General

1.1 Main Sources of Law

Real estate in the Cayman Islands is primarily governed by legislation and case law, although in circumstances where there is no relevant local legislation or case law, decisions in commonwealth jurisdictions may be considered.

1.2 Main Market Trends and Deals

The real estate market continues to grow rapidly, producing strong sales and increasing land prices.

Luxury condos along the famous Seven Mile Beach continue to be in high demand and at increasing prices. Due to an increase in demand, Grand Cayman’s property market has witnessed a boom in residential developments, with a large number of planned or active residential property developments currently.

The leisure and tourism sector remains active, with several acquisitions and financings completed in the last twelve months. Most notably, the Westin Grand Cayman Resort and Sunshine Suites Resort were recently sold by a US real estate investment fund to a Japanese REIT.

The Cayman Islands’ largest developer, Dart Realty, continues to expand its self-sufficient town known as Camana Bay, including the expansion of the Cayman International School and the development’s first ‘for sale’ residential community, which will include a mix of condominiums, townhomes and duplexes.

1.3 Proposals for Reform

At the time of writing there are no significant published proposals for reform, although there are longstanding proposals to modernise the Strata Titles Registration Law (2013 Revision). It remains unclear when and if such reforms will be implemented.

The Stamp Duty Law (2013 Revision) has recently undergone a major adjustment (Stamp Duty (Amendment) Law, 2018), designed to close certain stamp duty advantages associated with pre-construction purchases of certain types of development, while at the same time affording greater stamp duty concessions for Caymanian purchasers and purchasers of lower-value homes.

Sale and Purchase

2.1 Categories of Property Rights

Real property can be held as freehold (held by the registered proprietor indefinitely) or leasehold (held by the registered proprietor for the term of the lease).

The Strata Titles Registration Law (2013 Revision) allows for the registration of a strata plan against a freehold or leasehold land parcel to create individual strata lots, each of which are registered with their own derivative title and the remainder held as ‘common property’ by a strata corporation. Strata titles are often used as a mechanism to govern multi-unit developments, such as office buildings, shopping centres and condominium developments.

The Registered Land Law (2018 Revision) allows for the registration of a volumetric plan against a land parcel, a way by which a parcel can be subdivided into several three-dimensional parcels.

A contractual licence can allow for the occupation or use of real property. This is, however, a personal right and does not create a registerable interest.

2.2 Laws Applicable to Transfer of Title

All transfers of title of real estate are primarily governed by the Registered Land Law (2018 Revision). While not specifically related to the transfer of title, the carrying on of business from real estate within the Cayman Islands requires certain local licences, some of which are specific to property type.

2.3 Effecting Lawful and Proper Transfer of Title

Transfers of real estate must be registered at the Cayman Islands Land Registry.

Broadly speaking, the land register is definitive and supported by a government-backed indemnity (although it can be rectified to deal with matters such as error and fraud). Title insurance is available only on the larger commercial transactions. However, it is expensive and rarely used.

Unless the contrary is expressed in the register, a parcel of registered land is also subject to such of the following overriding interests as may for the time being subsist and affect the same, without their being noted on the register:

  • rights of way, rights of water and any easement or profit subsisting at the time of first registration;
  • natural rights of light, air, water and support;
  • rights of compulsory acquisition, resumption, entry, search, user or limitation of user conferred by any law;
  • leases or agreements for leases for a term not exceeding two years, and periodic tenancies;
  • any unpaid moneys that are expressly declared by any law to be a charge upon land;
  • rights acquired or in the process of being acquired by virtue of any law (ie, adverse possession and prescriptive rights);
  • the rights of a person in actual occupation of land or in receipt of the rents and profits thereof (save where inquiry is made of such person and the rights are not disclosed); and
  • electric supply lines, telephone and telegraph lines or poles, pipelines, aqueducts, canals, weirs and dams erected, constructed or laid in pursuance or by virtue of any power conferred by any law.

2.4 Real Estate Due Diligence

As there is no commonly accepted market standard of due diligence when acquiring real estate, the purchaser is responsible for determining the level of investigation that would be appropriate on a case-by-case basis.

The purchaser’s attorney should at the very least:

  • review the title documents, including a copy of the land register for the subject parcel, a copy of any connected or superior interests (ie, the strata common property or the landlord’s title), a copy of the registry map and a copy of all instruments noted on title; if the property is leasehold, the lease and any other ancillary documents should also be reviewed;
  • if the property is subject to leases, review those leases;
  • raise any relevant enquiries with the seller (ie, about the state and condition of the property, any disputes, compliance with laws, overriding interests, services);
  • consider whether any additional enquiries should be raised with public or other bodies (depending on the nature of the transaction), such as the Lands & Survey Department, the Department of Environment and the Department of Planning; and
  • consider recommending a physical inspection or survey of the property by the purchaser and a professional.

Although uncommon, real property can be sold by way of transfer of the entity or structure through which it is held. In such cases, due diligence is usually the same, with some additional due diligence on the relevant entity or structure.

If the purchase of property is financed by third-party debt, the lender will typically require specific due diligence, often in the form of a report on title and a legal opinion.

2.5 Typical Representations and Warranties

Warranties are always subject to negotiation and should be expressly included in the sale and purchase agreement, although extensive warranties are not customary on anything but the largest commercial transactions.

Common purchaser remedies for misrepresentation or breach of warranty would include an action for damages, misrepresentation and/or rescission of the agreement, and a refund of any deposit paid.

2.6 Important Areas of Law for Investors

Any investor should consider the primary sources of law, including the Registered Land Law (2018 Revision), the Development and Planning Law (2017 Revision), and the Stamp Duty Law (2019 Revision). However, there are other laws that may be applicable depending on the specifics of the transaction (such as the type of purchaser, the type of property and what activities the purchaser intends to carry out from the property).

There are generally no restrictions on foreign ownership of real estate in the Cayman Islands, although certain formalities may apply to different types of purchaser.

The carrying on of business from real estate within the Cayman Islands requires certain local licences, some of which are specific to property type.

It is always advisable to consult with a professional at the outset of the transaction to understand any applicable requirements.

2.7 Soil Pollution or Environmental Contamination

Although not common, environmental liabilities can be dealt with contractually between the parties by way of warranty and representation.

The Development and Planning Law (2017 Revision) enables the Central Planning Authority to serve a remediation notice where it considers that the amenity of an area is adversely affected by reason of, inter alia, the ruinous, dilapidated or other condition of any structure or by the condition of land due to the deposit of any refuse or spoil. The remediation notice can be served on the owner or occupier of the land or building, or the person responsible for causing the condition of the land or building.

The National Conservation Law, 2013 establishes a council whose role is to promote the conservation of natural resources, including preservation of wetlands and wetland resources, habitats and conservation of wildlife. Pursuant to this law, protected areas can be created on Crown and private land with the agreement of the proprietor of the land. Developers should consider the potential effects of this law on any development plans and should make the appropriate enquiries when purchasing raw land to ascertain whether any conservation agreements have been entered into with respect to the land.

Polluters, owners and occupiers could also be subjected to civil action for any environmental harm.

2.8 Permitted Uses of Real Estate Under Zoning or Planning Law

Any development of land requires a grant of planning permission. “Development” encompasses the carrying out of building, engineering or other operations in, on, over or under any land, the making of any material change in the use of any building or other land, or the subdivision of land, but is subject to a number of exclusions, including any works for the maintenance, improvement or other alteration that only affect the interior of a building or do not materially affect the external appearance of the building.

Planning permission may be refused, granted unconditionally or can be subject to such conditions as the relevant authority deems fit.

A record of all grants of planning permission, modifications, revocations and conditions attached to planning permission relating to Grand Cayman are maintained by the Central Planning Authority and those relating to the sister islands, Cayman Brac and Little Cayman, are kept by the Development Control Board.

2.9 Condemnation, Expropriation or Compulsory Purchase

The Cayman Islands Government can compulsorily acquire any land. This is usually done for the purposes of establishing new public roads but can also be done in other circumstances.

Compensation is payable, typically at the property’s market value.

2.10 Taxes Applicable to a Transaction

Ad valorem stamp duty is payable (subject to certain exceptions that are at the discretion of the Minister of Finance) on the following.

A conveyance or transfer of any immovable property (freehold or leasehold): (i) typically at a rate of 7.5% of the higher of the purchase price and the market value, although concessions may be available in specific circumstances; and (ii) usually paid by the purchaser.

  • A grant of a lease of any immovable property:
    1. if the term exceeds 30 years, 7.5% of the full market value of the leasehold interest in the real property; or
    2. if the term is 30 years or less, (a) where any premium or other valuable consideration other than or in addition to rent is provided, 7.5% of the amount of the premium; and (b) where the consideration or any part of the consideration is rent, (1) if the term is less than one year, 5% of the aggregate rent; (2) if the term is one year or more, but does not exceed five years, 5% of the higher of average annual rent or market rent; (3) if the term exceeds five years, but does not exceed ten years, 10% of the higher of average annual rent or market rent; or (4) if the term exceeds ten years, 20% of the higher of average annual rent or market rent; and
    3. usually paid by the tenant.
  • Debentures and legal or equitable mortgages, or charges of immovable or movable property within the Cayman Islands:
    1. in the case of a debenture or a legal or equitable mortgage, or charge of immovable property within the Cayman Islands, (a) where the sum secured does not exceed KYD300,000, 1% of the sum secured; or (b) where the sum secured is more than KYD300,000 (whether initially or after a further advance), 1.5% of the sum secured;
    2. in the case of a legal or equitable mortgage, or charge of movable property within the Cayman Islands, 1.5% of the sum secured (subject to a maximum charge of KYD500 where the security instrument is granted by a Cayman Islands exempted company, a Cayman Islands ordinary non-resident company, a Cayman Islands exempted trust or a body corporate incorporated outside of the Cayman Islands, or the security is over shares in a Cayman Islands exempted company or a Cayman Islands ordinary non-resident company); and
    3. usually paid by the borrower.
  • Policies of insurance for property within the Cayman Islands: (i) 2% of the cost of the new or renewed property insurance premiums and (ii) usually added to insurance premiums.

Subject to limited exceptions, ad valorem share transfer tax is payable on the transfer or issue of equity capital in a land holding corporation at the rate of 7.5% of the proportionate value of the entire land holding. A land holding corporation includes a partnership, foreign corporation, chartered corporation, mutual fund or incorporated company (but not a corporation sole or charitable corporation) holding any legal or beneficial interest (excluding interests created pursuant to bona fide security instruments) in landed property in the Cayman Islands (or interest in another land holding corporation). Landed property includes freehold interests in Cayman Islands real property and any leasehold interest where the original term exceeded 30 years.

Most other instruments and documents are subject to a fixed rate of stamp duty in comparatively nominal amounts. Registrable instruments are also subject to relatively immaterial registration fees.

Subject to limited exceptions, real estate used for paid tourist accommodation attracts tax at 13% of the amount charged to each tourist.

There are no other domestic taxes or municipal rates currently payable on the occupation, acquisition, ownership or disposal of Cayman Islands real property or income deriving therefrom.

2.11 Legal Restrictions on Foreign Investors

There are generally no restrictions on foreign ownership of real estate in the Cayman Islands, although certain formalities may apply to different types of purchaser.

The carrying on of business from real estate within the Cayman Islands requires certain local licences, some of which are specific to property type.

Real Estate Finance

3.1 Financing Acquisitions of Commercial Real Estate

The most typical forms of security for the financing of real estate are:

  • legal charge;
  • debenture (corporates only);
  • legal or equitable mortgage/charge over shares in a company that holds the real property;
  • assignment of any rental income;
  • assignment of any sale contracts and/or any development contracts (usually for developments);
  • assignment of insurance proceeds; and
  • guarantees from directors, shareholders, related companies or individuals.

All legal charges over real property must be registered at the Cayman Islands Land Registry and debentures creating fixed and floating charges are noted on the title for the real property if related to a registrable legal charge. Charges over shares in a Cayman Islands company will typically be noted on its register of members and all security interests granted by a Cayman Islands company should be recorded in its register of mortgages and charges.

Assignments by way of security are usually created by deed and notice must be given to the counterparty to perfect the security.

Due to the relative size of the Cayman Islands real estate market and the stamp duty payable on direct and indirect ownership interests in Cayman Islands real estate and granting of security, it is generally not common to see large portfolios of real estate held by funds or investment trusts.

3.2 Typical Security Created by Commercial Investors

The most typical forms of security for the financing of real estate are:

  • legal charge;
  • debenture (corporates only);
  • legal or equitable mortgage/charge over shares in a company that holds the real property;
  • assignment of any rental income;
  • assignment of any sale contracts and/or any development contracts (usually for developments);
  • assignment of insurance proceeds; and
  • guarantees from directors, shareholders, related companies or individuals.

3.3 Restrictions on Granting Security over Real Estate to Foreign Lenders

There are no restrictions on granting security over real estate to foreign lenders, although a foreign company holding the benefit of a legal charge over Cayman Islands real estate must register as a foreign company in the Cayman Islands.

3.4 Taxes or Fees Relating to the Granting and Enforcement of Security

Ad valorem stamp duty is payable (subject to certain exceptions that are at the discretion of the Minister of Finance) on debentures and legal or equitable mortgages, or charges of immovable or movable property within the Cayman Islands.

In the case of a debenture or a legal or equitable mortgage, or charge of immovable property within the Cayman Islands, where the sum secured does not exceed KYD300,000, duty is 1% of the sum secured; and where the sum secured is more than KYD300,000 (whether initially or after a further advance), duty is 1.5% of the sum secured.

In the case of a legal or equitable mortgage, or charge of movable property within the Cayman Islands, duty is 1.5% of the sum secured (subject to a maximum charge of KYD500 where the security instrument is granted by a Cayman Islands exempted company, a Cayman Islands ordinary non-resident company, a Cayman Islands exempted trust or a body corporate incorporated outside of the Cayman Islands, or the security is over shares in a Cayman Islands exempted company or a Cayman Islands ordinary non-resident company).

Where the amount of money to be advanced on the security of any property by way of mortgage is unlimited, the security is to be available for such an amount as the ad valorem duty paid thereon extends to cover. If any advance is made in excess of the amount covered by that duty, the original instrument may be stamped-up with the additional ad valorem duty required to cover the total amount then to be secured.

A mechanism exists to avoid ‘double duty’ on separate security instruments that secure the same debt. In such cases the ad valorem duty may be paid on the primary security instrument and the other security instruments can be expressed to be ‘collateral’, ‘auxiliary’, ‘additional’ or ‘substituted’ and attract a fixed rate of duty at KYD50.

Most other instruments and documents are subject to a fixed rate of stamp duty in comparatively nominal amounts. Registrable instruments (such as legal charges over real estate) are also subject to relatively immaterial registration fees.

A release of mortgage over immovable property attracts a fixed rate of duty at KYD50.

It is customary for stamp duty and registration fees to be paid by the borrower.

3.5 Legal Requirements Before an Entity Can Give Valid Security

There are no legal rules or requirements that must be complied with before an entity can give valid security. They must, however, be empowered to do so/not restricted from doing so by their constitutional documents. Often only board approval is necessary, although the entity’s constitutional documents should be checked for any further requirements or approvals. It would be prudent to obtain shareholder approval in any case where an entity is guaranteeing or pledging assets as security for another party’s liabilities.

3.6 Formalities When a Borrower is in Default

The priority of, and enforcement options applicable to, a security interest would depend upon the type of the security interest in question.

In terms of legal charges registered against Cayman Islands real estate, the security is enforceable pursuant to its terms in conjunction with the provisions of the Registered Land Law (2018 Revision).

The Registered Land Law (2018 Revision) provides a statutory power of sale by public auction, power to lease and power to appoint receivers. Commonly, a legal charge will vary and extend the statutory provisions to give the lender wider powers. To the extent the powers contained in the legal charge vary or are in addition to those created by the Registered Land Law (2018 Revision), they may not be acted on without order of the court.

Priority of legal charges is determined by registration at the Cayman Islands Land Registry.

3.7 Subordinating Existing Debt to Newly Created Debt

Generally the debt secured by a legal charge properly stamped and registered at the Cayman Islands Land Registry will, in respect of the proceeds of realising such asset, rank in priority to any subsequently registered legal charge, any floating charge or any unsecured debt. It is possible for lenders to subordinate debt contractually, although this is not common.

3.8 Lenders’ Liability Under Environmental Laws

There is currently no statute that has the effect of shifting any environmental liability on to a lender, although a lender can be exposed to potential liability once it takes possession of the premises after a default by the borrower.

3.9 Effects of Borrower Becoming Insolvent

Security interests created by a borrower in favour of the lender will not be rendered void if the borrower becomes insolvent. However, security may be set aside, for example, where it constitutes a preference or a transaction at an undervalue.

Notwithstanding that a winding-up order has been made, a creditor who has security over the whole or part of the assets of a company may enforce his security without the leave of the court and without reference to the liquidator. With respect to security over real estate, the Registered Land Law (2018 Revision) provides a statutory power of sale by public auction, power to lease and power to appoint receivers. Commonly, a legal charge will vary and extend the statutory provisions to give the lender wider powers. To the extent the powers contained in the legal charge vary or are in addition to those created by the Registered Land Law (2018 Revision), they may not be acted on without order of the court.

3.10 Consequences of LIBOR Index Expiry

Interest rates on most domestic lending transactions are calculated by reference to a domestic bank’s prime lending rate. To the extent that facilities reference the London Interbank Offered Rate (LIBOR), lenders and borrowers would be advised to review their terms to ensure that an alternative method for calculating interest has been included.

Planning and Zoning

4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning

The following legislation regulates planning and zoning in real estate:

  • the Development and Planning Law (2017 Revision);
  • the Development and Planning Regulations (2018 Revision);
  • the Development Plan 1997; and
  • the Building Code Regulations (as revised).

Any development of land requires a grant of planning permission. ‘Development’ encompasses the carrying out of building, engineering or other operations in, on, over or under any land, the making of any material change in the use of any building or other land, or the subdivision of land, but is subject to a number of exclusions, including any works for the maintenance, improvement or other alteration that only affect the interior of a building or do not materially affect the external appearance of the building.

Planning permission may be refused, granted unconditionally or can be subject to such conditions as the relevant authority deems fit.

The Central Planning Authority for Grand Cayman and the Development Control Board for the sister islands are responsible for reviewing and considering applications to obtain planning permission. The Director of Planning is empowered to take enforcement action where necessary.

A record of all grants of planning permission, modifications, revocations and conditions attached to planning permission relating to Grand Cayman are maintained by the Central Planning Authority and those relating to the sister islands, Cayman Brac and Little Cayman, are kept by the Development Control Board.

4.2 Legislative and Governmental Controls Applicable to Design, Appearance and Method of Construction

Planning permission is required for any proposed development or a material change in use of any building or land. However, planning permission will not be necessary if certain exclusions apply; for example, if the works are carried out for maintenance, improvement or other alteration and affect only the interior of the building or do not materially affect the external appearance of the building.

A permit is also required under the Building Code Regulations before the construction or change to a building or structure, or any work that requires planning permission is carried out. All such works must be carried out in the manner authorised by the permit.

4.3 Regulatory Authorities

Responsibility for the regulation of development and designated use of individual parcels lays with the Central Planning Authority for Grand Cayman and the Development Control Board for the sister islands.

4.4 Obtaining Entitlements to Develop a New Project

In relation to applications for the approval of larger developments (including places of public assembly gas stations, clubs, restaurants, bars, cinemas and other similar establishments), third parties who own land within a radius of 1,000 feet will receive notice of the applications and may lodge their objections with the Central Planning Authority (or the Development Control Board for the sister islands).

For all other applications for planning permission, only adjacent owners will receive notice of, and are able to make objections to, an application.

Those property owners entitled to receive notice and who have objected may appeal to a tribunal against a decision on the grounds that it is erroneous in law, unreasonable, contrary to the principles of natural justice, or not in accordance with the Development Plan.

4.5 Right of Appeal Against an Authority’s Decision

Any person who has applied for planning permission (or who has objected to an application for planning permission) may, within 14 days of notification of the decision, appeal against that decision to a tribunal. Any person aggrieved by the decision of the tribunal may appeal to the Grand Court. If aggrieved by the decision of the Grand Court, an appeal may be made to the Court of Appeal, whose decision will be final and binding upon the affected parties.

4.6 Agreements with Local or Governmental Authorities

Planning permission may be granted subject to such conditions as the relevant authority sees fit. A prudent developer would engage with utility suppliers at the outset of a project to incorporate their input into their plans. Planning permission runs with the land, although any agreements will be personal to the parties.

4.7 Enforcement of Restrictions on Development and Designated Use

Where any development of land (including material changes in use) has been carried out without the applicable planning permission or not in compliance with any conditions attached to a grant of planning permission, the Director of Planning may serve the owner or occupier of the land an enforcement notice within five years of the alleged breach.

Non-compliance with an enforcement notice is an offence and attracts a fine.

If the steps required to be taken by the enforcement notice are not carried out within the allotted period, the Director of Planning may enter on the land and take those steps, and may recover his costs as a debt from the owner of the land.

The Director of Planning may also apply to the Grand Court for an injunction.

Investment Vehicles

5.1 Types of Entities Available to Investors to Hold Real Estate Assets

The structures most commonly used to acquire real estate are corporate structures, including Cayman Islands companies and foreign companies.

Because the Cayman Islands is a non-direct taxation jurisdiction and real estate activities can be achieved through different structures, foreign investors are able to select their investment model based on factors (for example, taxation and investment regulation) not driven by Cayman regulation, except where participation may be marketed in the Cayman Islands.

The choice of investment vehicle will also often be influenced by whether the investor also intends to carry on business within the Cayman Islands, as there is a local business licensing regime in the jurisdiction.

REITs and real estate derivatives from Cayman Islands real estate are quite uncommon due to the relatively small size of the jurisdiction and the taxable event that arises when an interest in land (including the equity capital of a land holding corporation) is transferred (see 2.10 Taxes Applicable to a Transaction), although there have been a few occurrences of foreign REITs acquiring Cayman Islands commercial property.

Institutional investment in the Cayman Islands is increasing as the sizes of projects require large amounts of capital. However, the majority of commercial real estate is held privately.

5.2 Main Features of the Constitution of Each Type of Entity

A Cayman Islands company’s constitutional documents will set out its governance framework, including the powers of its board of directors, who ordinarily manage the day-to-day operation of the business. In relation to a company incorporated as a company limited by shares, the liability of its shareholders is limited to the amount (if any) unpaid on their shares.

5.3 Minimum Capital Requirement

There are no minimum capital requirements for a Cayman Islands company.

5.4 Applicable Governance Requirements

The subscribers of the memorandum of association of a Cayman Islands company are deemed to have agreed to become shareholders of the company and every other person who has agreed to become a member of a company and whose name is entered on the register of members will be deemed to be shareholders of the company. The company will typically have one or more directors who manage the day-to-day business of the company. The constitutional documents set out the governance framework, along with the Companies Law (as revised).

5.5 Annual Entity Maintenance and Accounting Compliance

Cayman Islands companies are obliged to pay annual fees in January to the Cayman Islands General Registry.

An ordinary resident company with no registered capital or registered capital not exceeding USD51,200 must pay an annual fee of USD365.85 or USD609.76 if the company’s registered capital exceeds USD51,200.

An exempted company with no registered capital or a registered capital not exceeding USD51,200 must pay an annual fee of USD853.66. If the exempted company’s registered capital exceeds USD51,200, the company will attract higher annual fees, with a maximum annual fee of USD3,131.71 for those exempted companies with a registered capital exceeding USD2 million.

A foreign company is required to pay an annual fee of USD1,646.34.

Exempted companies and foreign companies are required to engage a registered office provider in the Cayman Islands, for which additional annual fees will apply.

Commercial Leases

6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time

There are two types of arrangements that allow a person, company or other organisation to occupy and use real estate for a limited period without buying it outright.

The first is a lease, which grants a tenant the right of exclusive possession of a property for a specified period of time. A lease gives a tenant contractual and proprietary rights in the property that can typically be transferred to a third party, subject to any restrictions in the lease.

The second is a licence, which allows a landowner to grant permission for the use and occupation of a property. The occupier of a property does not, however, have exclusive possession and his rights under the licence cannot be transferred. A licence is merely a personal right and does not create a registrable interest.

6.2 Types of Commercial Leases

There are no specified types of commercial leases. Given the relatively small size of the jurisdiction, there are relatively few sophisticated landlords of large-scale developments and so landlords use their own form of lease.

Most commonly, leases of part will be for a net rent with a separate common area maintenance charge levied for landlord insurance, maintenance of common parts, etc.

Leases of whole are less common but would often impose full repair and insurance obligations on the tenant.

Freehold title to a portion of the valuable Seven Mile Beach corridor is owned by the Crown. Originally this was the subject of a long ground lease to facilitate development, but has over time been subdivided into several smaller leases that have been varied to extend their term on payment of large premiums to the Cayman Islands Government.

6.3 Regulation of Rents or Lease Terms

All terms of leases are freely negotiable, although certain covenants by the landlord and by the tenant are implied by the Registered Land Law (2018 Revision) unless modified by the lease.

Covenants implied on behalf of the landlord include:

  • that, so long as the tenant pays the rent and observes and performs the agreements and conditions contained or implied in the lease and on his part to be observed and performed, the tenant shall and may peaceably and quietly possess and enjoy the leased premises during the period of the lease without any lawful interruption from or by the landlord, or any person rightfully claiming through him;
  • not to use or permit to be used any adjoining or neighbouring land of which he is the proprietor or lessee in any way that would render the leased premises unfit or materially less fit for the purpose for which they were leased;
  • where part only of a building is leased, to keep the roof, main walls and main drains, and the common passages and common installations in repair;
  • where any dwelling house, flat or room is leased furnished, that such house, flat or room is fit for habitation at the commencement of the tenancy; and
  • that if, at any time, the leased premises or any part thereof are destroyed or damaged by fire, earthquake, hurricane, flood, civil commotion or accident not attributable to the negligence of the tenant, his servants or his licensees, so as to render the leased premises or any part thereof wholly or partially unfit for occupation or use, the rent or a just proportion thereof according to the nature and extent of the damage sustained shall be suspended and cease to be payable until the leased premises have again been rendered fit for occupation and use; but that if the leased premises have not been so rendered for occupation and use within six months of their destruction or damage as aforesaid, the tenant may at his option, and on giving one month’s written notice of his intention so to do, terminate the lease.

Covenants implied on behalf of the tenant include:

  • to pay the rent reserved by the lease at the times and in the manner therein specified;
  • to pay all rates, taxes and other outgoings which are at any time payable in respect of the leased premises during the continuance of the lease unless the same are payable exclusively by the landlord by virtue of any written law;
  • in the case of agricultural land, to farm the same in accordance with the rules of good husbandry and to yield up the land at the end of the term in good heart;
  • except where part only of a building is leased, or where a dwelling house is leased furnished, to keep all buildings comprised in the lease and all boundary marks in repair;
  • where part only of a building is leased, or where a dwelling house is leased furnished, to keep the leased premises, except the roof, main walls and main drains, and the common passages and common installations in repair;
  • where the lease is of furnished premises, to keep the furniture in as good condition as it was at the commencement of the period, fair wear and tear only excepted, and to replace such articles as are lost, destroyed or so damaged as to be beyond repair with articles of equal value to those so lost, destroyed or damaged;
  • to permit the landlord or his agent, with or without workmen or others, at all convenient times and after reasonable notice, to enter on the leased premises and examine their condition;
  • to repair or otherwise make good any defect or breach of agreement for which the tenant is responsible and of which notice has been given by the landlord to the tenant, within such reasonable period as may be specified in the notice; and
  • not to transfer, charge, sublease or otherwise part with the possession of the leased premises or any part thereof without the previous written consent of the landlord, but such consent shall not be unreasonably withheld.

6.4 Typical Terms of a Lease

Because of the stamp duty treatment on the grant of longer leases (see 6.7 Payment of VAT), a lease term of five years (or less) is relatively common and may include an option for the parties to renew for one or two further terms.

Responsibility for repairing the demised premises is typically assigned to the tenant. The landlord is usually under an obligation to insure and maintain the building and the common parts, and will usually recoup these costs from the tenant through rental payments or common area maintenance charges.

Although always subject to agreement between the parties, rent is commonly paid monthly or quarterly in advance or arrears.

6.5 Rent Variation

It is typical for commercial leases to make provision for rent to be reviewed.

6.6 Determination of New Rent

Typically rent is reviewed in line with the consumer price index (CPI), by a fixed percentage or by market review.

6.7 Payment of VAT

No VAT is payable on rent, although stamp duty is payable on the lease.

Stamp duty is usually paid for by the tenant and is calculated at the following ad valorem rates:

  • if the term exceeds 30 years, 7.5% of the full market value of the leasehold interest in the real property; or
  • if the term is 30 years or less,
    1. where any premium or other valuable consideration other than or in addition to rent is provided, 7.5% of the amount of the premium; and
    2. where the consideration or any part of the consideration is rent, (a) if the term is less than one year, 5% of the aggregate rent; (b) if the term is one year or more, but does not exceed five years, 5% of the higher of average annual rent or market rent; (c) if the term exceeds five years, but does not exceed ten years, 10% of the higher of average annual rent or market rent; or (d) if the term exceeds ten years, 20% of the higher of average annual rent or market rent.

6.8 Costs Payable by Tenant at Start of Lease

Stamp duty (see above), any registration fees (nominal) and a security deposit are typically paid by the tenant at the start of the lease.

6.9 Payment of Maintenance and Repair

It is common for the lease to assign responsibility to the landlord for the maintenance and insurance of the common areas and the landlord typically recovers his costs from the tenant through rent or common area maintenance charges.

6.10 Payment of Utilities and Telecommunications

Where tenants have not purchased their electricity, water, gas and telecommunications services directly from suppliers, tenants will typically pay a share of these services provided by the landlord by reference to the size of their demised premises or the landlord will separately meter each premises.

6.11 Insuring the Real Estate that is Subject to the Lease

Typically, the landlord will be responsible for insuring the building and common parts (passing costs on to tenants through rent or common area charges) while the tenant insures the demised premises. Typical insured risks would include fire, earthquake, hurricane, flood and civil commotion.

6.12 Restrictions on Use of Real Estate

It is usual for a landlord to restrict the use of the demised premises and common areas. Planning permissions and zoning constraints would also apply.

6.13 Tenant’s Ability to Alter and Improve Real Estate

A lease will ordinarily prohibit the tenant from making alterations or improvements to the real estate without the prior consent of the landlord.

6.14 Specific Regulations

There are no specific regulations and/or laws that apply to leases of particular categories of real estate. All leases are primarily governed by the Registered Land Law (2018 Revision) and the Registered Land Rules (2018 Revision). Parties generally have the freedom to contract as they wish, although the Registered Land Law does imply certain covenants on the landlord and tenant, unless modified in the lease (see 6.3 Regulation of Rents or Lease Terms).

6.15 Effect of Tenant’s Insolvency

The terms of the lease usually allow a landlord to terminate the lease if the tenant becomes insolvent. Subject to any provisions to the contrary in the lease, the Registered Land Law (2018 Revision) also provides landlords with the right to forfeit the lease if a tenant is adjudicated bankrupt (if an individual) or goes into liquidation (if a company).

6.16 Forms of Security to Protect Against Failure of Tenant to Meet Obligations

It is common for a landlord to take a security deposit at the outset of a lease and they may require guarantees from directors, shareholders or related companies.

Security deposits are freely negotiable but would likely include at least one rental payment. Security deposits are not regulated and so the terms of the lease would govern.

6.17 Right to Occupy After Termination or Expiration of a Lease

Unless expressly provided for in the lease, tenants do not have security of occupation or a right to renew at the end of the term. However, where a tenant continues to occupy the premises with the consent of the landlord after the termination of the lease, the tenant will be deemed to be a tenant holding the premises on a periodic tenancy on the same conditions as those of the expired lease, so far as those conditions are appropriate to a periodic tenancy.

6.18 Right to Terminate Lease

Typically, a lease would provide for the landlord to terminate in the event of material breach by the tenant (subject to any negotiated cure periods) or an insolvency event of the tenant. Either the landlord or tenant would ordinarily be given the right to terminate the lease if the leased premises is substantially destroyed or damaged and not repaired within a specified period. Tenant break options are generally uncommon, but could be negotiated.

6.19 Forced Eviction

It is common for a lease to contain forfeiture clauses that allow the landlord to evict the tenant. However, the tenant has a statutory right to apply to the court for relief against forfeiture and so the timeframe for the forfeiture process can vary.

6.20 Termination by Third Party

The Cayman Islands Government can compulsorily acquire any land. This is usually done for the purposes of establishing new public roads but can also be done in other circumstances.

Compensation is payable, typically at the market value of the interest acquired.

Construction

7.1 Common Structures Used to Price Construction Projects

Due to the relatively small size of the jurisdiction, significant construction projects are few in number at any one time. There is no commonly accepted market standard of contract and so parties are free to agree terms as they see fit, with the format and complexity of the contract often being driven by the sophistication of the parties and type of project.

Most larger construction contracts will, however, typically follow a US style (such as the American Institute of Architects), a UK style (such as the joint contracts tribunal), a combination of the two, or even the contractor’s (or developer’s) own standard terms.

7.2 Assigning Responsibility for the Design and Construction of a Project

See 7.1 Common Structures Used to Price Construction Projects.

7.3 Management of Construction Risk

See 7.1 Common Structures Used to Price Construction Projects.

7.4 Management of Schedule-related Risk

See 7.1 Common Structures Used to Price Construction Projects.

7.5 Additional Forms of Security to Guarantee a Contractor’s Performance

See 7.1 Common Structures Used to Price Construction Projects.

7.6 Liens or Encumbrances in the Event of Non-payment

See 7.1 Common Structures Used to Price Construction Projects.

7.7 Requirements Before Use or Inhabitation

Certificates of fitness for occupancy must be obtained from the Central Planning Authority (or the Development Control Board in relation to property in the sister islands) before any new buildings are occupied.

Tax

8.1 VAT

Ad valorem stamp duty is payable (subject to certain exceptions that are at the discretion of the Minister of Finance) on:

  • a conveyance or transfer of any immovable property (freehold or leasehold), typically at a rate of 7.5% of the higher of the purchase price and the market value, although concessions may be available in specific circumstances; and
  • a grant of a lease of any immovable property,
    1. if the term exceeds 30 years, 7.5% of the full market value of the leasehold interest in the real property; or
    2. if the term is 30 years or less, (a) where any premium or other valuable consideration other than or in addition to rent is provided, 7.5% of the amount of the premium; and (b) where the consideration or any part of the consideration is rent, (1) if the term is less than one year, 5% of the aggregate rent; (2) if the term is one year or more, but does not exceed five years, 5% of the higher of average annual rent or market rent; (3) if the term exceeds five years, but does not exceed ten years, 10% of the higher of average annual rent or market rent; or (4) if the term exceeds ten years, 20% of the higher of average annual rent or market rent.

Subject to limited exceptions, ad valorem share transfer tax is payable on the transfer or issue of equity capital in a land holding corporation at the rate of 7.5% of the proportionate value of the entire land holding. A land holding corporation includes a partnership, foreign corporation, chartered corporation, mutual fund or incorporated company (but not a corporation sole or charitable corporation) holding any legal or beneficial interest (excluding interests created pursuant to bona fide security instruments) in landed property in the Cayman Islands (or interest in another land holding corporation). Landed property includes freehold interests in Cayman Islands real property and any leasehold interest where the original term exceeded 30 years.

In addition, ad valorem stamp duty is payable (subject to certain exceptions that are again at the discretion of the Minister of Finance) on debentures and legal or equitable mortgages or charges of immovable or movable property within the Cayman Islands.

In the case of a debenture or a legal or equitable mortgage or charge of immovable property within the Cayman Islands: (i) where the sum secured does not exceed KYD300,000, duty is 1% of the sum secured; and (ii) where the sum secured is more than KYD300,000 (whether initially or after a further advance), duty is 1.5% of the sum secured.

In the case of a legal or equitable mortgage or charge of movable property within the Cayman Islands, duty is 1.5% of the sum secured (subject to a maximum charge of KYD500 where the security instrument is granted by a Cayman Islands exempted company, a Cayman Islands ordinary non-resident company, a Cayman Islands exempted trust or a body corporate incorporated outside of the Cayman Islands, or the security is over shares in a Cayman Islands exempted company or a Cayman Islands ordinary non-resident company).

Finally, policies of insurance for property within the Cayman Islands attract ad valorem stamp duty of 2% of the cost of the new or renewed property insurance premiums, which is usually added to insurance premiums.

Most other related instruments and documents are subject to a fixed rate of stamp duty in comparatively nominal amounts. Registrable instruments are also subject to relatively immaterial registration fees.

Subject to limited exceptions, real estate used for paid tourist accommodation attracts tax at 13% of the amount charged to each tourist.

There are no other domestic taxes or municipal rates currently payable on the occupation, acquisition, ownership or disposal of Cayman Islands real property or income deriving therefrom.

Generally the buyer/tenant will be responsible for paying any stamp duty and registration fees.

8.2 Mitigation of Tax Liability

There are no commonly used methods that can be employed to mitigate stamp duty on large real estate portfolio purchases. However, a purchaser is free to apply for a discretionary waiver or reduction of stamp duty from the Minister of Finance.

Where the acquisition is financed and secured by Cayman Islands assets, a mechanism exists to avoid ‘double duty’ on separate security instruments that secure the same debt. In such cases the ad valorem duty may be paid on the primary security instrument and the other security instruments can be expressed to be ‘collateral’, ‘auxiliary’, ‘additional’ or ‘substituted’ and attract a fixed rate of duty at KYD50.

8.3 Municipal Taxes

There are no municipal taxes paid on the occupation of business premises. However, subject to limited exceptions, real estate used for paid tourist accommodation attracts tax at 13% of the amount charged to each tourist.

8.4 Income Tax Withholding for Foreign Investors

The Cayman Islands does not directly tax income or capital gains.

8.5 Tax Benefits

See 8.4 Income Tax Withholding for Foreign Investors.

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