Sham Leases and Fraudulent Lease Agreements in Jamaica: When a Rental Contract Is Designed to Deceive

• Fraudulent leases are created to encumber a property with a fictitious tenancy, making it less attractive to buyers or lenders
• Sham leases are sometimes used by mortgagors to complicate repossession proceedings by lenders
• Landlords who collect rent from multiple parties on the same property using forged or duplicated lease documents commit fraud
• Courts can set aside a lease that is found to be a sham, but this requires litigation and evidence of the fraud
• Buyers and lenders should verify the identity and occupation status of any tenant before completing a transaction on occupied premises

A sham lease is a lease agreement that does not reflect the true legal relationship between the parties, created with the intention of deceiving a third party — typically a buyer, lender, or court. In Jamaican property fraud, sham leases appear in several distinct contexts. In the most common form, a mortgagor who is facing repossession proceedings grants a lease over the mortgaged property to a connected party — sometimes a family member or associate — for a lengthy term at a low rent, with the intention of creating a tenancy that will complicate the lender’s ability to obtain vacant possession after repossession. Because a lease granted before repossession can bind the lender if the lender had notice of it, and because repossession with a sitting tenant requires further legal proceedings, the sham lease creates delay and cost for the lender. Courts have the jurisdiction to set aside leases that are found to be shams — that is, where the parties did not genuinely intend to create the relationship the lease purports to describe — but establishing this requires evidence of the underlying intention, which is not always readily available.

Sham Leases in Property Sales and Rental Markets

Beyond mortgage fraud, sham leases appear in the rental market as a mechanism for collecting rent from multiple parties for the same premises. A landlord who holds a lease or licence over a property — rather than owning it outright — may present themselves to multiple prospective tenants as the owner and purport to grant each of them a lease over the same property, collecting deposits and advance rent from each. The first tenant to take occupation may or may not be aware of the duplicated leases, and subsequent tenants who arrive to find the property already occupied have no remedy against the landlord beyond a civil claim for the return of their money — which is of limited value if the landlord is untraceable. Sham leases are also used to create false evidence of occupation in property boundary and adverse possession disputes, where a party seeks to establish that they or their nominee have been in occupation of disputed land for the limitation period.

Verification Steps for Buyers and Lenders

Buyers who are acquiring a property that is represented as vacant should conduct a physical inspection to confirm actual occupation status, not just the vendor’s assurance. Where a tenancy is disclosed, buyers should obtain a copy of the lease agreement and have their attorney verify its genuineness, including confirming that the stated tenant is a real person, that the lease term and rent are consistent with the market, and that the tenancy predates the sale process by a sufficient period to be credible. Lenders securing mortgages over residential property should include a warranty in the mortgage deed that no undisclosed tenancy exists and should conduct physical inspections as part of their due diligence. Where a sham lease is suspected — because the tenant cannot be identified, the lease terms are commercially unrealistic, or the timing of the grant coincides suspiciously with an enforcement or sale event — an application to set aside the lease should be pursued through the Supreme Court before proceeding further with the transaction.

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