Buying property off plan: Legal issues to consider

Someone I know (let’s call him John) wanted to buy a property that they had seen advertised in the dailies. The graphic design of the yet to be built house was fabulous and the concept outstanding. The amenities promised included a swimming pool, club house and gym. He immediately expressed interest and was given the chance to view the showroom. To his surprise no other house had been built on the property….he was however promised by the witty salesman that the house would soon be ready and all he needed to do was to commit himself to buying one of the houses( due to the high demand of the houses, etc etc). The sale was simple make a 10% deposit and pay close to 3 instalments, before the house could be constructed. To John’s surprise the instalments comprised a staggering 80% of total purchase price.

 

Is John literally building castles in the air by paying for a house he has not even seen? There is nothing wrong with this arrangement and as risky as it may seem it is the norm in the real estate industry. It is perfectly legal and okay to enter into a contract with someone, premised on a future occurrence. The catch is all in the contract. One must ensure that the clauses on construction are captured well. What would you do if you were in John’s shoes?

 

One of the things you must do as a buyer is to ensure that you have examined and understood the architect’s plans. Once the deal is signed you cannot ask the architect to change the design of the house. The architects design is the only tangible thing you have concerning your future house and you must ensure you understand it. Second is to study the deed plan. The deed plan shows you exactly where your house shall be placed. Once the agreement is signed you cannot take up another house. Ensure that what is on paper conforms to what is on the ground.

 

Now you are ready to sign the contract. Ensure that the agreement includes a warranty that the construction will be completed within a given time frame. You would not want to wait infinitely for something you have already paid for. You must also ensure that the developer has adequate insurance to cover risks that may occur during construction for example fire and others.

There is a very catchy clause in most agreements, called the force majeure clause. With this clause the Vendor is able to escape liability from some risks like earthquakes and Acts of God. Therefore ensure that the force majeure clause is limited

John is unhappy. First of all construction took ages yet he had already paid for the house. Secondly when the house was finally finished it was of very disappointing quality. The materials used were cheap and nothing compared to the show house. The house was leaking, the finishings poor amongst other many complaints.

 

This is why you as a buyer must include a clause on implied quality of the completed house. The vendor must warrant in writing that the completed house will be as close as possible to the show house (already viewed) and that the materials used would be the same. There must also be a warranty by the Vendor that he will remain liable for all defects in the house for a period of about 6 months after the transaction is complete. Therefore before moving in, inspect the house thoroughly. Check the electrical and plumbing systems. If there is any defect, notify the Vendor immediately.

 

John tells me that the swimming pool that was to be one of the amenities is a small pool and a big insult to the property owners and is totally different from the graphics he was shown at the initial stage. He tells me that the whole concept of luxurious living is what attracted him to buy this property.

 

Well, unfortunately for him, pools, clubhouses and gyms comprise the common areas of the property. He has no absolute ownership in the common areas because these are owned by the management company which he is a shareholder of. However if the amenities offered on a property are part of the things that inform your decision to buy, then request the Vendor to include a detailed warranty on the amenities. This includes the time of completion and implied quality. Therefore when buying into a concept ensure that you properly understand the concept and details offered. Do not rush to buy a house based on advertisements and graphic designs because at the end of the day reality is what counts.

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