Analysis: The risk foreign investors dread

By José Manuel Pallí, Esq.

The lethal crumbling of the building at the corner of Infanta and Salud streets, in Centro Habana, puts an exclamation mark to the byzantine debate over whether the changes in Cuba are significant or not.

Some 15 years ago, in the midst of a wave of sympathy (close to mass hysteria) the tragic death of Princess Diana generated, Mother Teresa’s death barely a week thereafter helped many to put lives and death in a proper and more balanced perspective. Here’s hoping that all Cubans look at the Calle Infanta tragedy as a sign that it is time to roll up our sleeves to help our fellow Cubans build a better Cuba, rather than sit tight waiting to pick up the pieces.

In the early 1990s, shortly after the fall of the Berlin wall, I had a series of conversations with large international real estate developers who sought my advice on how to go about doing in Cuba what they were doing in Mexico, where we became acquainted, and in other touristic destinations the world over. As I have said numerous times since then to prospective investors large and small, as well as to those among my fellow Cuban-Americans who seek my advice on how to improve their chances of recovering the real property expropriated or confiscated by the Castro government, I told them two things:

1. As a U.S. lawyer, subject to the Treasury Department’s rules that constrain all U.S. subjects in dealing with embargoed countries like Cuba, I was very limited in what help I could provide to them; and

2. Even if I could be of more help than that, it was — and still is — impossible to foresee the legal environment that would be in place at the time when competing claims between pre- and post-revolutionary owners over land in Cuba could be effectively resolved. All I could do for them — other than telling them what present Cuban laws say — was speculate on what future law might say (an “opinion” akin to those our cherished rating companies love to sell us on).

After hearing that, most foreigners would ask me to introduce them to one or another Cuban exile organization — back then it was mainly one — so they could get from them a sense of what to expect in a future Cuba. Those who got back to me after that type of consultation said they were told that brim and stone would fall on them when Castro was thrown out of power (presumably to be replaced by those consulted, in those days when we could almost touch Castro’s Final Hour…).

The Centro Habana deaths are a reminder that obduracy is not a trait exclusive to Cuban exiles. My reading of the Cuban Foreign Investment Law –Decreto Ley 77/95 — is that, under its article 16, paragraph 2, sections “a” and “b”, foreign investment cannot be destined to the construction of housing for the Cuban people, leaving this logro de la Revolución, together with its two other hallowed accomplishments, health and education for the Cuban people — both also guaranteed under Article 9 of Cuba’s Constitution, though clearly excluded under article 10 of its foreign investment law — out of bounds for foreign investors. If so, why? The arcane views that make some old true believers in socialism see profitable ventures as anathema are totally out of touch with a reality where new types of investment vehicles, such as a Benefit Corporation, could be used to channel funds for preserving and building housing units in Cuba.

But with regard to the tension between the interests of pre-revolutionary owners and those of foreign investors, Cuba’s position has lately been, in my view, more realistic — dare I say reasonable — than expected. In 1999, when the U.S. government threatened Spanish hotel management company Sol Meliá, among other foreign investors in Cuba, with sanctions under the Helms–Burton law, Cuba’s then vice-president, Carlos Lage, publicly said that Cuba would not be an impediment to any foreign investor in the island if they chose to negotiate with the pre-revolutionary owners whose property was expropriated under the laws decreed by the Cuban government between 1959 and 1961.

Cuban legal literature mostly describes the present Cuban Registro de la Propiedad as the result of a gradual reordering or reordenamiento gradual, serving different priorities enunciated in Cuba’s Housing Laws- of the one existing until 1959. However, there is no evidence that those records kept in the “old” Spanish-style Registro have been destroyed. My understanding is that they are simply archived, safeguarded for their historical value.

Through contacts and consultations with foreign lawyers during the process of drafting its 1995 foreign investment law, Cuba’s legislators apparently realized that foreign investors tend to give considerable “historical value” to those old title documents and their corresponding recording entries that could show up in the title chain to lands they were investing in. In that sense, due diligence became part and parcel of any foreigner’s real property investment in Cuba. Some of those investors may have even cut deals  — though I am not aware of any case where such a deal has been publicized — with the pre-revolutionary owners.

Eventually, the way to publicize those and other similar arrangements as part of the restoration or completion of an otherwise lame title chain may be through the use of an acta de notoriedad.

An acta de notoriedad is a notarial document whereby the Civil Law Notary declares the existence of certain well-known facts — that he or she has verified — in order to support or solidify the rights of the party who requests the acta over a given piece of real property. In this situation, where an agreement has been reached between a pre-revolutionary owner, whose rights appear in the old “historical” recording entries, and the foreign investor or any other party who is presently in the use and possession of that property, the well-known facts to be accredited would be the existence of that agreement, and the acquiescence by the pre-revolutionary owner to its terms. Once the acta is recorded at the Registro de la Propiedad, the rights of the foreign investor are shielded by the recording principles (principios del derecho registral) that govern under a Spanish-type recording system.

This is, obviously, a very simple explanation of a tool whose use is bound to run into practical difficulties, one of which is likely to arise from the fact that under present Cuban laws — see articles 26.1 and 29, section “d” of Resolución 114/07 del Ministerio de Justicia, for instance —the root of title to almost every housing unit in Cuba is presumed to be the title issued by the state as a result of the application of the Urban Reform laws of the 1960s, or else the administrative acts resulting in the expropriation or confiscation of real estate assets from the then-owners.

To remove these kind of impediments to stronger property rights, a similar effort to that made by those who cut the individual deals described above — and which will then be reflected in actas de notoriedad — will have to be undertaken by Cuban society as a whole, in order to find, through a freely expressed social consensus, the pillars of coincidence among disparate interests upon which a future Cuba will have to be built, coincidences to be reflected in Cuba’s future laws.

José Manuel Pallí is a Cuban-born member of the Florida Bar, originally trained as a lawyer in Argentina. He is president of Miami-based World Wide Title, and can be reached at jpalli@wwti.net

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