HSM LAW
Overview on Registering and Paying Stamp Duty on Leases in the Cayman Islands
In the Cayman Islands, the registration and payment of stamp duty on leases is essential to ensure compliance with local statutory requirements. HSM Property Partner Linda DaCosta provides an overview of the legal obligations related to leases exceeding two years Read more +
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Overview on Registering and Paying Stamp Duty on Leases in the Cayman Islands
In the Cayman Islands, the registration and payment of stamp duty on leases is essential to ensure compliance with local statutory requirements. HSM Property Partner Linda DaCosta provides an overview of the legal obligations related to leases exceeding two years in the Cayman Islands, including registration procedures and stamp duty rates.
What is a Lease?
A lease is a contract by which the legal registered proprietor of property (the “Landlord”), grants exclusive possession of that property to another person or company (the “Tenant”), in exchange for the tenant’s periodic payment of a sum of money.[1]
What is Stamp Duty?
Stamp duty is a form of tax that is levied on certain legal documents, including leases. It serves as an official recognition of the transaction and contributes to government revenues. The Stamp Duty Act (2019 Revision) (the “Stamp Duty Act”) governs the application of stamp duty in the Cayman Islands.
When is Stamp Duty Required on a Lease?
Leases of any term are subject to stamp duty in the Cayman Islands. This applies to both commercial and residential premises. Stamp duty shall be payable at the time of execution of the document, or within 45 days of execution.[2]
How is Stamp Duty Calculated?
The stamp duty on leases is calculated as a percentage of the average annual rent over the term of the lease. Common Area Maintenance (CAM) charges and other tenant outlays under the lease are excluded from the calculation of rent.
The rate of stamp duty is typically as follows:
| Rate | Lease Term |
| 5% of Average Annual Rent or Assessed Market Rent[3] (whichever is higher). | For a lease term of 5 years or less, where no premium is payable. |
| 10% of Average Annual Rent or Assessed Market Rent (whichever is higher). | For a lease term of between 5 and 10 years, where no premium is payable. |
| 20% of Average Annual Rent or Assessed Market Rent (whichever is higher). | For a lease term of between 10 and 30 years, where no premium is payable. |
| As above plus Duty assessed on a Transfer of Land on the value of the premium. | For a lease term of 30 years or less, where a premium is payable. |
| Assessed on the Market Value of the Freehold interest at Duty rate a Transfer of Land. | For a lease term of over 30 years. |
When are Leases required to be Registered?
Pursuant to section 46 of the Registered Land Act (2018 Revision) (the “Registered Land Act”), leases exceeding two years must be registered with the Lands and Survey Department. Registration in the prescribed form provides public notice of the lease and protects the parties’ rights in the event of disputes or challenges.
What are the Penalties for Non-Compliance?
Failing to pay the required stamp duty on a lease can result in significant penalties, including:
- Fines: Pursuant to section 23 of the Stamp Duty Act, a monetary fine of twice the amount of the deficiency will be payable on unstamped leases.
- Disputes in Enforceability: Subject to the relevant provisions of the Evidence Act (2019 Revision) and section 23 of the Stamp Duty Act, a lease may not be enforceable in a court of law if it is not properly stamped (or up-stamped if penalties are payable).
Conclusion
Understanding these legal requirements is essential for anyone entering into such leases, whether for residential or commercial purposes. By registering leases and ensuring stamp duty is paid, landlords and tenants protect their interests and remain in compliance with local laws, avoiding potential fines and legal complications.
For assistance with registering leases or understanding your stamp duty obligations, it is advisable to consult a qualified Attorney in the Cayman Islands who can guide you through the process and ensure compliance with all relevant regulations.
Footnotes
[1] Street v Mountford [1985] AC 809
[2] Section 20 of the Stamp Duty Act.
[3] Assessed Market Rent is defined in the Act as: “the estimated amount for which the property should let on the day of the valuation between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction after proper marketing wherein the parties had acted knowledgably, prudently and without compulsion.” In other words, stamp duty is payable either as a percentage of the actual rent unless government believe it is being rented at an undervalue, in which case, it will be assessed at market rate.