5 December, 2016
Purchasing a residential property is often the single biggest financial transaction of a person’s life. An acquisition of this magnitude is very important and needs to be taken seriously, regardless of whether it is your first or final house purchase.
A purchaser needs to be aware of all pitfalls, whether obvious or only potential, associated with the asset being sought. A shrewd purchaser will ensure all necessary steps are taken to minimise or remove risk. To ensure one does not fall prey to misrepresentation requires a combination of effective drafting, due diligence and proper use of the rights and options available to a purchaser.
Despite the fact that the purchase agreements used for most residential properties are standardized, purchasers should still be vigilant in assuring that their rights are protected. One such right which is often not appreciated is that the purchasers typically are permitted under the contract to make enquires and requests of the seller concerning the property. This provides a purchaser with a limited number of days to make queries once an offer has been accepted. It also offers the purchaser the opportunity to negotiate with the seller regarding any flaws or deficiencies in the property or the chattels being sold (e.g., air conditioning unit may be out of order). In the circumstances where there are deficiencies, the seller may elect to either fix the problem or the purchaser can request that there be a corresponding reduction in the purchase price.
The following are the types of enquiries that should be made by a purchaser:
Further queries that can be raised in respect of strata properties include the following:
When dealing with strata property buyers also need to understand the strata by-laws so they are aware of their right and obligations.
Another aspect of the contract that needs to be given proper consideration is whether any conditions beyond what one finds in the standard contract are necessary. The following example is intended to illustrate how important it can be to incorporate terms specific to one’s own circumstances.
Buyer A has made an offer to Seller B to purchase B’s home for a total value of $300,000 including chattels. Buyer A is intending to fund the purchase from monies to be generated from the sale of his existing home valued at $280,000 after which he intends to use his personal savings to satisfy the balance. As per standard residential contracts, he has been required to pay a 5% deposit at the time of signing to secure the purchase. Thus he has paid $15,000 upfront to Seller B.
As the parties move closer to the date for completion of the transaction, Buyer A has not been able to secure the sale of his existing home so has insufficient funds to close the deal. Seller B can either grant an extension to Buyer A so that he may have more time to sell his existing home or secure funds elsewhere or Seller B enforce the provision under the contract that “time is of the essence”, effectively forcing Buyer A to complete the purchase. If Buyer A fails to complete the transaction, he shall lose the $15,000 deposit and will remain liable for the balance of the purchase price if Seller A elects to file a claim under the contract and is successful in obtaining a judgment. Had Buyer A incorporated in a simple condition that the offer to purchase the property of Seller B was subject to him selling his current property then Buyer A could have avoided this current predicament altogether.
Further matters which a buyer should be cognisant of in respect of the purchase agreement includes the right to rescind (cancel) the contract and negotiating who is responsible for costs associated with the sale/purchase of the property. Additional factors, such as what stamp duty shall be payable should also be considered. Stamp duty is currently set at 7.5% of the purchase price with the only current exemption applying if the property is being purchased by a Caymanian who is a first-time buyer and certain other criteria are met.
Buyers also need to be mindful of the following additional considerations as part of the property purchasing process:
Purchasing a property is not an easy process but purchasers and sellers can significantly reduce their exposure to risk by retaining an attorney with solid experience in this area of the law. The attorneys of Broadhurst LLC have acted on property transactions in Cayman for over twenty-two years and can assist you in buying or selling properties. For further information on how we can assist you in this challenging process, please enquire with Tanya Meyerhoff at email@example.com or Kirstin Micucci at firstname.lastname@example.org
This publication and the material on this website was prepared for general information purposes only to provide an overview of the subject matter. It is not a substitute for legal advice nor is it legal opinion and should not be taken as such. It deals in broad terms only and is subject to change without notice. If you require legal advice, please contact us and arrange a consultation.