The risks of buying an off-plan property

Buying an off-plan property means that you are committing to buying a house before it is even built.

You are choosing your home based on drawings and designs that are provided by the developer for a property that may not be built for months, or even years.

It becomes even more concerning when you consider that you are putting down a deposit of thousands of pounds for a home you haven’t seen.

Obtaining legal advice when considering buying an off-plan property is imperative.

Buyers need a complete understanding of the contract, terms of the sale and deposit protection so that they can be covered legally should the developer fail to complete the project or cannot fulfil their obligations.

What are the risks of buying an off-plan home?

While buying an off-plan property means that you can fully customise the home that you are purchasing, there are risks associated with buying this way.

Some of the risks associated with buying an off-plan home include:

Deposit loss – If a contractor goes insolvent, buyers may be at risk of losing their deposit if they are not protected properly.
Loss of equity – If the market is down, the completed property may be worth less than the agreed-upon purchase price.
Delays – Projects can sometimes be postponed or abandoned completely if there are financial or regulatory issues with contractors.
Quality issues – Sometimes, the final property may not match the expectations of the home.
Contractor insolvencies – You may have chosen your home because of the contractor who is building it. However, if they go insolvent, work is typically picked up by another contractor.
Specification changes – Contractors can sometimes make changes to the specification without consulting with buyers if there are not adequate legal provisions.
Mortgage rates – mortgage offers are usually only valid for 6 months. If the construction process overruns, it is possible that you will not be able to retain the rates you initially applied for.

It is important to consider these risks when you are thinking about buying an off-plan home. Seeking prompt legal advice is imperative to try and minimise the risk involved.

What legal protections do I have when buying an off-plan home?

Despite the risks of buying an off-plan home, there are legal protections in place to help ensure you are not left without your investment before the home is built.

The Consumer Code for Home Builders sets mandatory requirements that developers must follow, helping to protect buyers throughout the purchase process.

If you pay a deposit of between £100 and £30,000 by credit card, Section 75 of the Consumer Credit Act 1974 may provide additional protection.

Your contract may also include deposit protection through a developer-backed scheme or insurance.

In addition, warranty providers such as NHBC set construction standards and provide cover for certain defects, giving buyers further protection if problems arise with the property.

What key clauses should be in my contract?

For a desirable property, you may need to exchange contracts quite quickly. Contracts are typically passed on to your solicitor with no real opportunity to negotiate on terms.

If you decide to exchange contracts, there should be some key clauses included to ensure your safety.

The first of which is the completion and long stop date. If construction is not completed by a set date, known as the long stop date, this clause allows buyers the option to rescind the contract and withdraw from the purchase without penalty.

This clause is particularly useful where a developer is experiencing excessive delays, and there is no real prospect of completion within a reasonable timeframe.

There should also be deposit protections. Details of how the deposit is protected and under what scheme it is protected under.

There is the potential for the contract to be made conditional upon you having a valid mortgage offer at the point of completion if completion is expected in the distant future, i.e. more than 6 months later.

Additionally, strict developer obligations and specifications need to be mentioned. There should be clarity on materials, design and warranty coverage that protects the interests of the buyers.

In light of the Grenfell disaster and the Building Safety Act, a contract clause ensuring that the developer provides an EWS1 form in respect of the building (if it is a high-rise building) with a minimum B1 rating should be present.

Should there be defects, there needs to be provisions for how these defects will be resolved upon completion.

Contracts usually contain limited provisions around “snagging” so we recommend that anyone who is purchasing an off-plan property seeks the advice of a professional snagger so they can find defects in the home before they move in, so they can be remedied without interrupting your day-to-day life.

How can we help?

Some risks are associated with buying any home. However, when purchasing an off-plan home, significant risks are posed.

Getting in touch with a solicitor is imperative when you are considering putting a deposit down on an off-plan home.

Our talented team of residential property solicitors are here to support you every step of the way.

We can advise you on the risks involved and essential clauses that are needed within your contract to ensure that your home is perfect when you move in.

Should issues arise during the construction phase, we can support you in exercising your legal rights.