Associate solicitor Manisha Bhula, head of our Residential Property team, outlines key considerations when buying a new build property off plan.
“Buying Off-Plan” means purchasing a property which has not yet been built. You are buying on the basis of the developer’s plans of the property and development, and its specifications for the property.
Whilst the market is booming, buying off-plan can be very lucrative if the development increases in value whilst being built. It is important however to do some research into the development and surrounding area to determine the investment potential. Nothing is certain!
Some of the potential issues to bear in mind when purchasing a property off-plan are:
- Without seeing the finished article, the buyer has to rely on the developer to build according to the plans. A developer will usually contract with the buyer to build the property in accordance to the specification provided and in a good and workmanlike manner in accordance with the relevant planning consents and building regulation approvals. It is, however, also normal for the developer to retain the right to make alterations to the boundaries, although this should not affect the overall value of the property or the use and enjoyment of it.
- There will always be uncertainty as to when the property will be finished. The buyer has to rely on the developer to build the property on time. If taking a mortgage on the property a buyer should ensure that their mortgage offer does not expire until after the date in the Contract by which the developer agrees the property will definitely be competed (the long stop date).
- If the property is not complete by the long stop date the buyer can terminate the agreement to purchase the property. If this were to happen the developer would be required to return the deposit monies and any interest accrued. This could mean however that the buyer has lost alternative opportunities for investment.
- If the housing market declines the development may be worth less than the buyer has agreed to pay. A lender may not lend as much as its original offer, although this is most likely to be an issue if there is a high loan to value.
- If the developer goes insolvent after the buyer has put down its 10% deposit, the deposit may be at risk. Deposits will normally be protected by a new build insurance policy such as NHBC or Premier Guarantee. However, it may take quite some time for a disappointed buyer to reclaim their deposit from these organisations.
- A buyer should consider what they would do if their circumstances change before the property is finished. For example if they were made redundant there would be a risk that the mortgage lender could withdraw its offer. If this is a possibility a buyer may wish to consider whether they could insure against redundancy.
- Employing an independent “snagging” expert to inspect the property prior to completion should be considered. It is normal for the contract to require completion to take place despite any minor problems with the property. The developer will, however, have contracted to resolve any such issues which are drawn to their attention within a certain time period. It is therefore important to draw any issues to the developer as soon as possible.
- A buyer should not assume that they will be able to “flip the contract” by selling on before the property is complete. Most developers now add clauses to ensure it is the contracting party who completes the purchase of the property.
- As the property will not have been built at the time the buyer commits to purchase it, the developer may allow them to have a say in the fixtures and finishes of the property, such as the style of kitchen, tiles, etc. However, major changes are not likely to be permitted as this would cause the developer planning issues.
- If purchasing on a large development a buyer should consider which phase the property is in. If the property is located within an early phase of the development they should be aware that building works may well continue in the vicinity of the property for quite some time after completion of the purchase.
- If purchasing a property from a developer who is registered with one of the UK’s leader home warranty providers, NHBC, Premier Guarantee or LABC Warranty, the buyer will have the benefit of the Consumer Code for Home Builders. This code was developed to make the home buying process fairer and more transparent for purchasers. More information on the code can be found at www.consumerguideforhomebuilders.com.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
