Hurricane Damaged Property: The Practicalities

There was a notable decrease in the number of property transactions taking place after the hurricanes last year and it was clear that many prospective buyers put their plans on hold to assess the progression of the recovery. Since the beginning of 2018, we have seen a significant increase in interest from prospective buyers and in the number of property transactions taking place.

The majority of property transactions at the moment relate to hurricane-damaged properties that are being sold to buyers with the capital available to repair them. This is a positive sign as it is in nobody’s interest for damaged properties to be left to deteriorate.

An increased number of interested buyers should not come as too much of a surprise. The fundamental attractiveness of the BVI remains strong for many reasons, including that the BVI:

  • is a place of great natural beauty
  • benefits from a stable political and economic environment
  • utilises the US Dollar as its currency

Damaged property will not appeal to everyone (and for those people there are plenty of properties available for sale which withstood the hurricanes, or have since been repaired) but they do have appeal, because:

  • some buyers want to build their own home but are put off by the time it can take to design and construct their home from scratch. Even in the case of a property with severe damage, at the very least the foundations, cistern and some of the structure are likely to remain intact, meaning a buyer is able to undertake their project with a good head start
  • excavations and foundations are often some of the most expensive elements of a construction project in the BVI on account of the topography. Where these initial elements have already been completed, buyers may be able to undertake their project more economically than if they were starting from a blank slate
  • there is a good supply of properties available with motivated sellers in many cases

Part of the attraction of buying damaged property lies in its affordability, not least because of the opportunity for a stamp duty saving. Stamp duty on transfers of property in the BVI is calculated on the higher of the purchase price and market value of the property and is payable at completion. There is currently no form of capital gains or other tax attributable to any increase in property value over time which means there is an opportunity for tax savings on acquiring a lower value, damaged property and undertaking the necessary repairs, compared with acquiring a higher value, undamaged property.

Many properties currently on the market have been damaged to varying degrees and are being sold on an “as-is” basis. But what does the phrase “as-is” actually mean in practice? How does it differ from a regular sale transaction and are there any pitfalls to look out for?

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A sale on an “as-is” basis essentially means that the seller is selling and the buyer is buying the property in the condition in which it currently is and the buyer accepts the property in that condition. A seller may be selling at a loss or at a price that is below the expected sale price immediately prior to the damage. The buyer should not therefore have any expectation that the property will be repaired by the seller prior to completion or that the seller will offer warranties as to the state of repair or condition of the property.

This may seem a little daunting but this is not so different from the position on a regular sale.   Property acquisitions are generally subject to the Latin maxim caveat emptor or “let the buyer beware”. This is the principle that buyers are responsible for undertaking their own due diligence and making sure that the item that is being acquired (whether a property or other asset) is of the required quality and is fit for the purpose for which it will be put.

Prudent buyers will therefore undertake due diligence before committing themselves to acquiring a property. This due diligence will ideally take place before agreeing on terms with the seller, though the parties could enter into a sale and purchase agreement and make the sale conditional on due diligence being undertaken to the buyer’s satisfaction.

At the very least, a buyer should undertake a structural survey to determine whether the remaining structure is sound, or whether it will need to be demolished. Caution should be exercised in relation to property that has been subjected to flooding, in case of problems arising from erosion and ground stability. Buyers would also be well advised to obtain estimates from at least two contractors so that they understand the costs and timescales associated with rebuilding.

It may be some months between exchanging the sale and purchase agreement and completion taking place, particularly if the buyer has to get a loan or if a non-belonger buyer has to secure the grant of a non-belongers land holding licence. With that in mind, there are certain practical steps that a buyer and seller should consider taking between exchange and completion to protect the property, which is in the interests of both parties:

  • Securing the property – with the next hurricane season just around the corner, the property should be made weathertight so that it does not sustain further damage from any adverse weather
  • Flood prevention – irrespective of whether there is another hurricane this year, there is always the risk of heavy downpours and efforts should be made to clear drainage ditches to reduce the risk of flooding
  • Removal of debris – efforts should be taken to remove significant debris from the curtilage of the property so that it does not add to the risk of missiles in the event of another hurricane

There are undoubtedly opportunities in the BVI property market but now, as always, buyers should do their research, undertake due diligence and engage professional help to guide them through the process.

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Paul Mellor

Paul Mellor

is a Senior Associate of the Private Client group at the Harneys BVI office. He advises corporate and private clients as well as financial institutions on a range of commercial and residential property matters.
Paul Mellor

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