Buying New Build Properties Off-Plan
Buying off-plan means purchasing property that has not yet been built. The buyer is buying the property off a developer’s plan and specification of the property rather than after visiting and inspecting the property
Why do buyers purchase off-plan properties?
When you buy a property off-plan, you are agreeing to purchase at the current market rate rather than the price of the property at the time of completion. Buyers hope that the property will be worth more than the price paid at exchange. This is an advantage when the housing market is increasing in value, however, when the housing market declines the property may be worth less than that which you have agreed to pay at exchange, so it is best to consider both scenarios when purchasing off-plan properties.
As you are the first owner of the new build property, you may be able to request minor layout changes to the property or to the specification of the property as long as they do not alter the structure of the building or require further planning permission. For example, choosing the flooring, the wall tiles as well as where the electrical outlets are positioned. New build properties also benefit from a warranty for a range of structural issues; this warranty usually lasts for around 10 years.
Some developers may provide incentives for you to buy in the development, such as a discount to the purchase price, payment towards your stamp duty and legal fees. The developer may offer perks such as a furniture bundle. Repairs and redecoration costs usually are minimal for the first few years of ownership.
What to consider when buying off-plan?
As there is strong reliance on the developer’s plans and specifications, you must have faith in the developer’s ability to meet those standards. You must ensure that you are happy with the developer’s plans and the property’s specification. The developer will usually contract with the buyer to build the property in accordance with the property’s specification and the relevant planning consents. If the development is yet to be constructed, the developer may reserve the right to alter the design and layout of the property without the buyer’s consent. The contract usually restricts this right so that any variations that are made do not adversely affect the value of the property
With off-plan purchases there is no degree of certainty as to when the property will be built. You may have to rely on the developer’s estimates of when the property will be practically completed. As a lot of your money can be tied up in the development (deposits), off-plan contracts usually contain a long stop date which is the date by which the construction of the property must be finished by. If the property is not completed by the long stop date the buyer can terminate the contract to purchase the property and the developer will return the deposit monies to you. It is important to get your finances in place, as mortgage offers usually last for six months and you must make sure that your mortgage offer does not expire before the completion of the purchase
There are a lot of tight deadlines in off-plan purchases. Usually after the reservation fee has been paid, you will only have twenty-eight days to exchange contracts. You could lose your reservation fee if you do not exchange within the twenty-eight day deadline
Any deposits or sums that are paid to the developer may be at risk if the developer goes insolvent. It is important to ensure that they are protected by a new build insurance policy such as NHBC or Premier Guarantee
If the property is on a large development that is being built in phases, there may be continuing building works close to the property for quite some time after completion of the purchase
If you would like to discuss New Build conveyancing or purchasing off-plan in further detail, call us on 020 3906 2530 to speak to a member of the team.
** This note is brief and general in nature and does not constitute legal advice on the part of Silver Shemmings LLP and is it intended to only serve as a guide and should not be relied upon as a substitute for professional advice
Author Tringa Hashani has several years of experience in property law, acting for Housing Associations, Banks and Developers including acting for Housing Associations in large scale charging exercises, acquisitions & sales of large, mixed-use development sites, sales / purchases of residential & commercial properties, drafting head leases & sub leases for residential & commercial properties, rectification of unfavourable terms in leases, preliminary title investigation for portfolio advice, acting for various lenders in mortgaging & re-mortgaging transactions, reviewing tenancy agreements, rent deposit deeds & nomination agreements, reviewing & drafting S.106, S278, S104 Agreements & other planning / development Agreements, advising on title issues & rectification of errors found in title registers, dealing with the registration of unregistered land, including adverse possession registrations, creation of easements & extinguishment / release of easements