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Off Plan Contracts, Issues and Disputes

Off Plan Contracts, Issues and Disputes

A popular form of investment is buying property off-plan, in other words contracting to buy property to be built in the future. Apartments, student accommodation and hotel rooms are examples of the sorts of properties bought off-plan. Issues may arise between the date of the contract and completion. These can often be resolved but if a scheme stalls or collapses the problems can be much more serious.

The process of acquiring a property before it has been built, or off-plan, has been common in England and other parts of the world for many years. Properties are acquired for investment and for occupation. In this article we refer to purchasers and investors as investors.

In general we are instructed by investors in two situations. The first is where a contractual issue arises between the investor and the developer. One common issue is delay; another is whether the developer has failed to deliver what he promised, eg an apartment that conforms to an agreed specification. These issues can lead to disputes over the termination or specific performance of the contract, and to disputes over who is entitled to the deposit.

The second situation – which is now fairly common – is where the development has stalled or collapses and where the investor stands to lose a substantial deposit. Many investors from the Far East and elsewhere have found themselves in this situation. Normally an investor contracts to purchase property, pays a deposit of about 10%, and pays the balance of the price on completion of the contract. The developer funds the cost of acquiring and developing the site from his own resources or by borrowing money.

In recent years a new model has emerged: the buyer-funded development. The main difference under this model is that the investor pays a much higher deposit (in many cases up to 80%) and the money is released to the developer to purchase and develop the site – or, at least, that is what should happen. Unfortunately a lot of developments have stalled or collapsed. Developers have gone into liquidation and investors have lost their deposits. Developments where these sorts of problems have occured include New Chinatown in Liverpool, Angelgate in Manchester, and The Grosvenor in Bristol.

If a developer goes into liquidation it is unlikely that an investor will recover his deposit. In these circumstances investors invariably consider claims against third parties. The most obvious ones are the investor’s solicitors or possibly the developer’s solicitors. All solicitors in England and Wales must have insurance against professional negligence claims. The minimum amount of cover is £2m for each claim. Therefore if an investor has a good claim the money should be there to satisfy it. The general position is that an investor will have a claim if his solicitor is in breach of a duty owed to an investor and if that breach results in a loss.