Plot Sales FAQs

Aug 11, 2020

Where NHBC (or alternative warranty provider) deal with the warranty and the Building Regulations on a development, what is the different between the Cover Note and Final Certificate?

The Cover Note confirms that the 10 year new build warranty is in place in respect of the property. The Final Certificate confirms that the property has been built in accordance with the Building Regulations 2010, which is required for all new building work. You still need both these separate documents even where NHBC is dealing with both aspects.

What is completion “on notice”?

It is normal practice for contracts to be exchanged on a new build plot before the property has been fully constructed. In such circumstances, the contract will provide that once the property is built and signed off by the warranty provider and in respect of Building Regulations, the developer will serve notice on the buyer’s solicitor. Completion usually then takes place 10 working days after the notice has been served.

What is the difference between a deposit being held as agent or as stakeholder?

When a buyer’s deposit is paid to the developer’s solicitor, it will be held as agent or as stakeholder. Where the deposit is held as stakeholder, the developer’s solicitor will hold it on behalf of both parties and cannot release it to either party without the consent of the other. 

If the parties have agreed that the deposit may be held as agent, then the developer’s solicitor may pass the deposit to the developer at any time. This sometimes causes concern for a buyer, as if the deposit has been paid to the developer, it could make it harder to recover in the event the developer becomes insolvent.

However, in most new build transactions, the new homes warranty provides insolvency cover under the policy. This means that where a developer becomes insolvent in between exchange and completion meaning the deposit cannot be recovered, the warranty provider will repay the buyer the equivalent sum (usually up to a maximum of £100,000). This therefore provides a level of comfort to buyers in new build transactions to allow the deposit to be held as agent and released to the developer.

Why isn’t the service charge apportioned?

Some developers may apportion the service charge on completion, but others may prefer to collect a sum equivalent to a full year or 6 months on completion. This does not mean that a buyer will pay more than their share as the service charge will then be apportioned for the following year, meaning that any excess paid on completion will be offset against the amount due for the following year.

 How are financial incentives paid?

Financial incentives often form part of the reservation agreement between the developer and a buyer. The incentive will not be paid by cheque or cash but will be shown on the final completion statement as an allowance. This means that a buyer will pay the purchase price less the incentive on completion.

Is a management company required?

Management companies are often, but not always, an important part of a new development. If there are communal areas or shared facilities on a development, it is advisable to set up a management company to maintain these areas and collect the maintenance contributions from the residents. If there are no communal areas, or those areas can be easily transferred to one or more of the properties on the site, with appropriate cross-rights and covenants for the remaining plots, then a management company may be unnecessary.

When will share certificates be issued?

Where there is a management company for a development site then usually the residents will become members of the company automatically when they complete on the purchase of the plot. The share certificates for the residents will be issued once all the plots on the site have completed. Depending on the developer’s intentions, the management company is then usually handed over to the residents who are appointed as directors, so that they have control of how the development is run once the developer has parted with their interest in the site.

Does the road have to be adopted?

Newly built roads can either be maintained privately (by the residents or management company, as appropriate), or adopted by the local authority. Depending on the nature and scale of the development, it may have been a condition of planning permission that the road (or certain parts of the road(s)) are adopted at a later stage. Where the development is to be relatively small, it is commonplace for the management company to be responsible for the maintenance once all sales have completed.

Can a buyer change the appearance of their property after completion?

Often there are restrictive clauses preventing the buyer from changing the appearance of their property, including colour schemes and landscaping of the front garden. This because the developer would have had to comply with certain design and landscaping requirements as part of the planning permission and so will want to ensure the purchasers of the plots continue to adhere to those schemes.

Furthermore, the developer will need to sell the remaining properties on the site and will therefore be keen to ensure that the property remains in keeping with the remainder of the site. Often these restrictions are limited by time, as after a few years the developer will no longer have an interest in the site and the buyer will have more freedom to make changes.  

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

 

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