Thursday, December 4, 2008

Real Estate - Inheritance issues


They say two things in life are certain: death and taxes, both of which have implications in conveyancing.

I have noticed that some visitors to this blog have landed here after searching for issues relating to estate planning/inheritance/death duties in connection with real estate matters. This has led me to consider publishing an E-book so that I can shed some light on what is no doubt a scary (for some) but necessary and practical subject.

Please let me know via the comments or email (see the About Me section) if you are amenable to this.

Wednesday, December 3, 2008

Jamaican Real Estate in Trouble


Well another blow has been delivered to the housing markets with reports of climbing interest rates. Amusingly, this comes one day after an article in AXIAFX waxing about the phenomenal returns on investments in the Jamaican real estate market. It will be interesting to watch whether these so called high returns will be able to be sustained.

The fact of the matter is that the real estate market has been in decline for sometime and this should come as no surprise as the Jamaican economy is not immune to the shocks being felt in the United States and elsewhere. To compound the matter is the fall out encountered at the hands of those unscrupulous captains of the alternative investment schemes who exploited vulnerable and in some cases greedy participants. Now we have banks and mortgage institutions increasing interest rates under pressure from the Bank of Jamaica. This is supposedly an attempt to curtail the free fall of the Jamaican dollar relative to the US. It will however definitely impact negatively on local businesses on a whole and the real estate market is no exception as pointed out recently in the Jamaica Observer. For what this means is the cost of money will go up in circumstances where not much money is floating around anyway. It is no wonder that small business owners protested today about the hike in interest rates. They and we are staring at serious financial crisis a fact supported by the looming lay-offs and redundancies expected in some industries.

If this high interest rate policy is allowed to continue it is my humble opinion that the real estate market will not be able to yield the "phenomenal" returns referred to above. It will instead lead to more non-performing mortgage loans, more foreclosures, less purchases; in other words a general slow down if not collapse of the market. Fortunately these things are cyclical and the market will rebound. The question is when.

Thursday, November 13, 2008

In Case of Lost Land Title - Jamaica


It’s been a long time since I posted but work sometimes gets in the way. During my absence I completed among other things what we call a lost title application. That is an application made for the issue of a new title when a duplicate certificate has been lost.

This is governed by section 82 of the Registration of Titles Act. The application is made by statutory declaration to the National Land Agency (NLA) aka Titles Office. Again this is one of those applications that suffer from repeated rejections.

The Registrar of Titles needs details as to the place, date and circumstances under which the title was lost. If other persons who are not the registered owner(s) had access to the title then those persons must also give a supporting declaration. Thus the declaration must cover the following information:

1. when, where and how the loss occurred,
2. where the duplicate Certificate of Title was kept and by whom, and
3. when and where the duplicate Certificate of Title was last seen

Further the applicant must convince the Registrar that he has conducted exhaustive searches and that the title cannot be found.

In the event that the title is stolen or destroyed completely in a fire then a lost title application must be filed. This must  however be also supported by a police report or a fire report respectively.

If the title is subsequently found it must be sent to the Registrar for cancellation. Indeed the Registrar insists that in the body of the application you “undertake to deliver up the said Certificate of Title to the Registrar of Titles for cancellation if it ever comes into [y]our possession, custody or control.”

When the application is approved the Registrar will issue a notice with instructions to advertise in the local newspaper. It must be noted that if the title were lost abroad then you will be required to insert the notice in a local newspaper in the relevant jurisdiction.

You can get more information on this by visiting the NLA website where you can learn what to do if the registered proprietor is a company or if one registered proprietor has died. The cost of the application is also set out..

One must be very careful to be straightforward when one makes these applications as any person who makes a fraudulent declaration is liable to criminal prosecution.

All this can of course be avoided if you ensure that your important documents are stored carefully.

Tuesday, September 16, 2008

Real Estate in Jamaica - Time of the Essence

If anyone is going to insist on time being made of the essence in a contract for the sale or purchase of land, it is likely to be the vendor who wishes to get his cash as quickly as possible. However a vendor must also be able to complete by the stipulated date when time is expressly of the essence and there are cases when completion is actually delayed due to the fault of the vendor. I have seen contracts where time is of the essence in respect of the purchaser’s obligations only and I wonder who would agree to sign that. Not me. If time is made of the essence in the contract it must be mutually binding. Personally however, I prefer contracts which exclude any reference to time being of the essence.

What is time of the essence?

Vey simply, when a date is set for completion in the contract and time is of the essence, that means that the completion date is final. Thus if one of the parties fails to complete then he is exposing himself to a suit for breach of contract.

Where there is no express provision that time is of the essence, equitable principles state that the parties may be allowed a reasonable time, after the specified time period, within which to complete the sale. In practice therefore where time is not expressly made of the essence of the contract and a reasonable time after the completion date has passed, a notice to complete making time of the essence can be served by the innocent party on the delaying party giving him further time to complete. If the delaying party fails to perform by the date stipulated in the notice then he must face the consequences which can be very costly indeed. Many a purchaser has lost his deposit and faced further legal action as a consequnce of this failure. As they say: time is money.

It is important to note that anyone who serves a notice to complete making time of the essence must be ready, willing and able to complete himself. Otherwise his notice could turn out to be not worh the paper it is written on.

Thursday, July 31, 2008

Real Estate in Jamaica - The Witness to Signatures

One of the annoying little issues that parties in the real estate transaction should be aware of is that of proper attestation of documents abroad. I have had to return documents to clients, sometimes repeatedly (hence the annoyance), because they do not comply with the law in terms of attestation, or having their signatures properly witnessed. Signatories must realize that failing to comply with the legal requirement will result in a rejection of the document at the National Land Agency and hence delay in completion of the process, not to mention the cost of returning the document for proper execution.

Section 152 of the Registration of Titles Act governs this issue. For the purpose of this post I will set out the proper persons who can witness documents signed abroad:

Great Britain or Northern Island:
1. The Mayor or Deputy Mayor
2. Chief Magistrate or Deputy Magistrate Chief Magistrate
3. Notary Public
Any other Commonwealth country:
1. The Governor
2. Commander-in-chief
3. Judge of any court
4. Mayor or Chief Magistrate
5. Notary Public
A foreign country or state
1. The Jamaican or British Consular Officer
2. Notary Public.
The latter often creates a problem, as there is a proviso under the Act that there must be annexed to instruments witnessed by a Notary Public in a Foreign State or Country a certificate from the appropriate officer within that country or state that the Notary Public is duly commissioned and practicing in such State or Country and that full faith or credit can be given to his acts. What this means is that if you sign an instrument in Florida and your signature is witnessed by a notary public you must take another step of obtaining an original certificate (see sample below) from the authority that appointed the notary public, that simply verifies that at the time he witnessed your signature he was a duly commissioned notary public in that state.

For some reason clients fail to obtain this certificate, often referred to as an apostille, they tell you that the notary public says his stamp showing the date of his commission is fine, or that he does not know where to get the certificate or that he provided a copy of this certificate of appointment as a notary. These excuses will not be entertained by the National Land Agency and your document will be rejected.
If however you have a problem getting the certificate (Floridians have to send to Tallahassee) then try to find the nearest Jamaican or British consulate and request that the consular officer act as witness.

Monday, July 21, 2008

Selling Real Estate in Jamaica - Transfer Tax

Today I received a telephone call from an officer at the Stamp Office reagrding a contract for sale of property (land only) in Red Hills. The officer wanted to visit the property for the purpose of determining whether the sale price on the contract was reflective of the market value. This is a common practice in Jamaica where the Stamp Commissioner is entitled to look behind the sale price or consideration stated on the contract.

Indeed under the Transfer Tax Act the transfer of land shall be deemed to be for a value equal to the market value whether the property is transferred pursuant to a sale of even as a gift, and the tax is calculated as a percentage of the market value (formerly 7.5%, currently 6%). Some persons seek to understate the sale price and collect the additional amount outside of the contract, in the hope that they will be charged less tax but apart from the obvious risks associated with having to collect money NOT shown on the contract, the Commissioner might not accept the face value and assess tax on a higher amount. This is an issue that must be discussed thoroughly with the attorneys involved.

The Transfer Tax Act clearly states that the transfer tax "shall be borne by the transferor" or the vendor. It is important therefore, that a Purchaser - who is sometimes urged to pay this tax by a Vendor wishing to net more sale proceeds - understands who bears the obligation at law.

While the Vendor does not usually take money out of his pocket to pay the tax, his payment is usually effected as a deduction from the moneys paid by the purchaser towards the sale price. Indeed a 15% deposit is often required from the Purchaser because that amount is enough to cover the stamp duty and transfer tax which are payable early in the transaction.

This is not to say that a Purchaser must close his eyes to whether a Vendor honors his obligation. To further clarify the issue, section 18 of the Act provides that it is the purchaser (being the party spending the cash) who shall pay this tax but as it is really a cost to the vendor it can be deducted from sale proceeds or the Purchaser can even recover it by way of a lawsuit against the Vendor. The latter is important as the deposit out of which the tax is often paid is usually remitted to the Vendor's attorney and if he does not ensure that the tax is paid then a purchaser might have to make his own payment and rely on his right to recover from the Vendor in court.

Saturday, July 12, 2008

Buying Real Estate in Jamaica - Mortgage Costs

Since the issue of mortgage costs was raised in my last post I have decided to address it in more detail.

Many prospective purchasers are unaware that it costs to borrow money. Apart from the duties and other fees payable on the transfer of property, there are duties, fees and other costs payable on the mortgage side of a real estate transaction.








These include:

  1. Commitment Fee – payable to the mortgage institution starting at 1%. Some institutions like Victoria Mutual Building Society and Jamaica National Building Society have employed the marketing strategy of waiving these fees.
  2. Attorney’s Fee – payable to the attorney who prepares and advises the borrower on the terms of the mortgage instrument; this can start at 1% of the loan amount and do not forget to add General Consumption Tax (GCT) which is currently 16.5%.
  3. Stamp Duty – payable on the mortgage instrument itself, it amounts to 0 .625% of the loan amount.
  4. Registration Fee – payable to the National Land Agency to register the mortgage on the title; it amounts to 0.5% of the loan amount.

In addition to the above, since the mortgage institutions will require that you have the property surveyed and valued you will incur costs charged by the valuator and the surveyor. In some cases the mortgage institution will incorporate the fees/charges in the loan but this is only possible if the borrower qualifies for that increased amount. If not a purchaser will have to budget for these sums, in addition to the deposit and closing costs on a transfer, when considering purchasing a home.

Tuesday, July 1, 2008

Real Estate in Jamaica - Title Insurance Part 2

A forum was held recently by the Realtors Association of Jamaica addressing the Impact of Title Insurance on Real Estate practices and Land Management during which several stakeholders in the real estate industry including the Minister of Water and Housing met to inform and hear about recent developments.

The CEO of Caribbean Title Limited highlighted some areas where the real estate industry failed in its potential to maximize its contribution to Jamaica's economic growth. They are among others:
  1. Slow Processes - this can be seen in the lengthy delays in completing a real estate transactions especially in the areas of stamping documents, processing mortgage loans and registering mortgages and transfers
  2. Informalities - especially in the area of unregistered land where properties are sold by way of cash payment and the issuance of receipt with no transfer of title
  3. High Costs - the transfer tax and stamp duties at 6% and 4.5% on transfers of land for value are still considered high despite the fact that these are reduced amounts. We were informed that Jamaica ranks 157/178 in terms of high real estate transaction costs according to a World Bank Study.
Mr. Chris Hind of NEM Insurance presented on the nitty gritty of title insurance. Title insurance which is simply insurance against loss in the event that there are defects in titles or challenges to the ownership of title is supposed to provide the following additional benefits :
  1. Shorten processing time for sale transactions - if you have protection against the above identified loss then mortgage institutions should be able to disburse mortgage proceeds quick
  2. Guarantee a common law title - in the case of unregistered land you will recall in an earlier post where I spoke about the accessibility of mortgage financing to the common law title holder with title insurance.
  3. Reduce Costs - this is supposed to lower the costs of mortgage application by imposing one fee instead of several components.
In relation to costs those seeking to promote title insurance will need to do some serious marketing as there are some serious doubters out there. Here are the figures.

















Now while I can understand the developers or owners of expensive properties being able to afford title insurance as a buffer against high interest rates accruing during the period that their title takes to be perfected, I do not believe the typical owner of unregistered land in rural Jamaica will find a $50,000 processing fee plus a one time premium attractive. This is not an easy sell.

To soften the blow, the NEM rep assumes that the applicant will be seeking mortgage financing and advises that this $50,000.00 processing fee will become the entire charge for processing the mortgage loan (which of course includes title insurance) and that this is substantially lower than the usual costs associated with mortgage financing. It is interesting to note that to date only one mortgage institution - Jamaican National Building Society - has taken the step in the march toward title insurance, and so this "benefit" would only be accorded to those who borrow from JNBS. Of note too is that the fee for the owner's and lender's policy is the same taken singly and simultaneously. I suspect it is the buyer who pays for the lender's coverage.

I noted that few attorneys attended the forum. They would do well to bear in mind that the proposed lowering of the mortgage costs which is touted as an advantage when purchasing title insurance has been made possible through the removal of the attorney's fees usually involved in preparing the mortgages. On the other hand perhaps it is this very fact which influenced their lack of support of a movement which has been in force in several countries for some time and which has been creeping into others. Is it a just a matter of time before other financial institutions sign on? More importantly will the acquisition of this type of insurance become mandatory in the future?

Monday, June 23, 2008

Buying Real Estate in Jamaica: Subject to Tenancy

As I had pointed out in an earlier post. The contract will usually state whether or not the property is sold with vacant possession. If yes the vendor must remove all persons and goods from the premises as the purchaser is entitled to possession. If the property is sold subject to existing tenancies however the purchaser is entitled to the rents and profits of the property apportioned as of the date of completion.

If the property is tenanted and the purchaser wants vacant possession, it is very important for him to be aware of the fact that unless the property is exempt under the Rent Restriction Act there are certain restrictions on a landlord/owner's right to possession of the premises as against a tenant. The landlord/owner who contracts to give vacant possession on completion is obligated to do so. He should therefore serve a notice in accordance with the Act but if the tenant does not leave in accordance with the notice, he must go further and obtain a court order for recovery of possession.

Many are of the view that the Rent Restriction Act is favourable to tenants. Some vendors, mindful of the potential delays and hassle of engaging in a court case, are therefore unwilling to offer vacant possession and prefer to sell subject to the tenancy.

In some cases too, the tenant gives assurances of their willingness to leave but then they renege as they too understand the benefits of residing in controlled premises.

On the other hand a purchaser who buys for investment purposes or who does not want to reside in the premises immediately may wish to keep the tenant. This purchaser should ensure that that tenant is one who honors his responsibilities, by making careful inquiries of the vendor/landlord of the terms of the agreement he has with the tenant and the extent to which the tenant has complied. It is that purchaser who after all will be the landlord on completion.

Wednesday, June 11, 2008

Co-ownership : Real Estate in Jamaica

Recently I had to deal with a situation where property was held by two people as tenants-in-common. They both died and it created some problems because the estates of both deceased proprietors had to be administered in order for the property to be sold.

Where property is held by more than one person they hold it mainly as joint tenants or tenants-in-common. Some people don't know the difference between the two and make uninformed choices or don't choose at all and "end up" holding it based on the whim of one of the owners or an adviser who did not advise.

Joint Tenancy

This is a rather intimate style of ownership. For this kind of co-ownership has what is called the four unities ie. unity of possession, unity of time, unity of title and unity of interest. The effect of this is that each co-owner is equally entitled to possess any part of the property, each acquires his interest at the same time and under the same document of title and each has the same interest in the land, in other words each joint owner owns the whole property. Out of this comes the primary, distinguishing characteristic of a joint tenancy: the right of survivorship. This right is simply that on the death of one joint owner the survivor(s) take the interest of the deceased. So the interest of the deceased does not pass under his will or an intestacy.

Tenancy-in-Common

In this scenario each co-owner has a distinct share in the property which has not yet been divided. So one says they hold property in undivided shares. The only necessary unity is possession. Each tenant is entitled to possess any part of the property since one can't point to which part is his share but they may hold 50% each or 60% to 40% or 30% to 30% to 40% and so on. In this case you will appreaciate that there is no right to survivorship. So when one co-owner dies his interest devolves according to his will or the laws of intestacy.

In light of the above you can understand why there is a presumption in law in favour of a joint tenancy. It makes it easier to manage. As you will appreciate if there are say three (3) co-owners and one (1) dies then the other two (2) become the owners of the deceased's interest. All that is necessary is for the death of the deceased joint owner to be noted on the title. In the case of a tenancy in common the deceased person's Will would have to be probated or a grant of letters of administration obtained if he died without a will (intestate) so that his heirs could inherit his share in the property. This can lead to significant fractions of interest in properties, delays, confusion and difficulties in conveyance.

One can understand however why some persons may wish to own distinct interest in land separate from their co-owner especially if they are concerned that they might die subsequent to their co-owner and they wish to leave something for their children in whom their co-owner may not be interested.

It is worthy to note that a joint tenancy can be severed and the same property can then be held by the same co-owners as tenants-in-common; moreover and we won't go into detail with this but even though you own property as joint tenants in law, you may hold as tenants-in-common in equity.

Wednesday, June 4, 2008

Death of the Registered Proprietor

There may be a situation where a purchaser seeks to buy real estate and discovers that the owner has died. There may even be a more difficult circumstance, that is, where the Vendor dies in the middle of the transaction.

Death before Contract

In the case where the Vendor has died prior to the execution of a contract for sale then the question is who is now the proper person to handle the affairs related to that property and if the property is to be sold who can sell same.

If the Vendor has left a will naming an executor then the executor can sell same but most lenders will require proof of the executor's office by requesting to see a grant of probate. Though an executor steps in the shoes of the deceased on death, this request makes sense and a prudent Purchaser who is paying cash without resort to a lender should follow suit. If not he runs the risk of entering into a contract with a "Vendor" who has no authority to sell and who cannot effect a transfer of the property.

If the Vendor has not left a will naming an executor than an Administrator being the deceased's personal representative is a person who could be authorized to sell. In this case the proof of authority is a grant of letters of administration.

In the above situations a lawyer will be able to guide a Purchaser as to the best way to proceed so that he does not fork out funds to pay a deposit to buy property from someone who is not authorized to sell.

Death after Contract

If the Vendor dies after the contract is signed by all parties and the deposit is paid by the Purchaser then the personal representative of the deceased ie. Executor or Administrator can complete the transaction.

There is a useful and interesting section under the Registration of Titles Act of Jamaica which provides that the Registrar of Titles may in his discretion make a vesting instrument, vesting land in a purchaser and issuing title in the name of the Purchaser where there is sufficient evidence of certain conditions namely:
  • the land has been sold
  • all the purchase money has been paid
  • the purchaser with the agreement of the vendor/his personal representative has entered into possession of the land
  • the land cannot be transferred to the Purchaser as the vendor/his personal representative is dead, absent from Jamaican or cannot be found or such circumstances exist to make it impractical to obtain the signatures of the vendor/his personal representative in a reasonable time.
If a Purchaser finds himself in the situation outlined above, it is recommended that he consult an attorney to make the necessary application to the Registrar of Titles so that he can obtain title in his name.

Tuesday, May 20, 2008

Restrictive Covenants - Jamaican Examples

Some people view the concept of restrictive covenants as somewhat perplexing and depending on the issues surrounding a particular case the issue can seem obscure. One thing that is important to understand is that adjoining Lots A and B will be subject to the same list of restrictive covenants if their homes form part of a building scheme. Since those covenants restrict both lot owners from doing certain things which will affect the land each lot owner similarly benefits from the covenant on his neighbour's land.

For those buying or selling real estate in Jamaica, let us look at some practical and common examples.

User

“The building on the said land shall not at any time be used for the purposes of a club school chapel or church and no trade or business whatsoever shall be carried on upon the said land or any part thereof and the said buildings shall be used for the purposes of a private dwelling house only.”

This kind of covenant addresses the use of the property. In many cases proprietors and/or their tenants occupy premises and conduct business in blatant breach of this covenant. As I had stated in my previous post in the event of an actual or anticipated breach of these covenants the adjoining owner for whose benefit the covenant has been imposed can seek legal redress. Adjoining neighbours who ignore this covenant often do so at their peril, as pretty soon the breaches may be copied by other proprietors and then the character of the neighbourhood will start to change, seeming more commercial than residential.

Boundaries

“No building or erection on the said land shall be nearer than Eight Feet (8ft) to the boundary of the said land on which the building fronts or nearer than Five Feet (5 ft) from any other boundary "

This kind of covenant is akin to a setback or the distance from which a building is set back from a street, a road or a river. In addition to these covenants, development orders also provide for setbacks. There are reasons for them such as to allow for privacy between neighbours, to reduce fire hazards, to allow for the free flow of storm water and to allow access to public utilities. Once again unfortunately in many cases breaches of these usually precede any consideration of enforcement of the covenant.

Subdivision

“There shall be no sub-division of the land above-described. "

This is often the first covenant shown on the title. Sometimes the wording includes "further sub-division". Modification is often sought for this covenant especially if the subject property is going to be used for the contruction of apartments or townhouses. Sometimes too, owners of large tracts of land cut them up into smaller lots for sale and subdivision is required in order for titles (usually referred to as splinter titles) to be issued for each individual lot. In this case in addition to the modification of the covenant, subdivision approval must be obtained.

Neighbours and purchasers must be vigilant. It is important to note that in many cases modification is sought in order to remedy an existing breach. The court will order that persons who are entitled to the benefit of the restriction must be served with notices of the application to modify or discharge the covenants. In addition, the applicant must advertise the notice in the daily newspaper. Persons who find the application objectionable must OBJECT!

As for purchasers, you must be mindful that the vendor can seek to extricate himself from the responsibility of rectifying breaches, so contracts for sale should be scrutinized with the expertise of an attorney. Further, remember to have the property surveyed by a Commissioned Land Surveyor. The financial institutions/mortgagees tend to have a zero tolerance policy where breaches occur because they do not lend on titles which are imperfect. Thus, even where the covenant breached is one concerning the distance to the fence and the breach occurs because the eave causes the building to be closer than mandated, the mortgagees will insist on modification.

Monday, May 12, 2008

Restrictive Covenants - Buying Real Estate in Jamaica

Having recently read some posts on the Trafalgar Council Blog which addressed widespread breaches of planning laws and regulations governing construction and community development I was motivated to address the issue of restrictive covenants.

A restrictive covenant is simply an agreement between a Vendor and a Purchaser where the Purchaser covenants that he will not do certain acts in relation to the use or the land. Originally a covenant at law was only enforceable against parties who had agreed to be bound under a contract. Instead of going into the legal details it is sufficient to state that with the assistance of equity the foundation was laid for a negative covenant to be enforceable against not only the original covenantor but also his successors-in-title. So we say that restrictive covenants run with the land.

In an earlier post I had stated that when securing financing to buy property in Jamaica, you will be required by the financial institution to submit a surveyor's report. This report will show if there are any breaches of restrictive covenant. The presence of the breach is in some cases very detrimental to a sale as sometimes it is so egregious it cannot be rectified except by demolition or by the expenditure of sums the Vendor may be unwilling to pledge.

If you are a prospective buyer you through your lawyer should conduct a title search. You will observe the restrictive covenants on the face of the registered title. This is particularly so where the lands are part of a housing scheme whether single unit, townhouse or otherwise eg. Harbour View, Mona Heights, Edgewater, Calabar Mews. In these cases the covenants are usually imposed via the transfer signed by the original owner/developer for each individual subdivided lot and the first purchaser.

We will address new subdivisions later but will add here that when an application is submitted to the parish council for subdivision approval, the authorities themselves will require that certain covenants be imposed in order to preserve the character of the neighbourhood. Thus a covenant may be imposed restricting the land from being further subdivided or restricting the use of the property to residential purposes. In the event of an actual or anticipated breach of these covenants the adjoining owner for whose benefit the covenant has been imposed can seek legal redress. Unfortunately this happens rarely or only in the case where the party in breach or who wishes to effect the breach seeks modification of the covenant and notifies his neighbours.

Under the Restrictive Covenants (Discharge and Modification) Act a restrictive covenant can be modified or discharged by way of an order of a court if certain conditions are met. If a breach is found the prospective buyer's mortgage institution will in most cases demand that it be corrected. Depending on the terms of your contract for sale this is usually an obligation of the Vendor and so the Vendor's attorney must agree to apply to the court to modify or discharge the covenant or to remedy the breach by altering the use of the land to comply with the covenant. If not the mortgage company will withhold part of the mortgage proceeds.

It is important to stress that even if a buyer is not borrowing from a financial institution to finance the purchase of real estate in Jamaica, he should secure the services of a land surveyor. If he pays cash and does not have his property surveyed for compliance with the boundaries and the covenants he may find himself in the uncomfortable position of purchasing property with a defective title for which he may himself have to pay the price of correcting in the future.

Wednesday, April 23, 2008

Real Estate in Jamaica - Title Insurance

There has been quite a bit of excitement in the real estate industry lately with talk about the introduction of title insurance by NEM insurance company. You will recall my earlier post about the complicated and bureaucratic experience inherent in transactions in the Jamaican real estate market.

Take a look again at my description of the structure of our land ownership system which comprises the Torrens title system and the common law title. In the case of the former, the land title is registered and this means among other things that it is guaranteed by the government of Jamaica. Demonstrating ownership to common law title/unregistered land is less certain however and depends on proof of an unbroken chain of title back to a good root of title.

The idea of title insurance is to combat the defects in the systems by providing protection against loss. Whereas registered title has lots of advantages the process of obtaining same can be very time consuming and even confusing whether it is applying to register splinter titles in a new subdivision or just transferring ownership in one title. With the introduction of title insurance financial institutions will be offered the security they need to make loans allowing land developers access to mortgage financing without the actual perfected title.

In the case of owners of common law title, if their titles are covered by title insurance, they will also have access to financing as, as they would now be able to get mortgage loans.

Indeed Jamaica National Building Society's general manager Earl Jarrett has said that they will accept NEM's title insurance policy. We look forward to the anticipated benefits that are to flow from this intiative.

Saturday, April 19, 2008

Real Estate in Jamaica - Watch the Market


As I had pointed out in my first post, the Jamaican real estate market is not currently experiencing the downturn seen in the US market. Townhouse developments and apartments are still being established by developers and prices are still sky high. It continues to be a vendor's market especially in the attractive residential areas of Upper St. Andrew and the tourist mecca areas on the North Coast like Ocho Rios, Montego Bay and Negril. Just take a look at these listings on Craig List and the Gleaner classifieds.

There is some concern though that the market may trend downwards in light of the stress being placed on the economy with the increase in inflation and in particular the fall out caused by the crash of the unregulated financial institutions. This recent debacle involving Cash Plus and others has resulted in property mortgages going unserviced and cash flow being reduced. One probable consequence of this is that the real estate market could start to show signs of sluggishness such as:

  • The volume of high priced houses currently on the market could face difficulty attracting buyers at the current rates.
  • Also some holders of heavily mortgaged properties and other debts will need to liquidate properties expediently and expeditiously.

If you are a propspective buyer with the available cash you might wish to watch this carefully. In any event keep the market in mind at all times when negotiating the price. Get assistance from your realtor and your attorney. If there is no demand for the property at the quoted price, it will not sell. Some properties especially those on the beach front are so high end however, they are like diamonds and you know you can barely place a price on those.

Monday, April 14, 2008

Jamaican Real Estate - Money and Foreign Exchange Issues

One of the issues foreign purchasers/vendors often concern themselves about is the money aspect of the real estate transaction in Jamaica.

This is due to a number of reasons. Such as:
  1. Money will have to be transmitted to Jamaica from a foreign country
  2. Money will have to be transmitted away from Jamaica to a foreign country
  3. Money laundering laws require persons to declare the movement of large sums of money to bank accounts
  4. Foreign Exchange rates can affect the cost of the transaction or the value of the proceeds of sale.
If you are obtaining your funds from abroad. You should confer with your attorney as to the logistics of the process. In addressing this issue it is important to bear in mind that if a buyer’s cheque is drawn on a foreign account then it will take upwards of 20 working days to clear at a Jamaican bank depending on the particular bank. 20 working days is equivalent to a calendar month so this can delay a transaction seriously. There are other alternatives to having quick access to foreign funds such as, wiring the funds to an account in Jamaica. It is therefore necessary to discuss this with your attorney to address the best method available to facilitate the purchase.

If you are a seller and the funds are to be sent from Jamaica you must consider the customs requirements to declare any funds above a certain amount if you are traveling with the money. Again you may choose the better option to wire same from Jamaica and you will be required to classify the funds. In this case you would identify them as proceeds of sale of real estate. Remember money laundering laws are in effect and large sums of deposits attract attention. Also bear in mind that there are bank costs associated with wiring funds.

The value of Jamaican currency fluctuates regularly and sometimes the movements can be alarming. Yesterday the value relative to the US currency was J$71.06:US$1.00. You can consult the Bank of Jamaica to learn more. The important issue however is to remember that at the beginning of the transaction the cost of the transaction in the case of a purchaser and the value of the sale proceeds in the case of the vendor could be higher or lower than the cost or value at the end of the transaction depending on the exchange rate. One method often used by the parties to avoid the uncertainty is to transact the business in the foreign currency. Consult your attorney about this and discuss how the local costs are to be calculated if the price payable is in foreign currency.

Friday, April 11, 2008

Real Estate Transactions in Jamaica - Completion

The contract for the sale of land in Jamaica usually specifies a date for completion of the sale. Both parties should make their best efforts to provide all documents, make all payments and affix all signatures so that the completion date can be met.

If the contract does not make the completion date of the essence of the contract it does not mean that delays will be condoned. The contracts often include provisions for the payment of interest on the balance of the purchase money from the date set for completion until the actual date of payment. This clause as to interest can make it payable in the event of delay due to:

1. any reason 2. the purchaser’s fault 3. any reason except the vendor’s fault

Hence you must have your attorney explain to you all clauses and their implications.

In any event time can be made of the essence of the contract in respect of the completion date by either the vendor or the purchaser. Either party must give notice to the other party to complete within a prescribed period which ought to be reasonable in the circumstances.

The contract will usually state whether or not the property is sold with vacant possession. If yes the vendor must remove all persons and goods from the premises as the purchaser is entitled to possession. If the property is sold subject to existing tenancies however the purchaser is entitled to the rents and profits of the property apportioned as of the date of completion.

On completion the purchaser usually obtains title endorsed in his name and possession of the property with the attendant benefits and the vendor gets his net sale proceeds.

Monday, April 7, 2008

Real Estate Transactions in Jamaica - Post Contract

After executing the contract and paying his deposit the Purchaser then has to work on getting the balance purchase price to hand. If he is getting a mortgage loan he must meet with his lender(s) to ensure that they send out a letter of commitment to the Vendor within the time stipulated in the contract.
The lender(s) also referred to as the mortgagee(s) will have indicated to the Purchaser certain conditions which must be met before they can commit to the loan. They will instruct the Purchaser to present information relating to:
  1. Income & Expenses – income statements must be presented to substantiate the declaration as to the amount earned; bank statements must be presented to substantiate claims as to savings
  1. Credit report – this is crucial to determine whether you are a credit risk
  1. Property
    1. Valuation report to confirm whether the value of the premises is high enough to support the investment by the lender. This is important as if the Purchaser defaults on his payments the lender would wish to recoup his investment;
    2. Surveyor Identification report – this is necessary to reveal whether there are any breaches of restrictive covenants, any discrepancies between the registered boundaries and the boundaries on earth and any other defects in title.
The issue of examining and inquiring about a property is a most important obligation of a purchaser. The rule of caveat emptor (let the buyer beware) is a rule which tells a buyer that he is to take responsibility for what he is planning to buy. Therefore even if the purchaser is buying cash he should avail himself of the services of a surveyor and a valuator to ensure that he is getting good title, good quality property and value for the money his is expending.
Once the purchaser delivers the mortgage commitment to the Vendor’s attorney he should get a statement of account to ascertain whether the loan covered all money payable (both purchase price and closing costs). If not he will have have to pay the balance before the Vendor’s attorney usually lets him sign the Instrument of transfer.
The Instrument of transfer is the document which will be sent to the National Land Agency along with the certificate of title so that the buyer’s name can be endorsed on the title.

Thursday, April 3, 2008

Real Estate Transactions in Jamaica – Contract

It is recommended that all contracts for the purchase/sale of land in Jamaica be in writing. This is essential if the contract is to be enforced in the courts. There is an exception to this called “acts of part performance” but this will not be discussed here.

In Jamaica the vendor’s attorney usually prepares the contract and sends it to the Purchaser or if he has one, the purchaser’s attorney. It is recommended that the purchaser contracts the services of an attorney especially as some of the clauses in the contracts can be lengthy and require clarification. Some Purchasers use the same attorney as the vendor in a bid to reduce costs. This is often frowned upon and in any event it can cause problems if a conflict arises between the vendor and purchaser.

All contracts are governed by some basic rules and contracts relating to the sale of land are no different whether they are by private treaty or by auction. The contract must contain an offer by the purchaser and acceptance by the vendor. The acceptance in most cases is conditional on formal written contracts being signed and exchanged. An auctioneer can sign a contract as agent in a real estate transaction, but a lawyer has no such authority without clear specific instructions from his client.

The purchaser usually pays his deposit, gets his receipt and signs the contract. The vendor then usually follows suit and each person gets a duplicate of the contract. If the purchaser is abroad he should remember to seek an explanation of all the terms and conditions from his attorney before he signs or has an agent sign on his behalf. All signatures should be witnessed.

The vendor’s attorney usually then submits the contract to the Stamp Office in order to obtain the assessment for transfer tax. Transfer tax which is currently 7½% is a charge which must be borne by the vendor and is calculated on the market value of the real estate as opposed to the stated contract price. Stamp duties are based on the values declared on the face of the contract and are usually shared equally between the vendor and the purchaser.

Update: The Minister of Finance in his recent budget speech announced that effective May 1, 2008 the transfer tax will be reduced to 6%.

Wednesday, April 2, 2008

Selling Jamaican Real Estate - Precontract Matters II

VENDOR

If you are a fan of HGTV you may think that most vendors engage the services of experts who help them to make extensive repairs or enhance the design of their properties in order to effect a big sale. This is not usually the case in Jamaica. If the imperfections are obvious the vendor may make some minor repairs and accept the value likely to be established by the market. The fact is that the real estate market in Jamaica does not typically undergo and is not currently experiencing the shocks now seen in the US market; and so a vendor can usually get a good price especially if the property is situated in a good location.

Prior to entering into a contract to sell his premises it would be prudent for the vendor to:

  1. Explore with realtors, neighbors or a valuator the prices at which similar properties are being sold.
  2. Advertise the property for sale via the classifieds, the internet or through a real estate agent.
  3. Consult an attorney who specializes in real estate to establish the taxes, duties, commissions and other costs involved which will be deducted from the gross sale proceeds.
  4. Check to see that the title is free and clear of defects. Some defects may include breaches of covenants. Consult your attorney about the effects of this as this may affect the sale and/or the net sale proceeds.
  5. Pay all outstanding property taxes and water rates. As to the property taxes, ask for a certificate of payment of taxes and not only your receipt as proof of payment of all back taxes.
  6. If the property is occupied by tenants disclose same to your attorney and seek his advice on the best way to deal with this.
  7. If you own the property jointly with someone make sure that person is capable of agreeing to the sale and can sign or authorize signing of the contracts.

Tuesday, April 1, 2008

Buying Jamaican Real Estate - Precontract Matters

Buying Real Estate in Jamaica.

Some of the preliminary issues that a buyer should consider are:

  • Price: The property is usually advertised in the newspaper classifieds or listed with a real estate agent at an asking price set by the Vendor. Negotiations can take place through the realtor or your attorney to seek a reduction in price.
  • Property: Sometimes the contract contains some strong conditions binding the Purchaser to buy the property as is and/or absolving the Vendor of his standard obligations. Thus a purchaser prior to signing a contract should be mindful to address certain points.
        1. Tenants may be living in the property and the contract may be subject to the tenancy.
        2. Thorough home inspections as conducted in the United States are not usually a condition of the contract so buyers must be willing to take this upon themselves or bear the risk of buying real estate with expensive patent defects.
        3. If you are obtaining mortgage financing you will have to have the property surveyed and valued. The survey will address issues such as breaches of restrictive covenants and discrepancies between the buildings and/or boundaries and the registered plan. These costs are for the Purchaser.
  • Title: Some people conduct title searches after execution of the contract but I prefer to do it before. The title shows the name of the registered proprietor, the description of the property, mortgages and other legal interests. Searches can also be conducted to determine:
        1. any equitable interests such as charges which are not shown on the face of the title.
        2. whether any fraudulent activities have been associated with the relevant title.
        3. if the registered proprietor is a company. Searches should be made at the relevant registry to determine whether the company is still listed and the principals thereof.
In addition, if a prospective buyer is hoping to get a mortgage financing he should visit a reputable financial institution to see if he could pre-qualify.

After satisfying himself about the above issues the Purchaser will then go on to matters of contract.

Friday, March 28, 2008

Real Estate in Jamaica

Buying and Selling real estate in Jamaica is often regarded as complicated especially when one of the parties is a foreigner. The process is based on the English common law and the Torrens title system. It is often long, expensive and some believe unnecessarily bureaucratic. It is for this reason that it is recommended that anyone buying or selling real estate in Jamaica employ the services of an attorney who specializes in conveyancing.

Conveyancing is the process by which legal title in land is transferred. Many but not all properties in Jamaica are registered at the National Land Agency commonly referred to as the Titles Office. Some owners have common law title to their properties and while one can purchase those properties it is recommended that a buyer request the vendor to apply for a registered title. The registered title carries with it many advantages including but not limited to the fact that it is a fairly simple document which provides proof of ownership of property which is clearly described. Also it is acceptable security at financial institutions for mortgages and other loans. More on the registered title later.

Before I get into the details I must confirm that there are no restrictions to foreigners acquiring real estate in Jamaica.

The usual conveyancing transaction involves:
  • the pre-contract stage - viewing the property, searching the title, negotiating the price and other contractual terms
  • the post contract stage - exchanging signed contracts, stamping sale agreements, obtaining mortgage commitment, signing and registering transfer, mortgage and other relevant documents
  • completion - granting possession to the purchaser, title endorsed in his name and remitting net sale proceeds to the vendor.
The entire conveyancing transaction typically takes about 12 weeks after the contract is signed.