressed when the lease falls due for renewal. 6.6 Determination of New Rent There is no legal or regulatory restriction governing the agreement between the parties of how new rent may be calculated. The industry standard commonly used is that increases are in line with the Consumer Price Index (CPI) or a pre-agreed percentage. 6.7 Payment of VAT Under the VAT Act, leases are subject to the payment of VAT unless exempted. The rental of a “dwelling” (meaning a building or premises intended to be used as a place of residence or abode of a natural person) is exempt from VAT. However, for vacation homes that are rented or let
for a continuous period not exceeding 45 days, VAT is payable at a rate of 10% on all rentals by non- Bahamians, and on rentals above the VAT threshold of BSD100,000 by Bahamians. A rate of 10% VAT is payable on all rentals made through an online mar - ketplace like Airbnb, HomeAway or Vrbo. There is a mandatory VAT registration requirement for foreign homeowners who intend to rent their property as a vacation home. A long-term lease (ie, a lease of property other than a dwelling for five or more years) attracts VAT at a rate of 2.5% where the value is under BSD100,000 and otherwise at 10%. In addition, VAT is payable at the rate of 10% on all periodic rent payments. A lease- to-own contract attracts VAT on each stage or interim payment. A short-term lease or tenancy agreement of property (other than a dwelling) for under five years attracts VAT of 10% on the periodic rent payments. 6.8 Costs Payable by a Tenant at the Start of a Lease At the start of a lease, the tenant would customar - ily pay the applicable VAT (see 6.7 Payment of VAT ) and a security deposit, which is usually equivalent to one month’s rent. Registrar general recording fees (USD4.50 per page) are paid if the parties opt to record the agreement, but that practice tends to be quite rare. 6.9 Payment of Maintenance and Repair Areas of a commercial premises that are used by more than one tenant are generally maintained by the land - lord or their property manager, and the tenants pay a proportionate reimbursement of the cost incurred or a pre-agreed common area maintenance charge. A number of larger commercial or tourist developments have been structured as multi-use condominiums with residential and commercial elements, or have master declarations of restrictions, covenants and conditions that contemplate mixed-use. In such cases, common area costs would usually be apportioned and charged to tenants as condominium assessments or mainte - nance fees/charges.
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