Legal risk to property investors

purch

Something to cheer up the Bears on this 'chilly' morning.


http://news.bbc.co.uk/1/hi/business/8290873.stm




Investors hit by the downturn and who choose not to complete property deals can still be forced to buy after a court injunction, lawyers have warned.
Many buyers who agreed to purchase city apartments being built in the boom now find values have plunged or have difficulty in finding a mortgage deal.

Some wrongly believe they risk only their deposit by pulling out after exchanging contracts.

But lawyers said the legal obligation to complete the transaction was clear.

Average flat prices fell by 19.5% in England and Wales from peak to trough.

Mr_Matey

Ouch.
But isn't that good news for property developers rather than bears? Wouldn't bears want property developers to be doing it tough and having to sell for cheap? If forced to complete, more property sales would go through at boom prices - hence pushing average prices up.

But:
"judges would only make such an order if an award of damages was not adequate. Generally, they would be cautious when asked to force somebody to buy."

So the buyer gets slugged with a fine for breaking the contract. It'd be hard to force someone to buy if their mortgage lender won't cough up anymore!

Treadmill

How can they force you to buy ? What if you can't get a mortgage, does the flat then get transferred to you while you still owe the builder the whole amount ?

ILW

Treadmill wrote: »

How can they force you to buy ? What if you can't get a mortgage, does the flat then get transferred to you while you still owe the builder the whole amount ?

If you own any other property they could eventually force you to sell it.

Thrugelmir

Lots of debate regarding this issue on the property boards.

From a business perspective. The most alarming aspect was the thought that you should be able to walk away from a contract and rip it up. So obvious that investors hadn't bothered to read the small print or consulted with their solicitor as to the finer detail.

lostinrates

Yes: how can thy force someone who can't get funding to buy? It seems to be forcing the issue, pushing people to a situation which could then impact worse on the current situation might then in turn, and down a chain of series of events, put more pressure on prices?

Really2

Personal I think they should regulate the contracts better as they are heavily stacked in the builders favour.

If it goes over schedule you should have a right to walk away (as any build delays would presumably not be the buyers fault)

If it is on schedule and you agree a price X years ago, tough that is the idea of the contract and you should both fulfil it.

ILW

Really2 wrote: »

Personal I think they should regulate the contracts better as they are heavily stacked in the builders favour.

If it goes over schedule you should have a right to walk away (as any build delays would presumably not be the buyers fault)

If it is on schedule and you agree a price X years ago, tough that is the idea of the contract and you should both fulfil it.

Any buyer has the right to ask for a guaranteed completion date to be included in the contract, if the seller will not agree to this, the buyer has a perfect right to walk away from the deal. Are people that stupid or were they just blinded by greed with the idea of making all that money without doing any work.

Thrugelmir

lostinrates wrote: »

Yes: how can thy force someone who can't get funding to buy? It seems to be forcing the issue, pushing people to a situation which could then impact worse on the current situation might then in turn, and down a chain of series of events, put more pressure on prices?

The potential purchasers may well find themselves liable for the difference between the contracted purchase price and the realised sale price.

As they most likely have property of their own already. They might have to sell this to settle the debt or remortgage. The problem for some is that they have already remortgaged to fund the inital deposit. Never had any capital in the first place.

There will be more downward pressure on house prices for a lot of reasons. This is just one of them.

zzzLazyDaisy

I agree that it would be almost impossible to force someone to buy if they couldn't get funding - but exchange of contracts means there is a legally binding contract in place and the normal rules apply.

In my view, though, it is not unreasonable that the purchaser has to compensate the seller for the losses arising out of their breach of contract when they fail to pay the agreed price under the contract. The seller, on the other hand, must take all reasonable steps to mitigate their loss, even if that means selling at a lower price because of the prevailing market conditions. So the damages/compensation would be the difference between the agreed price and the current market value.

I realise that this means the purchaser may have to find thousands of pounds in order to effectively buy the right not to go through with the contract, but at the same time, why should the developer have to pay the price of the buyer bailing out of a bad deal?

I do find it worrying though when I read about people who have been waiting three years for the place to be finished - it does make me wonder why these off plan contracts don't contain a clause with a specific end date - ie for completion within 6 months (or however long the mortgage offer lasts for). It is amazing to me that people have exchanged on the basis of a mortgage offer that was going to expire before completion took place. After all, even without the credit crunch there was always the risk of ill-health, redundancy, or death during the intervening period which could also have resulted in the mortgage offer being withdrawn.

Thrugelmir

Really2 wrote: »

Personal I think they should regulate the contracts better as they are heavily stacked in the builders favour.

If it goes over schedule you should have a right to walk away (as any build delays would presumably not be the buyers fault)

If it is on schedule and you agree a price X years ago, tough that is the idea of the contract and you should both fulfil it.

Thats why you should obtain legal advice before entering into a contractual obligation. I've never signed a commercial contract without prior advice. Commercial contracts are often or not renegotiated. Once signed though they are legally binding.

If you are investing in property. Then you are in business. You should accept the risks not only benefit from the rewards.