Do I need a lawyer to buy a house?
05 February 2021
Whether you are buying or selling a property, you are entering into a binding legal contract. That is why we always recommend you engage an attorney who specializes in local real estate transactions.
There is no exception to this rule. 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. Ian Jamieson and Michael Sharvin, of Bedell Cristin clarify what a real estate attorney does, and why they are essential.
Top Real Estate Legal Questions
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
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.
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.
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.
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. For example, 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
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.
How do real estate contracts differ?
Real estate contracts can differ based on the property and the buyer and the seller's needs. For example, a pre-construction contract is different to a normal house contract and pre-construction contracts should include a clause returning the buyer's deposit if in the event that the project never breaks ground or certain construction milestones are not met.
Cayman Real Estate Closing Process
Who handles real estate closings in Cayman?
Property closings in the Cayman Islands are typically handled by the sellers and purchasers’ respective attorneys.
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 the transfer at the Cayman Islands Lands and Survey Department ('Lands') and/or failing to pay 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.
Official Search and Stay of Registration on a Property in Cayman
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 the transfer (and any other documents such as a charge) at Lands. All well-advised purchasers will register a Stay before a property closing.
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
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 the transaction gets done.
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 charging order 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.
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.
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
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 that are forgotten are insurance, not registering a Stay, or transferring the title through Lands.
Real Estate Legal Words of Wisdom
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.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.
Authors - Ian Jamieson, Partner and Michael Sharvin, Senior Associate, Cayman Islands.
An earlier version of this article was published on the Property Cayman website, February 2021.