There’s a warning today that the housing market could face a wave of legal disputes if buyers of off-plan new builds fail to complete because of falling prices.
Private wealth law firm Boodle Hatfield says the impact of the lockdown on residential property values may push the market values of some new build developments substantially below the prices purchasers paid.
If buyers decide they will not complete, they may lose the deposits they have paid.
However if the property values fall further than the cushion provided by the deposits, the developers of those properties might still pursue the purchasers who – under most contracts – would still be liable for further losses.
This problem was relatively widespread following the collapse of UK residential property values after the credit crunch in 2008-2009.
In some new build developments scores of investors had to be pursued to ensure they completed transactions they were legally committed to.
“The contracts of most residential new-build developments are fairly clear cut and deposits would be at risk. Many purchasers also forget that this might not be the end of it. You may be liable for any additional loss the developer makes from selling that property, on the market, for less than you originally agreed” says the law firm’s property disputes partner, Colin Young.
“Hopefully property prices don’t fall too far but there are certainly developers are now exploring their options over deals where the buyers seem to have gone cold. Once the lockdown is over we expect that buyers who should have already completed will start being asked to agree to a new timetable” he continues.
“What we are also hoping is that these problems can reach a negotiated settlement.”
Kellie Jones, a senior associate at the law firm, says the issue is most disruptive where high net worth individuals have committed to buy multiple properties at the same scheme, typically as an invest,ent.
“If that HNW is based overseas there is the extra expense of enforcing the judgment of a UK court in another jurisdiction. However, if a development has not been finished on time then a purchaser may take steps to serve a notice to complete so that it can rescind and reclaim the deposit if the seller is unable to comply” she adds.