Deposits on exchange of contracts (new builds)

eur0

Having just been through the process of buying a new property I thought I'd offer some advice about deposits
on exchange of contracts. We exchanged contracts a couple of months before completion and my solicitor advised
that we should hand over the deposit (10%) as 'stakeholder' and not 'agent'. Handing it over as 'stakeholder'
means that the seller's solicitor must hold on to the deposit until completion, whereas 'agent' means the money
can be used by the seller. In our case the builder (small) was obviously keen to use the money and this created a
sticking point where each party was not willing to exchange. My position was clear since I would be taking all the
risk. So then I thought about the NHBC cover. I'd read that NHBC protected the deposit and their website seemed
to confirm the fact. So I contacted NHBC with the builder's NHBC number and posed the question. They were very
helpful and confirmed the builder was registered but...and here's the problem...it's not enough just to be
registered. The cover is provided for each individual plot and, in our case, our plot was not yet covered. The
builder is required to take out (pay for) a policy for each plot. Once covered, the protection kicks in and
your deposit is protected and can be handed over as 'agent'.
Anyway, what eventually happened was that we exchanged on time but with a clause that said the deposit must be
held as 'stakeholder' until such time the builder could provide evidence that the plot was covered and hence the
deposit protected. A few days later that all happened.
I'm glad we had a good solicitor. She said that in the current climate it was becoming more and more important
to protect the deposits. They had only recently had a case where the builder went bust before completion but the
buyer was able to quickly retain their deposit since it had been held as 'stakeholder'.
I just wanted to highlight this since I don't think it's widely known and the NHBC position is misleading.

Richard_Webster

eur0 wrote: »

Having just been through the process of buying a new property I thought I'd offer some advice about deposits
on exchange of contracts. We exchanged contracts a couple of months before completion and my solicitor advised
that we should hand over the deposit (10%) as 'stakeholder' and not 'agent'. Handing it over as 'stakeholder'
means that the seller's solicitor must hold on to the deposit until completion, whereas 'agent' means the money
can be used by the seller. In our case the builder (small) was obviously keen to use the money and this created a
sticking point where each party was not willing to exchange. My position was clear since I would be taking all the
risk. So then I thought about the NHBC cover. I'd read that NHBC protected the deposit and their website seemed
to confirm the fact. So I contacted NHBC with the builder's NHBC number and posed the question. They were very
helpful and confirmed the builder was registered but...and here's the problem...it's not enough just to be
registered. The cover is provided for each individual plot and, in our case, our plot was not yet covered. The
builder is required to take out (pay for) a policy for each plot. Once covered, the protection kicks in and
your deposit is protected and can be handed over as 'agent'.
Anyway, what eventually happened was that we exchanged on time but with a clause that said the deposit must be
held as 'stakeholder' until such time the builder could provide evidence that the plot was covered and hence the
deposit protected. A few days later that all happened.
I'm glad we had a good solicitor. She said that in the current climate it was becoming more and more important
to protect the deposits. They had only recently had a case where the builder went bust before completion but the
buyer was able to quickly retain their deposit since it had been held as 'stakeholder'.
I just wanted to highlight this since I don't think it's widely known and the NHBC position is misleading.

Important point and I agree with what has been said. Also remember if builder takes a house in part exchange and you buy it off him the deposit on that transaction certainly isn't protected by the NHBC!