Aruba) Development of real estate projects

In 2018 the Department for Infrastructure and Planning (the “DIP”) announced that it would be implementing a new policy for the issuance of plots for residential commercial and rental purposes. The objective of the new policy is to make the issuance of option rights and long leases more transparent and less arbitrary. Under the new policy DIP will be the only institution to handle and approve the requests for option rights and long leases and the Minister charged with Infrastructure will no longer be (directly) involved. At the same time the conditions and guidelines for issuance of option rights and long leases will be updated where necessary simplified and where possible the process will be digitalized.

Option right
When a party wishes to obtain a plot for the development of a real estate project (either commercial, touristic or industrial) it is necessary to first obtain an option right on such a plot. This option right grants the holder thereof the right of first choice to enter into a long lease agreement with the Land Aruba to acquire the long lease on a particular plot for a specific project under specific conditions.

To obtain an option right a company will have to be registered in Aruba at the Chamber of Commerce. Furthermore, the objective of the company needs to align with the destination of the plot. The company will have to request the plot directly from DIP. Within 30 days of the request the company has to provide DIP with a short description of the project (no more than two A4 pages) including the required surface, any preference for a location, the estimated investment, the way of financing and drawings of the project, if there are any. When the request is approved, the option right will be valid for six months. In principle, only one six month extension is possible. In order to receive the option right the company will need to provide a bank guarantee of 5% of the estimated construction costs and an option fee of 3% of the land value. Within the option period the company needs to provide further documents (including a feasibility study, a valuation report of the project, detailed drawings, a specification of the investment in the project, a construction timetable and if possible an Environmental Effects Report and/or a Social Economic Impact Assessment). The option right will contain all the conditions for the specific plot and project.

Long lease agreement and notarial deed
When the company has complied with the option conditions within the option term, the company will be offered a long lease agreement. The long lease agreement will contain further conditions, such as a 10% bank guarantee of the estimated construction costs for the duration of the construction, and a social contribution of 7.5% of the total investment in the project. If all the further conditions are complied with, the Land Aruba and the company enter into a notarial deed to vest the right of long lease on behalf of the company. This notarial deed needs to be passed within six months after the conclusion of the long lease agreement. The policy provides that no further extension is possible. 

Finally, the construction needs to commence within three months after the signing of the notarial deed. The construction needs to be completed within three to five years of the the construction, depending on the project. For the transfer of the plot and the project, it is necessary that the construction of the project has been completed for at least 60% (excluding fencing, parking lots and outbuildings). Governmental approval of the transfer is necessary but should not be withheld on unreasonable grounds.

ROP and ROPV
Furthermore, the current government intends to ‘activate’ the Spatial Development Plan, locally known as ‘ROP’ (‘Ruimtelijk Ontwikkelingsplan’). The ROP has been introduced in May 2009 and contains three documents: a plan description, a plan explanation and a plan atlas. The ROP includes a broad overview of the social needs of Aruba with regard to use of land for different purposes, such as housing, business, industry, agriculture and tourism and sets out the most desired development of Aruba in broad lines. Most importantly, it includes a description of different zones, like the touristic zone, economic zone, urban zone, nature reserves and more, to which it connects different policy goals. 

The ROP states that it is not a binding policy document. The government intended in 2009 to introduce a more specific set of zoning policies and rules, known as ROPV, which were meant to be binding. The government is now looking to introduce such ROPVs after all. The ROPV will contain rules with regard to the destination, the development, the organization and the use of plots. Since the Aruban court in some cases has already held the policy laid down in the ROP to be binding to some extent, the impact of the ROPV might be   

More information
For more information and legal assistance  regarding development of real estate projects, you can send an email to info@ekvandoorne.com.

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