Month: February 2021

Cayman Stamp Duty Changes

Let’s start at the top. What is stamp duty?

Stamp duty is a tax. It is a levy that governments place on the processing of legal documents or the transfer of an asset. But for this blog, stamp duty is a tax on the purchase of a property.

The Cayman Islands Stamp Duty

Stamp duty in Cayman is a one-time tax paid to the Cayman Islands Government on most real estate transfers. It is a flat rate of 7.5% on the property’s purchase price or deemed market value, whatever is the greater of the two, less the value of any chattels (i.e. furniture and appliances).

And yes, I get it, 7.5% seems steep. However, this is the only tax you will ever pay on your property in Cayman. There is no annual property tax, capital gains or inheritance tax in the Cayman Islands.

For general information on stamp duty in the Cayman Islands, I encourage you to read our previous blog: Stamp Duty Explained.

The background of stamp duty on pre-construction properties in Cayman

Forewarning, skip this section unless you are interested in the full backstory. Prior to the 1st of January 2020, The Cayman Islands Government permitted stamp duty to be calculated and pre-paid on raw land value for new developments (rather than on the completed developed value) in some circumstances.

It was common practice for buyers of pre-construction homes to enter into connected contracts. One contract would cover the sale of the raw land on which to build the property. A second linked contract would cover the cost of the developer to build the property.

The Buyer would pay 7.5% stamp duty tax on the raw land value only. The raw land value would be lower than the property’s total developed value at completion. The result was a significant stamp duty saving for the Buyer, often up to 95%!

Cayman Stamp Duty Changes

The government ended the practice of stamp duty savings through connected contracts as of the 1st of January 2020. 

While new contracts entered into from the 1st of January 2020 cannot qualify for the stamp duty savings, the position for existing contracts, pre-2020, was not clear. Would the stamp duty savings associated with those connected contracts still be available? To help explain the Cayman stamp duty changes, and the potential impact on buyers, I enlisted the help of Tim Swallow, an attorney at the local law firm, Appleby.

Stamp duty on assignment sales in Cayman

The government has confirmed that those who entered into connected contracts which qualified for the stamp duty savings, before the 1st of January 2020, will still get the benefit of the stamp duty saving when they proceed to complete the transaction.

However, a question arose about the assignment of connected contracts. Could connected contracts stamped before the 1st of January 2020 be assigned by the original purchasers to new buyers while maintaining the stamp duty savings associated with the original contracts? In other words, if the original Buyer or developer had already paid the designated stamp duty value, would the new Buyer, following an assignment of contract, be able to capitalize on the same savings? If the savings could not pass, then the new Buyer would be responsible for the full 7.5% stamp duty assessment when the property sale closed.

What is a reassignment sale?

A reassignment occurs when a purchaser of a pre-construction property agrees to transfer the right to buy that property to another prospective purchaser.

How do property reassignments work in Cayman?

The original Purchaser is known as the ‘Assignor’ while the person inheriting the right to buy the property is the ‘Assignee’. Once the contract is assigned, the Assignee becomes the Purchaser for the purposes of the sale contract. The Assignee is then responsible for complying with all the terms of the sale contract. It is worth noting that not all development agreements permit reassignments. If you are buying a pre-construction property, we would generally recommend including a clause giving you reassignment rights, irrespective of stamp duty savings.

Current stamp duty on assignment sales in Cayman

Initially, the Cayman Islands Government stated that existing stamp duty savings would not transfer to Assignees. After a petition from developers, the government has confirmed that so long as qualifying sale contracts are assigned before the 30th of June 2021 and notarized and registered with the Lands and Survey department before the 31st of August 2021, the stamp duty savings associated with the original documents will still pass to the Assignee. It is important to note that failure to meet either of these deadlines will mean Assignees are subject to stamp duty at 7.5% on the property’s full developed value (less chattels).

In short, stamp duty savings on assignment contracts remain in place until the 30th of June 2021. This is a big win for buyers and pre-construction sellers in Cayman. It is like waking up to an email saying your Monday morning meeting is postponed or your project deadline is delayed. Christmas came very early or late, depending on how you look at it!

Top tips for reassignment sale stamp duty savings.

Not all pre-2020 connected contracts qualify for stamp duty savings. In addition, Assignees should know that assigning a sale contract without the consent of a developer could render the assignment invalid. Assignees should verify whether the contract qualifies for stamp duty savings and if the developer will consent to the reassignment, before taking over any property contract.

How to benefit from stamp duty savings?

There is a very small window of opportunity for you to take advantage of stamp duty savings. First-time buyers, current assignable contract holders, investors, really anyone interested in buying in Cayman – if you can, the time to act is now.

I wish I could say the extension applied to all new developments; however, this is not the case. With the looming 30th of June 2021 deadline and dwindling inventory, my advice is to move quickly to avoid disappointment.

Let’s compare all the options side by side, against what you need, to get you the best on the market.

It never hurts to see what is out there.

PS: A big thank you to Tim Swallow, an attorney at Appleby, Cayman Islands.

The Cayman Islands: Small-town, Big appeal

Family and friends back in England or further afield will often say, don’t you get bored living on such a small island? What even is there to do there? And with the current travel restrictions, I think people in Cayman are asking themselves this very question.

For me, the simple answer is no. No, I don’t get bored. And what’s more, everyone in Cayman, is by and large happy.

Happiest at Home in Cayman

Why? Is it because we have 365 days of sunshine and some of the best beaches in the world?

That certainly would be a simple conclusion to make. But, Miami has nice beaches and sun. So what is it that has us loving the Cayman life? What is missing from Miami and other large coastal towns and cities?

The Cayman Life

It’s tough to put your finger on exactly what the appeal of living in Cayman is. It’s isolated, it’s hot, and very humid at times. Household admin can feel like the ultimate test of patience as things just seem to take longer. There is no running to the grocery store when you realize the fridge is empty on Sunday. And a biggie, let’s not forget hurricane season.

The Cayman Charm

So what is it that has people moving to Cayman, year after year? It’s that ‘small-town mentality’. People are drawn to Cayman because of the village appeal. A simpler life and true a sense of community. In a world where the majority of people live in big cities, Cayman offers that old school small-town charm that we all as humans crave.

Experience Cayman

I will say, that COVID and the inability to travel has taught me to appreciate Cayman a lot more. Often I would get ‘island fever’ and fly to New York or Miami, as a lot of Cayman residents did, for a long weekend of shopping and overindulgence. Covid has forced those of us that live here to explore our island more, not to mention our gorgeous (often overlooked) sister island of Little Cayman and Cayman Brac.

It has reinforced why we love living in Cayman. Made us appreciate the overwhelming beauty of our islands, when our friends and families are locked inside. It has also brought us all A LOT closer together. From staycations to buying local campaigns, such as Experience Cayman, it has reconnected our small-town community.

Moving to the Cayman Islands

You cannot buy happiness, but you can alter your environment and lifestyle that may lead to a happier and more fulfilled life. If you have been considering moving to Cayman, there has never been a better time. And the Global Citizen program even allows for a ‘try before you buy’ approach.

I moved to Cayman eight years ago on a bit of a whim. My girlfriend (now wife), Sophie told me she was moving back home to Cayman. The decision was thrust upon me (Sophie probably won’t be impressed by that phrasing.) however, in hindsight, it’s one of the best decisions I ever made.

If you’re considering a move to Cayman, please feel free to reach out to me. I’d be happy to chat about my experience.

Yours in real estate and island living,

Do I need a lawyer to buy a house?

Whether you are buying or selling a property, you are entering into a binding legal contract. That is why we always, and I mean always, recommend you engage an attorney who specializes in Cayman real estate transactions.

There is no exception to this rule. Even if your sister, cousin, or neighbour is an attorney, our advice remains the same – engage a third-party attorney, a lawyer whose expertise is real estate in the Cayman Islands. It will ease the contractual process, but more importantly, it will protect you and your interests.

From the homeowner and buyer to the mortgage advisor and agents, real estate transactions have many moving pieces and people involved. Convincing a client to add an attorney to the mix can at times be a difficult discussion. But it is an important one.  And it is one I find myself having daily. So I sat down with Michael Sharvin and Ian Jamieson, of Bedell Cristin to clarify what a real estate attorney does, and why they are essential.

Top Real Estate Legal Questions

1. Why is it important to use an attorney for the real estate transactions? 

From the offer to purchase to closing, a property transaction is a legal contract between a seller and a buyer. Both parties are promising to fulfil specific duties, and are bound by law to do so. Not to mention that real estate is typically the largest monetary transaction someone will make in their lifetime. Knowing all that, would you want to proceed without legal advice? It just makes good sense to have a real estate legal expert in your corner, to protect you and guide you through the process.

Cayman Real Estate Laws

2. Do the Cayman real estate laws change often?

There are often changes implemented by the Cayman Islands government, some of which are minor changes, but others have significant implications for buyers and sellers.

3. What is an example of a real estate law in Cayman that has changed recently?

The Cayman Islands government has made significant changes to the island’s stamp duty regulations in the last two years.

4. How has the Cayman Island’s stamp duty legislation changed?

There is a bit of confusion about stamp duty regulations in the general public at the moment. First, the Cayman Islands government changed how stamp duty was calculated for pre-construction properties. More recently, there was a change to the stamp duty legislation for contract assignments. As it stands, purchasers who take an assignment of certain property contracts can still benefit from very minimal stamp duty, provided that the assignment occurs before the 30th of June, 2021. Specifically looking at developments that Property Cayman has listed, the One Canal Point townhomes is an example of where these savings still apply. This allowance means significant savings for purchasers and is a welcome boost for developers.

5. What is the difference between the U.S. and Cayman’s property closing process?

In our experience, some purchasers assume the closing process in Cayman is similar to that of the U.S. When, in fact, the closing process in the Cayman Islands is entirely different. Here is a small example of one of the differences. In Cayman, there is no title insurance covering title defects or escrow officers who act as an independent third party to deal with closings on behalf of sellers and purchasers.

Cayman Real Estate Offer to Purchase

6. Do you need an attorney to sign an Offer to Purchase? 

We recommend that you consult an attorney before the CIREBA OTP (offer to purchase) is signed so that your lawyer can review the contract conditions. Every contract and property is unique, and therefore there will be different issues to consider. Additional conditions may be required depending on the buyer’s circumstances. We have completed plenty of transactions where clients have saved substantial sums of money and legal proceedings because of conditions or clauses added by their attorney to protect their position.   

7. How do real estate contracts differ?

Real estate contracts can differ based on the property and the buyer and seller needs. A general example is that a pre-construction contract, compared to an existing home contract, should include a clause returning the buyer’s deposit in case the developer goes bankrupt or the project never breaks ground.

Cayman Real Estate Closing Process

8. Who handles real estate closings in Cayman?

Property closings in the Cayman Islands are typically handled by the sellers and purchasers’ respective attorneys.

9. What are the potential risks of not using an attorney for your real estate closing?

 If a purchaser or a seller elects not to appoint an attorney, they run the risk of:

  • paying closing monies to someone who is not the legal owner of the property or a fraudster;
  • buying a property with a defective title or an existing charge (as a result, the property could be difficult to sell or be inadequate security for future lending); 
  • failing to register as the new legal owner of the property at the Cayman Islands Lands and Survey Department and/or paying stamp duty (resulting in fines and interest if unpaid);
  • inadvertently getting caught up in money laundering proceedings, by accepting money for the sale of a property from a purchaser who is not represented by an attorney and using laundered money;

Official Search and Stay of Registration on a Property in Cayman

10. What is a Stay on a property?

A Stay freezes the title of the property you are buying. It gives you a 14 day period to register as the new owner of the property at Lands. All well-advised purchasers will register a stay before a property closing.

11. What are the risks of not registering a Stay on a property?

If you proceed without registering a Stay, the seller could sell the property to someone else. A third party could also register something on the title, such as a charge. This charge would be binding on you as the new owner. In both cases, it would be a week or two after you have paid the seller before you would know there was a problem.

Issues that Impede Real Estate Transactions in Cayman

12. Is it possible for a seller to have legal issues that would impede a sale? 

Yes, it is. But it is not very common when you use an attorney, because our job is to identify problems and find solutions so that the transaction gets done.

13. Can you provide an example of a legal issue that would impede a sale?

The registration of a charging order against the title to a property can delay the closing, especially when handled incorrectly. A charge can only be removed by an order from the Court. Currently, it is taking around 8 to 12 weeks to obtain the order. But again, this is not very common. It is just an example of the obstacles an attorney would handle for the buyer.

14. What happens if the sale conditions are satisfied, but the seller or buyer is unwilling to meet the agreed closing date?

It depends on what the contract says. The CIREBA OTP (Offer to Purchase) states that a seller who is unable to meet the agreed completion date will be liable for damages and losses under clause 17 (b). Under clause 17 (b) (2), if the specified date for completion has passed and the seller is in a position to complete, they may serve a Completion Notice to the purchaser. The notice requires the purchaser to pay the closing monies’ balance within seven days of being served the Completion Notice. Should the purchaser fail to comply with the Completion Notice, the seller is entitled to the purchaser’s deposit (typically 10% of the purchase price) together with any interest earned as liquidated damages. The offer to purchase will terminate immediately.

15. Are there other issues that can happen during real estate transactions?

Apart from the charging order mentioned above, the main ones are title issues or failing to include a contract condition. For example, we often see contracts that are not conditional on satisfactory replies to purchasers’ attorneys’ enquiries. Or in transactions involving standalone houses, deals that are not conditional on a satisfactory planning search.

Real Estate All Cash Offers

16. When there is no financing required, what steps do cash buyers commonly forget before the property closing?

When an attorney is not appointed to handle the closing, the main items forgotten are insurance, not registering a stay, or transferring the title through Lands.

Real Estate Attorney Costs

17. How much does it cost to use a real estate attorney?

On average, 0.5 to 1% of the purchase price. A cost that pays off tenfold. It gives the client’s legal protection throughout the negotiations and closings, providing peace of mind and ensuring that the deal gets done.

Real Estate Legal Words of Wisdom

18. Is there anything else you would like to add?

I think we have covered a lot, and hopefully addressed some of the many real estate legal questions. Everyone at Property Cayman is a delight to work with, and it is no coincidence that transactions always run smoothly when you guys are involved. I am always impressed with your commitment, knowledge and attention to detail and, like us, you guys put your clients’ interests first.

Engaging a Real Estate Lawyer in Cayman

Simply put, engaging a real estate attorney is the smart play. They will remove any seen and unforeseen obstacles that could impede the property sale while ensuring your legal protection throughout the process.

Whether you’re looking to buy or sell your property, we at Property Cayman work hand in hand with dedicated real estate attorneys to give you the best guidance and service possible before you make an Offer to Purchase and through the entire Closing process. Never hesitate to ask your agent or attorney questions – we’re here to make this tricky and sometimes overwhelming process, as smooth and transparent as possible.   

We look forward to assisting you on your next journey to closing, soon!