The level of buyer protection you have as an investor changes between countries and developers. So how can you protect yourself when buying off plan property in the UK? Make sure you know what to look for, what your rights are and the obligations of the developer before you sign your contract.
As an off plan property investor, the two most important things you must consider regarding adequate buyer protection are:
- DEPOSIT PROTECTION – WHAT HAPPENS TO YOUR DEPOSIT IF THE DEVELOPER FAILS TO COMPLETE YOUR PROPERTY OR BECOMES INSOLVENT?
- INSURANCE AND BUILDING WARRANTIES – WHAT HAPPENS IF SOMETHING GOES WRONG WITH THE BUILDING AFTER YOU HAVE COMPLETED THE PURCHASE?
If you’re buying off plan property in the UK, it’s relatively straightforward to ensure that your deposit is protect and that you have cover if the something goes wrong with the building once it’s completed. Developers are not obliged by law to provide these protections, but most reputable developers will have these provisions in place. Here’s what you need to do and what to look out for to make sure you’re protected. Make sure you check these things before you exchange contracts.
1 – DEPOSIT PROTECTION
What happens to the deposit you have paid if the developer does not complete your property or becomes insolvent?
You must ensure your deposit is protected and that you have appropriate protection within the contract (the sale and purchase agreement). You need to make certain that you can withdraw from the purchase and recover your deposit if the developer does not complete the property within the stipulated time, or if the developer becomes insolvent.
You can ensure your deposit is protected in one of two ways:
- Ensure your deposit is held in escrow until the transaction completes and that this is detailed in your contract.
- Ensure the developer has an insurance policy such as NHBC, Premier Guarantee or Zurich Insurance that will return your deposit if the developer does not complete the property.
However, be aware that when deposits are protected by insurance such as NHBC, it is likely that only your 10% deposit will be protected. If you make additional stage payments prior to completion these are unlikely to be covered by insurance and your money is at risk.
You should also check the track record of the developer. If the developer has a history of completing developments very late, or not at all, this should raise concerns and you should consider whether you to proceed with the purchase at all – there will always be other property to buy.
Your solicitor will be able to advise you how your deposit is protected, so ensure you ask these questions and are satisfied your deposit is protected BEFORE you exchange contracts. Once you have exchanged contracts, you are legally committed to complete the transaction on the terms set out in the contract.
2 – INSURANCE AND BUILDING WARRANTIES
What happens if something goes wrong with the building after you have completed the purchase?
Most reputable developers in the UK provide a construction warranty guarantee, which is a form of insurance against defects. You should be wary of purchasing a newly constructed property without this protection.
This cover should also protect the 10% deposit if the developer becomes insolvent and does not complete the property. (See above – Deposit Protection). You should ask your solicitor to check the developer has a construction guarantee in place.
There are various companies who offer protection cover of this nature, including NHBC, Zurich Insurance and Premier Guarantee.
The insurance policy will vary depending on the specific provider. Most offer 10-year cover which usually includes a 2-year builder warranty, followed by an 8-year insurance policy covering physical damage to the home caused by a failure to build to certain technical requirements.
Consumer Code for Home Builders
Some UK developers have signed up to The Consumer Code for Home Builders (the “Code”). The Code was developed by the house building industry to help make the home buying process fairer and more transparent for purchasers.
The Code applies to all developers who register properties with the UK’s main New Home Warranty Bodies (these are NHBC, Premier Guarantee; LABC Warranty and Checkmate ). The Code consists of 19 requirements and principals that developers must meet in the marketing and selling of homes. These warranty bodies represent over 95% of the new homes built in the UK.
Check with your solicitor
Make sure ask your solicitor how your deposit is protected. Every development is different so ask your solicitor to confirm how your deposit is protected and what insurance cover the developer has for the property you want to buy.
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