Can I write compensation into contract in case of breach by developer?

scarletjim

If I buy 'off plan', I know I need my conveyancer to write in terms to allow me to terminate the contract if the developer signicantly changes the design, or significantly delays finishing the building, but can I also write in some kind of compensation for myself if this happens?

The reason I ask is as follows: Say we agree a contract for me to buy for (say) £250k, but when the property is nearly finished the developer has lots of interest and believes he can sell for £325k. What is to stop the developer from deliberately delaying and delaying until I lose patience and terminate the contract, allowing the developer to sell to someone else for more money? Can I write something into the contract to protect me from this? How would it normally be structured?

For example, maybe a percentage of the agreed price payable to me for each month that the delay continues? In the above example, if we agreed that 3 months delay is acceptable, but for each month after that the developer must pay me say 1% of the cost, then if they delayed for 15 months, I could terminate the contract, have my deposit refunded, and receive £30k compensation? Has anyone ever done something similar?

bris

You can write anything you like into a contract, getting the developer to agree to it however is a different matter. Your terms are slightly extreme to say the least, so don't be surprised when they refuse to sell to you.

Dave101t

do people still buy off plan? good luck with that.

scarletjim

bris wrote: »

You can write anything you like into a contract, getting the developer to agree to it however is a different matter. Your terms are slightly extreme to say the least, so don't be surprised when they refuse to sell to you.

Bris - What terms are likely to be agreed then? I must have something, otherwise there is nothing whatsoever to stop them doing what I've outlined above! I'm interested to know what other people have done in thier contracts to mitigate this risk.

Dave - from all the research I've done, it seems the main problems with buying off plan are people who a). fail to write appropriate protection into the contracts; and b). need mortgages, which can cause a problem when valuation differences occur. The latter doesn't apply to me because I won't have a mortgage, and the former I am trying to mitigate here with this thread. If you know of any other problems with buying off plan that are not related to those things, please do let me know as I will need to consider them too.

Doozergirl

You can write what is called a long stop date into the contract. That being the last possible date to complete.

In six years on this board I've never heard of anything remotely like the scenario you've concocted. There are a few things that stops developers from waiting for their buyer to get bored:
a) they don't have imaginations quite like yours
b) if they did, and they tried it, they wouldn't have much of a reputation to uphold even if it did work
c) it's hardly a business plan is it? The big developers plan their prices, profit margins etc and already build in great big premiums. How do you try to build a business model off waiting for perfectly good buyers to get bored of waiting and then try to cancel contracts so you can sell to someone else later? It's pointless.
d) I'm trying to even consider a date for when house prices would rocket like that. It certainly isn't going to happen any time that will affect the development you're looking at. They're unlikely to grow by anything much at all in that time.

Use your own solicitor, not theirs and ask them what is already in the contract to protect you and what might be normal for them to introduce to protect you further. What you suggest is so far out that they will simply snort at you and sell to someone else.

Overall, contracts are much the same for developers and solicitors are really quite experienced at handling them so I'd trust their judgement. Whilst there will be some weighting in the developers favour, the vast, vast majority move into homes without hitch. With long term, off plan development, there is additional risk of house prices, but if they rise, it's your benefit, if they fall it's your problem, you agreed the price.

I'd try to chill out a bit on the conspiracy theories though.

scarletjim

Ok ok maybe I'm being a bit of a 'conspiracy theorist' about it, I guess so many people have said 'ooh buying off plan is too risky, I've heard too many horror stories' that maybe now I'm going over the top!

I guess you are right - the company in question has been around many years and show many completed developments on their website, plus I suppose it would be ridiculous to delay the building work just to push me to terminate.

So why is everyone so anti-off-plan then? Is it just the two things I mentioned above (in my last post)? The company itself does say the contract would contain clauses regarding 'unreasonable delay' and 'significant change to design' to protect me and allow me to terminate if these things happened, so if those things are covered, and the mortgage issue is irrelevant for me, what else could possibly go wrong?

EDIT: By the way, just one thing I should qualify from above. I didn't mean a big rise in house prices, I meant giving me a big discount for buying off plan, then selling when finished to someone else for lots more money because they wouldn't have that discount. That's what I meant - but in view of your comments it sounds too unlikely to worry about.

SouthCoast

what else could possibly go wrong?

The developer goes bust.

Empty properties, for sale signs and endless waits for repairs were not exactly in the brochure when families moved into luxurious flats in Newhaven harbour.
The flagship development of 600 homes at The Cape at Newhaven Marina has turned into a ghost town since developer Oakdene went into administration in 2009.

http://www.theargus.co.uk/news/8832344.Award_winning_Newhaven_development_left_to_become_ghost_town/

Doozergirl

scarletjim wrote: »

Ok ok maybe I'm being a bit of a 'conspiracy theorist' about it, I guess so many people have said 'ooh buying off plan is too risky, I've heard too many horror stories' that maybe now I'm going over the top!

I guess you are right - the company in question has been around many years and show many completed developments on their website, plus I suppose it would be ridiculous to delay the building work just to push me to terminate.

So why is everyone so anti-off-plan then? Is it just the two things I mentioned above (in my last post)? The company itself does say the contract would contain clauses regarding 'unreasonable delay' and 'significant change to design' to protect me and allow me to terminate if these things happened, so if those things are covered, and the mortgage issue is irrelevant for me, what else could possibly go wrong?

EDIT: By the way, just one thing I should qualify from above. I didn't mean a big rise in house prices, I meant giving me a big discount for buying off plan, then selling when finished to someone else for lots more money because they wouldn't have that discount. That's what I meant - but in view of your comments it sounds too unlikely to worry about.

Ok, well, those "off plan discounts" don't exist. They never have done. And that is why so many people had their fingers burned. Because they believed the hype, believed they had a good price.

The problems with off plan are indeed that you don't see what you are buying, what your aspect is etc so the house may not be as idyllic as you hoped.

More than that, when the market took a dive, the prices free-falled on new build development. Some people couldn't raise a mortgage at all any more and even many of those people who could get mortgages were finding that their valuations were way off the prices they had exchanged at and so couldn't raise enough finance that way.

Builders went bump, developments took longer, some fell by the wayside completely. All of that is completely eliminated by buying a house that exists or is very near to completion.

On the contrary to off plan, discounts are more likely to be available on the leftover plots at the end of development, the ones that people haven't bought, that have been built and paid for and are preventing developers from moving on. They will know if they've hit certain targets and may be willing to negotiate better.

My experience of off plan is that they've got plenty of time to get everything sold, so why offer big discounts at that point? The asking prices may start very slightly cheaper than later phases, but not much. And their prices are always overinflated anyway, which makes them more risky than second hand houses.

scarletjim

SouthCoast wrote: »

The developer goes bust.

Yes I thought about this. With regard to my (potential) new home, if the develope goes bust, I understand my deposit is protected by some National Builders Guild or something like that, can't remember the exact name.

If the developer went bust after building my house, it wouldn't really bother me too much - the 'development' is only 5 big town houses in an already built up area barely 100 yards from where I live now, with my famil living in the next road up and the next road down, so it would be quite a pleasant 'ghost town' for me!

Anything else that could go wrong?

scarletjim

Doozergirl wrote: »

My experience of off plan is that they've got plenty of time to get everything sold, so why offer big discounts at that point? The asking prices may start very slightly cheaper than later phases, but not much. And their prices are always overinflated anyway, which makes them more risky than second hand houses.

Hmmm, if that does turn out to be the case then I'd simply wait until they are built, I'm in no rush. But I have heard of people on other forums who got up to about 20% off 'finished' price by buying off plan i.e. same spec properties actually selling for the higher figure once finished when there was very little movement in house prices generally during the period in question.

I can see why they would give a big discount - to have one sale guaranteed before they even start building must be a great safety net. Yes they do have a long time to sell them, but still the sooner they sell them the better surely.

Doozergirl

scarletjim wrote: »

Hmmm, if that does turn out to be the case then I'd simply wait until they are built, I'm in no rush. But I have heard of people on other forums who got up to about 20% off 'finished' price by buying off plan i.e. same spec properties actually selling for the higher figure once finished when there was very little movement in house prices generally during the period in question.

I can see what they would give a big discount - to have one sale guaranteed before they even start building must be a great safety net. Yes they do have a long time to sell them, but still the sooner they sell them the better surely.

Five houses? Build costs and land prices for small plots for five rather than 50 or 100 or 200 means smaller margins. If you give a genuine 20% discount on a house you won't make any money on it at all. Why not give a 4% genuine discount on all five? That would get more money into your pocket.

It's where your conspiracy theory sort of makes sense, if you sold low and there was a subsequent buyer at a better price then what have you achieved by tying up your plot before the house is anywhere near ready? Except you need to appreciate that their price is very high and the discount you get is bringing it in line with reality. So they're not worried about selling for more because they know what they're aiming for. There is no developer in the land on such a small build offering to give houses away to make it look popular.

Other forums. Well, I think this forum provides a pretty balanced view of the market. Lots of different people, doing different things with different perspectives, overall with no vested interest. There are far, far more people who lost a lot of money as a result of thinking that they'd been given a good deal than people who genuinely got one and that is why people are wary of off-plan.

How exactly did the haggling process go on this potential purchase?