Analysis of CDAL's Lease-Back Arrangement with Porto Palma Services Limited

1. Rent Restriction Act (Cap. 402)

Under Antiguan law, the Rent Restriction Act (Cap. 402) generally limits rent increases to 15% per period unless specific exemptions apply or special permissions are obtained. The increases observed in the 2025 budget (66.7%, 133.3%, 33.3%) appear to substantially exceed this statutory threshold.

Furthermore, the application of the Rent Restriction Act raises questions about:

• Whether CDAL has obtained any exemptions for these substantial increases
• Whether Porto Palma has complied with the procedural requirements for implementing such increases
• Whether freeholders, who never directly entered into lease agreements with Porto Palma, can be subjected to these increased costs through CDAL's maintenance charges

2. Corporate Law Considerations

Antigua and Barbuda's Companies Act of 1995 (modeled after British corporate law) imposes fiduciary duties on company directors to act in the best interests of the company. Related party transactions, such as the lease arrangement between CDAL and Porto Palma, trigger enhanced scrutiny under these duties.

Specific concerns include:

• Conflict of Interest: Directors of both companies may have conflicts of interest in establishing the terms of these leases.
• Fair Market Value: Whether the lease rates represent fair market value or are artificially inflated.
• Proper Disclosure: Whether there has been adequate disclosure of the related party nature of these transactions to freeholders.
• Business Purpose: Whether the arrangement serves a legitimate business purpose or is primarily designed to extract additional revenue from freeholders.

1. Fiduciary Duties and Corporate Veil

Under British common law, which forms the foundation of Antiguan law, courts may "pierce the corporate veil" in situations where related companies are being used to:

• Evade legal restrictions
• Frustrate existing legal obligations
• Artificially create deductions or expenses
• Shield assets from creditors or legitimate claimants

The lease-back arrangement potentially implicates several of these concerns, particularly if it is being used to artificially increase maintenance charges beyond what would be permitted under direct ownership.

2. Abuse of Rights Doctrine

The common law doctrine of "abuse of rights" prohibits the exercise of legal rights in ways that are primarily designed to cause harm or avoid obligations. If the lease-back arrangement is primarily designed to circumvent covenant limitations on maintenance charges, rather than serving a legitimate business purpose, it may constitute an abuse of rights.

3. Unconscionable Conduct

Courts in both Antigua and under British common law have the equitable power to intervene in cases of unconscionable conduct or unfair dealing. The substantial rent increases, combined with the related party nature of the transactions, may rise to this level, particularly if:

• The terms are excessively one-sided
• There is significant disparity in bargaining power
• The transactions lack transparency
• The charges do not reflect market rates

1. "To and For the Benefit of the Parcel"

Maintenance charges must be for services that directly benefit individual parcels. It is questionable whether:

• Leasing new administrative offices at a 133.3% increased cost primarily benefits individual parcels
• Tennis, pickleball, and pool facilities (especially with a 66.7% cost increase) directly benefit parcels whose owners have no interest in these amenities
• The warehouses and security huts, at increased costs, provide direct benefits proportional to the increased charges

2. "Audited Common Expenses"

The covenant permits increases based on "audited common expenses." This requirement implies:

• Transparent accounting of all expenses
• Independent verification that expenses are legitimate common expenses
• Confirmation that costs are reasonable and necessary

The lease-back arrangement potentially circumvents this requirement by creating artificial "expenses" between related entities that may not reflect true market rates or necessary costs.

3. "Administration Thereof"

While the covenant permits charges for "administration," this would typically be limited to the direct costs of administering the enumerated services. The substantial administrative office lease costs (EC$350,000, up 133.3%) appear disproportionate to reasonable administrative needs for the services specified.

1. Circular Flow of Funds

Money effectively flows from:

• Freeholders (paying maintenance charges)
• To CDAL (collecting maintenance charges)
• To Porto Palma (receiving lease payments)
• Back to the same ultimate beneficial owners (Sabana Holdings)

This circular flow can create the appearance of arm's-length transactions while actually keeping the economic benefit within the same corporate group.

2. Asset Isolation

By placing certain assets (offices, facilities, etc.) in a separate but related entity (Porto Palma), CDAL can:

• Create the appearance of necessary expenses
• Potentially shield those assets from claims by freeholders
• Generate tax advantages through inter-company transactions
• Create rental expenses that might not exist if the assets were directly owned

3. Lack of Market Testing

There is no evidence that these lease arrangements:

• Were subjected to competitive bidding
• Reflect market rates for similar properties
• Would be accepted on similar terms by unrelated parties
• Provide value for money to the freeholders who ultimately bear the cost

1. Covenant Enforcement

Freeholders could seek a declaration from the court that the lease-back arrangement:

• Violates the "to and for the benefit" requirement in the covenant
• Does not constitute legitimate "audited common expenses"
• Results in charges that exceed what is permitted under the covenant

2. Antiguan Rent Restriction Act Claims

Complaints could be filed with the relevant Antiguan authorities regarding:

• The excessive rent increases (exceeding the 15% threshold)
• Lack of proper procedures for implementing such increases
• The forced passing of these costs to freeholders who are not direct parties to the lease

3. Corporate Law Claims

Potential actions include:

• Challenging the related party transactions as breaches of fiduciary duty
• Requesting judicial examination of the transactions under corporate law principles
• Seeking disclosure of the complete terms and financial details of the lease arrangements

4. Equitable Remedies

Courts may be asked to:

• "Lift the corporate veil" to examine the true nature of the transactions
• Declare the lease arrangement unconscionable or an abuse of rights
• Impose a constructive trust on the improperly collected funds
• Order restitution of excessive charges