Buying your dream home: Some important legal and practical considerations

Congratulations, you have finally found the
home of your dreams!

The acquisition of your dream home can
however very quickly turn into a nightmare unless you fully consider all the
practical and legal considerations of buying a home in the Cayman Islands.
 

There are many practical and legal
considerations when buying real estate in the Cayman Islands and these will
vary from one deal to the next, depending on the type of property you are
buying, the purpose for which you are buying it and whether or not the property
is freehold or leasehold.

Financing

One of the most important considerations
you need to think about is how you are going to finance the acquisition of your
new home.  If you do not have substantial
savings, you will probably need to obtain a loan.  There are a number of banks in the Cayman
Islands that offer loans for both residential and commercial real estate
acquisitions. As part of the loan process, the lender is likely to want you to
obtain a valuation from a local surveyor. You will need to factor in the cost
of the valuation and the Bank’s arrangement fee into your overall budget.

If you are successful in obtaining a loan,
it is very likely that your lender will require some form of security for the
loan.  In property financing matters, a
lender will usually require a legal charge over the property to be acquired and
you will need to consider the cost of charging your home to the lender as
security.  In that regard, stamp duty is
payable on all legal charges over real estate in the Cayman Islands and
currently the amount of duty payable is either 1 per cent or 1.5 per cent
depending on the sum secured by the legal charge. You will therefore also need
to budget for this stamp duty in your overall closing expenses.

Type of purchaser

Another important consideration for many
buyers is whether they should buy the property in their personal names, in the
name of a company or through a trust structure. 
There are many different factors which may influence a buyer’s decision,
such as tax issues and estate planning and the buyer’s legal advisor will be
able to advise on the most appropriate vehicle. 
If you are thinking of using a company, you should bear in mind that not
all companies can own land in Cayman. 

For example, Cayman Islands exempt companies may only own land if
consent is first obtained from the Minister of Finance.  Furthermore, a foreign company cannot own
land in the Cayman Islands unless it is first registered as a foreign company
in the Cayman Islands.

You should also consider the purpose of
your acquisition.  For example, if you
are buying a property for investment purposes, you may need to obtain a license
depending upon the circumstances. 

Condominiums

If you are buying a condominium, you should
consider the nature of the title offered, which will either be freehold or
leasehold.  Most condominiums in the
Cayman Islands are registered with a freehold strata title although there are
some strata developments which are registered with a leasehold strata title,
for example, The Residences at the Ritz Carlton.  If you are thinking of buying a condominium
with a leasehold strata title, you should always check the term of the lease as
if the remainder of the term of the lease is short, this may affect the value
and marketability of the condominium and also may make it difficult for you to
obtain financing. 

You should also review the registered
by-laws for the development as these by-laws will impose obligations on you and
will be binding on you after you become the registered owner of the
condominium.  Inquiries should also be
made regarding the financial outgoings in respect of the condominium, such as
maintenance fees and strata insurance premiums, how often these are billed and
whether there are any special assessments levied or to be levied in the
future.  

In addition to the maintenance and
insurance fees, another practical consideration is how the cost of the
utilities, for example, water, electricity, sewage, garbage, cable and
satellite television are billed and/or metered and what other services are
billed through the strata corporation. Inquiries should also be made as to what
amenities are included within the development, for example, car parking spaces,
garage and storage lockers, docks and docking rights, use of tennis courts,
beach club facilities and/or golf courses.

Parking rights attached to a condominium should
also be clarified. While in some cases it may be obvious which parking spaces
are assigned to a particular condominium, this is not always the case, and in
some strata developments, car parking spaces actually have their own separate
titles.  Accordingly, a buyer of such an
apartment would need to ensure that it receives a transfer of title not only to
the condominium but also to the car parking space. 

If the condominium development participates
in a rental pool arrangement, a buyer should check whether the condominium is
entered into the rental pool and, if so, you should review the rental pool
agreement, establish who manages the rental pool and check the rental history
for the condominium you are considering buying.

Raw land

If you are considering buying a parcel of
raw land, there are a number of important considerations before entering into a
contract to purchase. You should consider what planning permission is required
for the intended development and the likelihood of obtaining it. You may wish to
take advice from a local architect on this. 

You should also consider whether the raw land
will require to be filled before you can build on it, for if the land does
require fill, this will increase your overall build cost.  You should also check whether the raw land
abuts a public highway and if not, whether it has registered vehicular rights
of way to a public highway, in order to ensure that the land will not be land
locked. 

Residential homes

If you are considering buying a house, you
should consider instructing a surveyor to carry out a full structural survey of
the property. A mechanical, electrical and plumbing inspection of the property
is also a good idea.  If the home abuts a
canal, you will want to consider whether you have all necessary rights in place
to permit you to pass along the canal. For example, if the canal is privately
owned, you will need a waterways easement from the canal owner to pass along
the canal. If the property has a boat dock you will also need to check whether
all necessary licenses were obtained for the construction of the dock. 

Another consideration is whether the home
is subject to any registered restrictive agreements and/or covenants. You
should therefore check the land register relating to the title to the home and
review any restrictive agreements that are registered against the title.

It will be clear from the above, that there
are a number of practical and legal issues which may arise on the purchase of
property in the Cayman Islands and accordingly a prudent buyer should always
seek reliable, sound legal advice from an expert in Cayman Islands property law
on the proposed purchase before entering into an agreement to purchase any such
property to avoid your dream home becoming your worst nightmare!

This publication is intended only to
provide a summary of the subject mattered covered.  It does not purport to be comprehensive or to
provide legal advice.  No person should
act in reliance on any statement contained in this publication without first
obtaining specific professional advice.

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Sonia Starvis

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