It is important to know that purchasing your new home while it is in the course of construction differs substantially to buying a second hand property.
Why? The most important difference which arises is in respect of the documentation used. When buying a second hand house, the main document is the Law Society standard Contract for Sale.
With a new build however, there are essentially two contracts – the Law Society standard Contract for Sale and a second document which is called a building agreement.
The building agreement is the most important contractual document in a new house conveyancing transaction. It sets out the obligations and responsibilities of both the builder and the purchaser is some detail. It sets out how, when and in what manner the builder must build the house and how much, and when the purchaser must pay for the house.
During the early nineties, it became common practice for the builders to insert additional special conditions in the standard building agreement which were extremely unfair but were presented to purchasers as being non negotiable. Ultimately a case was taken to the High Court which resulted in no less than 15 terms being deemed to be completely unfair and unacceptable.
Over the years however, there have been attempts to re-introduce unfair terms in diluted or disguised fashion and one of the functions of your solicitor is to carefully go through the building agreement and request the removal of an additional terms which are unfair to you.
There are other documents which are particular to new builds of which you should be aware:
The contract for sale relates to the transfer of the site / plot of ground upon which the house will be built.
The draft Deed of Transfer is the purported document that will, when executed by the vendor on closing, transfer ownership of the house to you, the purchaser. This Deed will set out the rights and easements you will need to enjoy the property and will reserve certain rights which the landowner will require and finally, it will contain covenants to which you will be bound.
Plans, specifications and Site layout plan: the plans generally include a house plan and a site layout plan and contain dimensions of the property. The specifications generally deal with the standard of the work, the materials and finish to be used in the construction of the house. You should examine the plans carefully.
Tip: You can, if you require, seek advice from a qualified architect/ engineer in relation to the plans and specifications in order to satisfy yourself that they are in order and to establish whether or not you have any further requirements. If you wish your architect can attend on site a number of occasions during construction to ensure that all is proceedings in compliance with the plans and specifications and carry out an inspection after construction works are complete to verify that the plans and specifications are strictly adhered to.
In reality it is not unusual for some minor changes to be made on site and the building agreements specifically states that the builder reserves the right to make minor changes both to the plan of the house itself and to the layout of the development.
The contract for sale and /or building agreement will usually contain a special condition giving the builder a wide scope to vary the layout of the development.
You should also note that when your house has been completed, the development itself including roads and common areas may not have been completed. The contract and /or building agreement will usually contain a special condition stating that the non completion of roads and common areas will not be grounds for a purchaser to delay completion of their unit and may often state that that the builder is not under any obligation to complete the development.
The builder’s architect will certify on completion that the house has been constructed in accordance with planning permission and building regulations.
In addition to this, you should attend the offices of the relevant planning department to check the development plan for the area to satisfy yourself that there is no major motorway proposal, industrial development etc proposed in close proximity to the development of which your house will form part.
A Snag list is a list of defects drawn up by or on behalf of the purchaser which sets out minor problems or defects which the purchaser wants remedied before the sale closes. It is important to note that notwithstanding minor defects a purchaser may be forced to close and may be liable for interest for delays. It should also be noted that any condition in a building agreement limiting a purchaser to one snag list is deemed to be an unfair term.
Homebond provides insurance cover to new home purchasers. It covers the cost of repair of major damage caused by defective building for ten years. It also may provide cover for deposits paid out to builders/developers should they become insolvent during the course of construction.
Tip: It is very important to ascertain if your deposit will be paid out directly to the builder or held by their solicitor as stakeholder pending completion and if it is being paid out, it is very important to check that the deposit is covered under the insurance policy.
The Closing Date:
The procedure around the closing date differs substantially when you are buying a new build. If purchasing a second hand home, the closing date is agreed between the vendor and purchaser at the time when contracts are signed.
When purchasing a new build the procedure around closing is very different and places an onerous obligation on purchasers not to delay in drawing down their funds when the house is complete.
When the builder deems the house to be completed, their solicitor will serve a document called a completion notice on the purchaser’s solicitor. The closing date will be 14 days after service of the completion notice. During this time the purchasers must rush to commence home insurance and mortgage protection polices and supply any other outstanding documents to their lender in order to have their funds drawn down.
If the remaining monies for the house have not been paid by the closing date, the builder can begin to charge interest on the purchase price at an interest rate which will be stipulated in the building agreement.
The builder is now at liberty to serve another notice on the purchaser stating that if the balance is not paid within a further 14 days the contract will be repudiated – at an end- and the builder will re-sell the property to another purchaser. The standard building agreement states that the builder may sue the purchaser for losses including the interest but most building agreements will be amended to also specify that the builder will retain the contract deposit paid until the property is re-sold and then make all deductions for losses and interest and in the event that the property is not resold within a year, the entire deposit will be retained by the builder for damages whilst also having the right to sue for any further losses which arise.
Tip: Therefore it is imperative that you organise your funds immediately once the completion notice has been served to avoid delays in drawing down your funds and risking being charged interest and losing your deposit.
What is the role of your solicitor when you are buying a new house which is the course of construction?
In a nutshell….
To read a booklet of title to ensure that the builder owns the land or that appropriate arrangements are in place with the land owner
To check planning documents
To check other documents such as for example the indemnity given by the builder to look after the common areas in the development until they are taken over by the local authority or the management company
To check the draft Deed of Transfer to ensure that you the purchaser will have to the necessary rights of way for example to access the main road, mains drains etc
To carefully go through the contract for the sale of the site and the building agreement to ensure that no unfair additional terms have been added
To ensure that the contract deposit is adequately protected by insurance
With a new build, there is generally a lot more paperwork to be checked by the solicitor and for that reason the fee charged may be slightly higher than can be expected if buying a second hand property.
For more information or if you have any questions please contact us on 01 963 0061 or email email@example.com