Buying an ‘off-plan’ property can be a slippery slope! What can we learn from a recent case in which multiple people lost large deposits?

The reality of purchasing property is plenty of hard-work, time, energy and money. There is a lot at stake, and many hurdles to overcome. There are various avenues that can lead one to being a homeowner, and some people choose alternative routes to others. One such alternative route is to buy a property ‘off-plan’. Like any choice we make in life, there are pros and cons to do so.

 

In this blog we will look at a case in which buying a property ‘off-plan’ was not successful for a group of people, who resulted to legal action against the stakeholder in their plans. We are able to learn some lessons from their misfortune.

 

What does buying ‘off-plan’ mean?

 

Buying off-plan is where someone purchases a home before the developer has finished building it. In some cases the buyer may make a financial commitment to the property even before any kind of construction has begun.

 

This may sound completely wild, but it is more common than you might think and does have its benefits. For example, the property will obviously be brand new, the property’s value may increase by the time the buyer moves in, there can be discounts to take advantage of and the property will come with an advantageous new-build warranty.

 

Although, of course there are risks. There is no guarantee that the final product will be to the buyers liking, the developer could possibly sue you if the purchase cannot be completed, and most mortgage lenders will not offer mortgages on off-plan properties.

 

There are many steps you should take in terms of legal security before proceeding with an off-plan property purchase. We will go into these later, but first let’s take a look into a recent case where it all went wrong for the buyers.

 

Various North Point Pall Mall Purchasers v 174 Law Solicitors Ltd

 

This case can act as a cautionary tale for anyone who is thinking about buying off-plan property. It is not to say we are against off-plan property, but this case magnifies the importance of correct arrangements when doing so.

 

The claimants in this case are 8 people who arranged with a developer to purchase 6 units within an off-plan development. The claimants paid hefty deposits to the developer’s solicitor who held the deposits as stakeholder to the order of a buyer company, which had been established to protect the buyers’ interests. These deposits were to be used to aid the development of the properties.

 

To protect the buyer’s deposits, it was agreed that a first legal charge would be entered against the land under the name of the buyer company.

 

The deal also contained a pre-agreement whereby the developer’s solicitor could not release the buyer’s deposits without the express authority of the buyer company.

 

Unbeknownst to the buyers, although a ‘legal charge’ in favour of the buyer company was registered, it was ranked as a second legal charge. In other words, it was subject to someone else’s charge. Attempting to rectify this defect, the buyer company and the buyers’ solicitors claimed to have done some walk-around work. Eventually, the buyer company agreed to permit the release of the buyers’ deposits.

 

The development site, eventually, was sold without the units being finished, meaning the buyers lost their deposits. The claimants brought claims against the developer’s solicitor, alleging that they had released their deposits to the developer in breach of the stakeholder contract, since no first legal charge was ever registered in favour of the buyer company.

 

 

The judgement

 

The appellant’s claims were dismissed. It was ruled that the developer’s solicitor was not to be held accountable for the release of the buyer’s funds, as it had the buyer company’s express authority to do it and that it was under no obligations to procure the first legal charge being registered. In fact, it was the buyers own solicitors who had authority to determine whether sufficient evidence of a first legal charge in favour of the buyer company had been produced. It was only then that the deposits could be released.

 

Our thoughts on the case

 

As you can see, all the buyers lost their deposits completely. In such circumstances, buyers should always be warned clearly in writing about any progress made within off-plan developments, or legal steps that are taken within any deal. What is more, this case also demonstrates how dangerous it can be for buyers’ solicitors as well, for failing to advise their clients properly. There is no doubt that such a failure will leave a mark on any solicitor’s reputation.

 

What should you bear in mind when buying property off plan?

 

Here are some tips that will be helpful to think about when buying property off-plan:

 

• Check the developer’s reputation. Do research into previous projects, check their customer reviews and see what third parties have been saying about them

 

• Check the planning consent with a solicitor.

 

• It is worth negotiating. Housebuilders may be more willing to come down in price when you are buying off-plan. This may come in the shape of them covering your stamp duty or reducing the eventual purchase price.

 

• Ensure you are protected. Devise a contract with your solicitor to make sure your money is safeguarded, and double check the developer has insurance in case they run out of money or are unable to complete the project.

 

• Ask for an estimation on when the property will be finished. This way, it is easier to keep expectations reasonable.

 

• Avoid paying disproportionately high level of deposit. The higher it is, the riskier the transaction can be, as buyers will inevitably suffer losses if the development goes wrong (it can happen in numerous ways!).

 

Have questions? Get in touch today!

 

Call us on 020 7928 0276, phone calls are operating as usual and will be taking calls from 9:30am to 6:00pm.

 

Email us on info@lisaslaw.co.uk.

 

Use the Ask Lisa function on our website. Simply enter your details and leave a message, we will get right back to you: https://lisaslaw.co.uk/ask-question/

 

Or, download our free app! You can launch an enquiry, scan over documents, check progress on your case and much more!

 

Links to download below:

 

iPhone: https://apps.apple.com/us/app/lisas-law/id1503174541?ls=1

 

Android: https://play.google.com/store/apps/details?id=com.lisaslaw