A Guide to New Build Contract Clauses

ntitle have developed this handy to guide to assist any conveyancer who may be about to start reviewing new build titles. The contract forms an integral part of the new build transaction as it is likely exchange will take place before the property has been structurally completed or even before development has begun. It is the role of the Conveyancer to adequately explain the contract clauses to ensure a purchaser is well informed of the process and the risks associated with the purchase of a new build property.

A new build contact must be reviewed in detail and the small print checked to ensure there are no hidden costs involved and that the purchaser is aware of any conditions that will need to be satisfied prior to completion.

In this guide we will highlight some of the most important clauses to report to the client but please consider the list is not exhaustive and every transaction and every contract will differ.

Completion on Notice

It is important that a purchaser is aware that they may exchange on their property purchase before the property is structurally complete and therefore, the completion date cannot be set on exchange. Legal completion may only take place once a Building Regulation Completion Certificate has been provided.  A new build contract will contain a clause stating the number of days’ notice the developer will give for completion. Once notice has been served on the purchaser’s solicitor, completion will take place according the notice period contained in the contract.

If a purchase is also selling a property, is essential that the chain is made aware that there is a new build purchase early in the transaction so all parties are aware that completion is on notice.

Deposit

A new build contract will usually contain a clause stating that the deposit is to be held as agent. This differs to other conveyancing transactions in which the deposit is held as stakeholder by the solicitor at the top of the chain. In a new build transaction, the deposit can be released to the developer.  It is essential that the risk associated with a deposit held as agent is explained to the purchaser in detail. Should the developer become insolvent, the purchaser’s deposit could be lost.

A new build contract may also contain provisions relating to deposit payments or purchase payments at various points of the build and these should be made clear to the purchaser.

Alterations

A new build contract will often allow for the Developer to make alterations to the property specification and materials used during the construction. It is essential to ensure the contract states the quality and value of the property must not be compromised in any way as a result of the amendments and that notice of any variations other than those deemed to be minor is to be served on the purchaser’s solicitors. It is also possible that the boundaries may be altered and this can even occur following completion. A conveyancer must ensure a purchaser is aware of any possible alterations.

Warranty

In additional to containing a clause confirming the property will be built in accordance with planning permissions and building regulations, a new build Contract should state that the Property will have the benefit of a structural warranty. It is important that the purchaser understands the timeframes involved with a new build warranty; for two years following legal completion the warranty covers minor defects (snagging issues) and structural issues but once two years has passed, structural issues only are covered. Often a new Home Warranty certifies building regulation compliance but if not, the contract must state that a Building Regulation Completion Certificate must be obtained separately.

Termination and long stop date

It is essential that the purchaser understand their termination rights under the terms of the contract, specially because the deposit can be paid some time before anticipated completion and often before the property is structurally complete. Should the property not be watertight at the time of exchange, it is important that the contract contains a longstop date. A long-stop date will allow a purchase to terminate the contract and receive a full refund should the property not be structurally complete and habitable within a reasonable and agreed timeframe. A Conveyancer must make the purchaser aware of the long stop date and ensure the longstop date falls before the mortgage offer expires.

Delays

There will often be a clause in a new build contract stating that completion cannot be delayed due to outstanding minor works, known as snagging. These are usually cosmetic issues and would not deem the property uninhabitable. It is best practise to advise a purchaser to make the Developer aware of any snagging issues and ensure they understand that they may be contractually obliged for a period of time according to the contract, to allow access to the property following completion in order for the works to be rectified.

Fees

It is important to inform the purchaser of any additional fees payable on completion, such as an engrossment fee. A new build contract will often include a list of incentives and these should be highlighted to the purchaser to ensure they are correct.

Oral Representation

A new build contract will often contain a clause stating that any oral representations made will need to be set in writing prior to exchange. A clause may refer to an appendix or covering letter which may also need to be completed prior to exchange. The conveyancer must ascertain the position in this respect with the purchaser.

When acting for a purchaser of a new build property, it is vital that the process is explained clearly and concisely as there are many differences between a new build transaction and a standard purchase. The contact requires careful consideration. There are considerable risks involved which may cause stress and additional expense but by ensuring good communication between the conveyancer and the developer and the conveyancer and the purchaser, risks can be avoided and a positive outcome achieved.

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