7 off-plan contract clauses you should understand
In a recent article, we discussed 13 issues your solicitor must uncover when you invest in off-plan property. In this article, we look at the off-plan contract in a little more detail and some of the clauses that make it so different to other property contracts.
1. Cooling-off period
Your off-plan property contract may include a cooling off period. It will give you a few days in which to sit back and reconsider whether this investment is the right one for you. It is especially important if you have been ‘bullied’ into signing by unscrupulous sales agents, who make you fear to miss the best property investment deal.
Investors who work with Gladfish are always given time to reconsider before signing the contract. We call this the sleep test. If you feel the same way about investment after a good night’s sleep, then you’re good to sign the contract.
It’s also important to understand that if you decide to pull out during a cooling-off period, you may be required to pay a termination charge. You should always view the signing of the off-plan contract as being legally bound to go ahead with the investment: pulling out is likely to be costly.
2. Details of the development and property specifications
Your off-plan contract should include development plans and property specifications. There should be details of finish, fixtures and fittings (if already agreed). The plans that are included with the contract may be those provided by the local authority, though may yet to be fully approved.
The contract should also include a schedule of completion for the property and the development, and the standards to which the developer is working. Your solicitor should explain all these disclosures to you, and what rights the developer has retained to alter plans so they can complete the development.
3. Deposit details
When you agree to buy an off-plan property, you must pay a deposit – usually 10%. When considering how you can protect your off-plan property investment deposit, the contract should include details of the separate account in which your deposit will be held, and if it is further protected by insurance. It may also detail how any interest earned on the deposit is paid – whether to the developer, yourself, or both of you.
4. Warranties and finishes
It’s probable that your contract will state that your property will be completed according to the finishes and materials stipulated within the contract. However, there may also be clauses that allow the developer to change these. You should ensure that any such changes cannot be made with lesser quality finishes or materials.
The developer must retain the flexibility to complete – local authorities have a nasty habit of requesting changes – but the contract should stipulate that any changes should not negatively affect you as the investor. If they do, the contract should make it clear how you will be compensated – for example, by further reductions in price or even the right to withdraw from the purchase.
The contract should also detail whether you can customise the designs and choose individual finishes, white goods, colour schemes, etc. These will probably be from the developer’s range of fixtures and fittings.
There should also be details of all warranties on finishes and the build.
5. Financial details
Most investors will need financing to complete their purchase. It will mean gaining approval from a mortgage lender. It’s usual that developers will give time to allow you to do this after you sign the contract. The maximum is likely to be 30 days. There is likely to be a clause in the contract stating that it is subject to you getting finance approval.
There may also be clauses detailing how your deposit and other financial issues are handled, should final approval for financing not be given upon completion of the build.
There should be clauses that state that the developer will make good any defects that are identified in the pre-completion snagging process.
The contract will say when the property and development are expected to be completed. Again, there will be some flexibility written into the contract, and the developer may be given the right to increase or decrease timeframes. There should be details within the contract about your rights to withdraw if the build is severely delayed, and how the deposit is refunded in such circumstances.
Deciphering the complex
All contracts are complicated, but off-plan property contracts appear to have an extra layer of complexity. Even long-in-the-tooth property investors have difficulty understanding all the legal jargon – and they may have been through the process dozens of times.
There’s only one way to make certain that any contract isn’t weighed against you, and this is to use a solicitor who is experienced with off-plan property contracts.
Contact one of the Gladfish team today on +44 (0)207 923 6100, and ensure your off-plan investment plans benefit from what so many investors call the best research, advice, consultation, and, of course, the best solicitors in the business.
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