4.6 The Selling Process of Apartments in The Carlton Savannah Hotel

4.6.1 The legal process by which the Company will acquire the 16 Apartments in the Hotel is set out in detail in the legal opinion (herein called the “Legal Opinion”) provided for the Company by M. Hamel-Smith and Co, a firm of Attorneys-at-Law practising in Trinidad & Tobago. M. Hamel-Smith and Co has given, and has not, before delivery of a copy of the Prospectus for registration, withdrawn its written consent to the issuance of this Prospectus with the statements herein referring to the Legal Opinion being included in the form and context in which such statements have been included.

4.6.2 The Legal Opinion is one of the documents available for inspection and should be read in its entirety for a full understanding of the legal process of the acquisition and the risks involved therein. What follows is only a summary of some of the salient issues.

4.6.3 The Legal Opinion states: “It is customary in Trinidad and Tobago that in condominium development schemes, which are akin to the present Development, buyers of units acquire leasehold interests rather than freehold. Where as in the present instance the title to the Lands commence with a 199 year lease from the State commencing in 1904 the only option in fact is a leasehold arrangement.”

4.6.4 Thus, “ownership” of an interest in real property is achieved by way of a “head lease” from the State, or a “sub-lease” from the person holding the head lease.

4.6.5 Balton Properties Limited (herein called “the Developer”) is the owner of the Carlton Savannah Hotel and the land on which it is being constructed by virtue of being the lessee for the unexpired terms of years granted by three (3) Head Lease Agreements (199 years from 6th September 1904). Copies of the Head Lease Agreements are available for inspection.

4.6.6 CSRSL has been created to be the vehicle by which the Company will acquire and hold an interest in the Apartments and the Health Club & Spa. It will initially be owned by the Developer but full ownership of it will be transferred to the Company on the Sale Completion Date pursuant to the Share Purchase Agreement which was executed by the Company, the Developer and CSRSL on the 7th day of May 2008.

4.6.7 The Sale Completion Date shall occur on or before 14 days of the Closing date of the Offer at which time:

4.6.7.1 The Company will have indicated to the Developer the number of Apartments it will purchase as a result of the funds raised by the Offer;

4.6.7.2 All the issued shares in CSRSL will be transferred to the Company in exchange for the payment by the Company to the Developer of 100% of the Purchase Price Spa and 70% of the Purchase Price Apartments. The remaining 30% of the Purchase Price Apartments, with respect to each Apartment, will be paid over to the Escrow Agent who shall have power to transfer same to the Developer on the Pre-Practical Completion Date and subject to the terms of the Escrow Agreement.

4.6.7.3 The Agreements for Sale (Apartments) and the Agreement for Sale (Spa) will be executed and pursuant to which the Developer agrees to sell the sixteen (16) Apartments and the Health Club & Spa (and all the Fittings and Fixtures applicable thereto) to CSRSL. These Agreements provide that the Apartments and Spa will be transferred to CSRSL by way of the execution and delivery of the Deeds Transferring Beneficial Interest (Apartments), the Deed Transferring Beneficial Interest (Spa) the Sub-Leases (Apartments), and the Sub-Lease (Spa).

4.6.7.4 The Agreements for Sale (Apartments) will be in the form of Deeds and will be stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago as soon as practicable after execution.

4.6.7.5 The Deeds Transferring Beneficial Interest (Apartments) will be executed and delivered to the Escrow Agent in undated form, with the Escrow Agent having power to complete and deliver same on the Pre-Practical Completion Date and subject to the terms of the Escrow Agreement. When dated stamped and registered these Deeds will effect the transfer of the beneficial interest of the Developer in the 16 Apartments to CSRSL. and establish the priority of the interest of CSRSL in the 16 Apartments. In these Deeds the developer also covenants to grant, on demand, the Sub-Leases (Apartments)which will pass full legal title to CSRSL and grants CSRSL a Power of Attorney to act in the name of the Developer to so grant these sub-leases.

4.6.7.6 The Deed Transferring Beneficial Interest (Spa) will be executed, stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago as soon as practicable after execution and will effect the transfer of the beneficial interest of the Developer in the Health Club & Spa to CSRSL. The registration of this Deed will establish the priority of the interest of CSRSL in the Health Club & Spa. In this Deed the Developer also covenants to grant, on demand, the Sub-Lease (Spa) which will pass full legal title to CSRSL and grants CSRSL a Power of Attorney to act in the name of the Developer to so grant the said sub-lease.

4.6.7.7 The Sub-Lease (Spa) will also be executed by the Developer and CSRSL but will be held outside of the jurisdiction of Trinidad & Tobago to defer the stamp duty which will become payable within two months of such introduction, currently 7% of the purchase price or value of each Apartment. The sub-lease may be introduced into the jurisdiction at any time thereafter and be stamped and registered thus passing the legal title in the Apartments and Health Club & Spa to CSRSL. Until such stamping and registration the Developer will hold such legal title in trust for CSRSL.

4.6.7.8 If the Hotel or part thereof has opened, The Hotel Operating Agreement will be executed between the Hotel Operator, the Owners Association and CSRSLand will grant the Operator the right to Operate and manage the Hotel and grant CSRSL the right to receive Rent.

4.6.7.9 The Health Club & Spa Underlease will be executed granting the Operator an operating lease of the Health Club & Spa. This underlease will not pass any beneficial or legal interest in the Health Club & Spa to the Operator.

4.6.7.10 One share in the Carlton Savannah Owners’ Association Limited, in respect of the Health Club & Spa, will be transferred to CSRSL. Upon completion of the purchase of the Apartments, CSRSL, like all purchasers of Apartments in the Hotel will receive a beneficial interest in one (1) share in the management operations of the Development per Apartment purchased i.e. one ordinary share in the Carlton Savannah Owners’ Association Limited by virtue of which purchasers will have an interest in the “common areas” of the Development and the right to exercise rights under the Hotel Operating Agreement.

4.6.8 If (a) the period for completion of construction of the sixteen (16) Apartments and the Health Club & Spa is extended for any period expiring two (2) years after the Hotel Completion Target Date, or (b) the Hotel Opening Date is deferred for a period of more than one (1) year after June 30 2008, then and in either such case CSRSL shall have the right to terminate the Agreements for Sale (Apartments) and the Agreement for Sale (Spa) (and consequential documents) whereupon all monies paid by the Company to the Developer under the Share Purchase Agreement shall be repaid to the Company and the Developer and the Company shall be released and discharged from their respective obligations thereunder. It is to be noted that where an Apartment has not reached pre-practical completion stage only 70% of the purchase price will have been paid on it at that stage. The interest of the purchaser will have been noted on the land registry in Trinidad in respect of both complete and incomplete sales and the purchaser (CSRSL) will be entitled to seek to place a lien on the land to assist with the enforcement of its right to recovery of all funds paid.

4.6.9 The remaining term of the sub-lease Apts and the Sub Lease Spa is 95 years in both cases, approximately coinciding with the remaining term of the Head Lease between the Developer and the State of Trinidad and Tobago. It is intended that the leasehold reversion under the Head Leases will be vested in the Owners' Association at the time of expiry of the sub-leases so the association will be in a position to negotiate a renewal with the State at that time. Strictly speaking at expiration of the lease the tenant can be evicted but it is generally expected that the State would be willing to negotiate for the grant of a new term or the sale of the freehold estate. No 199 year lease has ever reached its expiration in Trinidad and therefore it cannot be said with any conclusiveness how the Government of the day will deal with the matter.
At worst, therefore, the investment can be regarded as a 95 year investment with a potential opportunity (but not a legally enforceable right) upon expiration of the Head Leases to negotiate either (a) the acquisition of the freehold reversion, or (b) the grant of a new lease




4.7 The actual number of Apartments that CSRSL may beneficially own may vary to be less than or greater than sixteen (16) depending on the net proceeds raised during the Offer. The Share Purchase Agreement permits the Company to potentially acquire additional capital or real estate assets which form part of the Carlton Savannah Hotel at the sole discretion of the board depending on the subscription levels of the Offer. If however, the net proceeds from the Offer are less than the Purchase Price, the Company will not acquire the sixteen (16) Apartments and Health Club & Spa; instead it will select Apartments from the list of 16 Apartments and possibly the Health Club & Spa and any excess proceeds from the Offer will be refunded to Applicants after deduction of administrative and other expenses.

4.8 The Company will by virtue of 100% ownership of CSRSL receive regular income flows from its proportionate share of the Rent associated with the Hotel and Spa Lease Payments for the Health Club & Spa.

4.9 CSRSL has entered into a Health Club & Spa Underlease agreement with the Hotel Operating Company who will manage the Health Club & Spa. The Spa Lease Payments for the first year in the Health Club & Spa Underlease will be 6% of Purchase Price Health Club & Spa, which will be payable monthly. Thereafter, Spa Lease Payments will increase by 3% annually. Terms and conditions are detailed in the Health Club & Spa Underlease, which is available for inspection.

Withdrawal
4.10 If the Offer fails to raise the Jamaican dollar equivalent of US$2 million, using the Bank of Jamaica weighted average rate on the Closing Date, the Company reserves the right to withdraw the Offer and refund the proceeds raised from the Offer to Applicants.

Balton Properties Limited
4.11 Balton Properties Limited is a Trinidadian Company with its registered office at Eleven Albion Street. PO Box 478 in the City of Port of Spain in the Island of Trinidad, and is the developer of the Carlton Savannah Hotel, the vendor of the Apartments and the lessee for the Health Club & Spa Under-Lease.

Real Estate Investment Trust (REIT)
4.12 In general, a REIT is an entity that:
• combines the capital of many investors to acquire or provide financing for real estate investments;
• allows individual investors to invest in professionally managed, large-scale, real estate assets; and
• pays a significant amount of its annual profits as dividends to shareholders..


Tax Status of Carlton Savannah REIT (Jamaica) Limited
4.13 The Company will receive its proportionate share of the Rent of the Carlton Savannah Hotel plus the monthly Spa Lease Payments from the Hotel Operating Company for the lease of the Health Club & Spa. This is expected to be subject to 15% withholding tax in Trinidad & Tobago with no further corporate or withholding taxes in Jamaica as a result of the CARICOM treaty on double taxation.


4.14 Companies listed on the Jamaica Stock Exchange can distribute dividends tax free to their respective shareholders. The Company will distribute 95% or greater of the Investment Property Income received from the Hotel Operating Company, net of operating expenses of the Company, as dividends to the shareholders of the Company.

4.15 In addition, any capital gains on the sale of shares of the Company, as with all companies listed on the Jamaica Stock Exchange, are free of taxes for persons or entities not in the business of trading.


Dividend Policy for Carlton Savannah REIT (Jamaica) Limited
4.16 The dividend policy on the ordinary shares of the Company established by the Directors of the Company is to distribute 95% or greater of its proportionate share of the investment property income generated by the operations of the Carlton Savannah Hotel, net of expenses of the Company, as dividends to its shareholders. This dividend policy may be subject to review from time to time by the Company’s Board.