Trouble in paradise (with leasing)

The recent case of Paradise Island Lighthouse and Beach Club Company Limited v The Attorney General of the Commonwealth of The Bahamas [2026] UKPC 30 provides a helpful reminder of the principles that apply when considering whether parties have created a binding legal agreement by their conduct.

Whilst a Privy Council decision, the judgment provides guidance as to the factors that will be relevant when considering similar issues governed by English law. The facts of Paradise Island are relatively unique. However, in a world where business is increasingly conducted via a range of digital media, parties should continue to exercise caution insofar as dealings with real estate are concerned, where decades-old laws still regulate most transactions.

Down at the beach

In April 2012, Mr Toby Smith applied to lease 17 acres of Crown land at Paradise Island, in the Bahamas, for development, restoration and upkeep of the lighthouse. Following negotiations, the Bahamas Investment Authority wrote to Mr Smith on 23 May 2018 recommending ministerial approval for a 21-year Crown lease of five acres, adjacent to the lighthouse.

On 4 June 2018, Mr Smith incorporated Paradise Island Lighthouse and Beach Club Company Ltd (the Company) as the vehicle to be the tenant under the lease. Shortly after, the Company signed a Memorandum of Understanding with the Antiques, Monuments and Museum Corporation, an organisation aiming to preserve the historical cultural resources of the Bahamas, regarding the proposed development.

Several months later, the Department of Lands and Surveys sent the Company a draft lease for execution on 7 January 2020 (the Lease), stating that the date should remain blank until it had been executed on behalf of the Crown, and that, following execution by the Prime Minister, a copy of the executed Lease would be delivered to the Company.

The Lease was signed and returned by the Company on 9 January 2020. This was followed by a letter to the Prime Minister dated 12 February 2020 which sought a "Comfort Letter" and noted that the lease "awaits your signature".

On 27 February 2020, Mr Smith was informed by the Attorney General that there was no agreement between the Company and the Prime Minister. As a result, Mr Smith issued proceedings on 18 May 2020 seeking a declaration that the Lease was binding (or an award of damages in the alternative).

Up at the court

The Bahamian courts held that there was no legally binding agreement and these decisions were upheld by the Judicial Committee of the Privy Council.

The main issue before the Privy Council was whether, viewed objectively, the parties intended to create binding legal relations before the lease was formally executed by the Prime Minister.

Applying the approach in the English case RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH Co KG (UK Production) [2010], the Privy Council held that the Bahaman courts had correctly applied the relevant objective test in relation to the parties' communications and conduct when determining if they had intended to create legally binding relations.

It was held that the 7 January 2020 letter, which attached the Lease, did not establish a binding agreement. Although the Lease contained detailed terms and was heavily negotiated, there was no documentary evidence that all the terms had been agreed. The letter of 7 January also contemplated further formal steps, including ministerial execution.

The Privy Council also considered Section 4 of the Statute of Frauds 1674, a piece of English legislation which was applied by the Bahamian courts and which prohibits the enforcement of an unwritten contract for the sale or transfer of lands unless it is in writing and signed by the party.

Section 54 of the Bahamian legislation, The Conveyancing and Law of Property Act 1909, was a decisive factor, as this required that all dispositions of crown lands had to be approved by the Minister responsible for Crown Lands, and this step had not taken place.

The subsequent correspondence between the parties was also relevant. The Privy Council rejected the Company's case, which depended on Mr Smith’s subjective understanding of the communications, explaining that the court was entitled to consider the whole of the parties’ conduct and take an objective view.

Back in England

The key piece of legislation in England and Wales governing this area is still the Law of Property Act 1925 (the 1925 Act). Section 52 of the 1925 Act provides that interests in land must generally be created or disposed of by deed, subject to a few exceptions. Separately, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes formal requirements for contracts for the sale of an interest in land.

The courts in England and Wales will also generally apply an objective test to determine whether parties intended to create a binding agreement. The principle established in Winn v Bull [1877] 7 Ch. D. 29 is that an agreement made "subject to contract" is not binding until the formal contract is executed. However, the absence of those words does not necessarily mean that a binding agreement exists; it remains a question of interpretation based on the circumstances of each case.

In the current digital age, contract formation and the disposal of property is likely to continue being an area where the law has to evolve to keep up with changing societal behaviour and technological advances. For example, earlier this year, the High Court heard a case, which we reported on, that examined whether property could be disposed of via WhatsApp.

Whether the Government will have the appetite to review/reform decades-old laws regarding the way in which property is transferred remains to be seen. Until then, the Courts will have to continue applying the existing legislation.