Resort Hotel And Condominium Developments In The Cayman Islands - A Recent Judgment Undermines The Ability To Control Rentals

1. It is common for the developers of resort hotel and condominium developments to seek to control future rentals of condominium apartments within the resort that are to be sold to third party owners. Typically, control may be exercised through a requirement that any apartment rental should be through a single management company designated by the developer. There may also be restrictions placed on the ability of owners of apartments to offer them for short term rentals, especially where to do so may risk competition with the hotel at the resort or be potentially disruptive of the enjoyment of other owners of apartments who may have purchased them for long term private occupation. The objective is generally to ensure that all rentals and management are conducted in a coordinated manner so as to facilitate the maintenance of the desired overall standard of the resort. This may be particularly significant where the resort enjoys the benefits of branding, as is the case with the Ritz Carlton Resort in Grand Cayman.

2. Also, where a condominium complex does not include a hotel but simply comprises private residential apartments the owners may collectively wish, in the interests of their own quiet enjoyment and the general amenity of the complex, to restrict the terms on which any one of their number may rent an apartment to short-term vacationers.

3. A judgment delivered in June 2014 by the Grand Court of the Cayman Islands in Foith and Others v The Proprietors, Strata Plan 436 and Others (Cause No. 358 of 2013) , which concerned the Ritz Carlton Resort, casts doubt generally on the validity of by-law restrictions on the rentals of apartments comprised in condominium complexes, and is therefore very significant for what has hitherto been a common practice.

4. There are 73 third party owned condominiums in the South Tower and the North Tower of the hotel complex at the Ritz Carlton. As is typical in the Cayman Islands and certain other jurisdictions, the condominiums are held on strata title. There are separate strata corporations for each of the North and the South Towers but the strata by-laws are in materially the same form for each. In Foith a few owners challenged the legality of by-law provisions that required any rental to be through a designated management company and which prohibited rentals for less than 30 days that were not with the consent of the executive committee of the strata corporation. The plaintiff owners had purchased with full...