Buying a newly built property

We have significant experience advising on purchases of newly built properties. There are a number of different types of newly built property purchases and we set out below some of the types of purchase we have assisted with.

These include buying:-

• a newly built freehold house, often on a single plot.
• a new freehold house in a new development of houses of similar design to each other (usually built by a larger established developer).
• a newly built leasehold flat in a new block of flats.
• a newly converted flat, in a former residential dwelling house or in a formerly commercial building.
• a newly constructed flat where a new floor is being added to accommodate two or three more flats.
• a property which has not yet been constructed, which is bought “off-the-plan”.

There are some crucial aspects that purchasers should consider when buying a newly built property and we set out below some of them:-

1. New build guarantee or warranty – is there a guarantee for the property’s construction?

This is typically with NHBC but there are a number of other providers. The guarantee generally covers major structural defects for 10 years. It may also protect your deposit if the developer becomes insolvent between exchange of contracts and completion. Crucially, all major mortgage lenders will insist that such a guarantee or a warranty is put in place.

2. Planning obligations

There can be a liability to make financial contributions to the local authority in connection with the development. This can be contained within a section 106 agreement generally between the local authority and the developer. Alternatively, this can take the form of a Community Infrastructure Levy. A levy may apply whether or not planning permission is needed for the development. A competent solicitor will ensure the obligations have been, or will be, discharged by the developer by completion. If this is not done, you could be liable for financial contributions as a property owner.

3. What is the timescale for building the property?

If completion of the construction will take more than 6 months after you exchange contracts, then any mortgage offer you have obtained will not be valid at the time of completion. You must be sure you will be able to renew your mortgage offer on affordable terms before you proceed with your purchase.

4. Will the developer agree to carry out minor works (known as “snagging”) at its expense by completion of your purchase?

A new build warranty will probably not cover all minor defects. In an ideal world, there should be a clause in the contract for part of the purchase price to be held back on completion, giving the developer a financial incentive to complete minor works. In practice, developers rarely agree to this, but there should instead be a clause obliging the developer to fix any snagging items within a reasonable time following completion.

5. Planning and building regulation breaches

A local authority can take enforcement action for up to 10 years for a breach of a planning permission condition. For a breach of building regulations, the enforcement action time period is indefinite if there is a danger to the general public. A competent solicitor will therefore ensure a new build contract includes a clause requiring compliance with local authority consents and also check consents have been or will be complied with.

6. Lease term, rent levels and rent review clauses for flats

This has become an increasing concern for mortgage lenders. The government is consulting on capping rent levels, increasing minimum rent review periods and banning some rent review formulae in leases. Some mortgage lenders have already set out specific requirements concerning how frequently the ground rent should be reviewed in long leases and the formulae for rent reviews they will accept. All lenders have requirements on the minimum lease term they will accept and some lenders require longer lease terms for new flats.

A competent solicitor will be mindful of the current requirements and ensure that your lease terms allow you to sell or re-mortgage in the future without difficulty. This is important whether or not you are taking out a mortgage to finance your purchase. If rent review provisions in your lease are not acceptable to even a small minority of lenders, this would have an impact on the future saleability of your flat.

7. Tight timescales

You should usually expect about 28 days from when you agree to purchase a new property to exchange contracts under the reservation agreement you sign with a developer or you may lose an initial deposit. If you need a mortgage, it is crucial you receive an offer before you exchange contracts and that before you exchange contracts your solicitor ensures all offer conditions can be satisfied before you complete your purchase.

Your solicitor will have to obtain various searches and ensure the results are satisfactory both for you and your lender. Some search results can take weeks to receive. It is therefore crucial you appoint a solicitor who is experienced in new build properties to move speedily but also protect your interests.

We would be pleased to act for you in your purchase and to assist you with any requirements you have in buying a newly built property. Please contact us and we will provide you with a quotation for our work.