10 Issues To Consider When Buying A New Property

With the increasing number of new buildings being created, we are often involved with disgruntled clients who have purchased a property, found a problem and then had an argument with the Developer or Vendor.

The following tips are general advice we give clients and have been developed from many ‘lessons learned’ from those purchasers who have simply purchased without giving the situation careful consideration.

Tip 1 – Hit the snagging…. hard

If you are buying a brand new property that is being sold as ‘highest quality’ then it should be in A1 condition. You have one chance to make sure it has reached that standard so make sure that a snag inspection and snag list has been created before you continue with the purchase. You can do this yourself or employ a surveyor to pass a keen eye over the whole area to be purchased.

Issues to look out for; stickers left on windows and sanitary ware, screws missing on door hinges, doors not fitting properly, plugs missing. etc. You will be surprised what small items can be missed and then cause all sorts of irritation when you move in.

The point being that you have one chance to make sure the property is perfect and no matter how small an item, it should be on the list. Go over the property with a microscope, get everything perfect and create a clear detailed snag list, don’t hold back and make sure everything is covered.

Tip 2 – Insurance backed guarantees

Some developers offer a guarantee. Some will be for only three months whilst others for as long as ten years. However, a guarantee is not worth anything if the developer no longer exists after the sale. You may hear all sorts of promises, but when it comes to the crunch and a defect needs to be resolved, those promises are long forgotten and often fail to follow through.

You should ask the developer to clarify what they will do to rectify any problem as a result of defective design or construction and then back that up with an insurance backed guarantee. There will be a huge cost for this which the developer should cover, however it will offer protection for both parties if there is a problem later on.

Tip 3 – Extend the liability

Contracts work in straight lines, therefore when you purchase a property from the development company (Company A) you have a direct contract with them only. You are not able to seek legal remedy for any defects or issues created by others behind the scenes, i.e. Company B (Set up to handle the investment funds and protect investors from any direct liability), Architects, Engineers, Surveyors, etc. will all have a contract directly with the developer and their duty does not stay with the building.

Let’s say you purchase a property from Company A and discover a defect with the Architect’s drawings where they failed to properly detail damp proofing. Company A employed the Architect, however if Company A no longer exists, the Architect has no liability to future owners of the property. You can only claim against Company A and if they no longer exist, or funds have been taken out and transferred to Company B (to protect the investment against liability), then who will you seek legal remedy against?

To protect yourself against the above situation you should insist that the developer offers an insurance backed guarantee as per Tip 3 but also covers others involved with the development. Thereby, regardless of who is at fault and how they are protected, the insurer will protect your interests against those who are often protected by the limitations of contact law.

Tip 4 – Final Completion

Any new development must comply with modern building regulations. The building control department will issue a ‘Final Completion’ letter if the development has been completed to their satisfaction. The developer must comply with various ‘Statutory Notifications’ during the construction phase. If the developer has gone ahead without notifying Building Control and failed to comply with the Statutory Notifications then Buidling Control will either refuse to issue a Final Completion Letter or add ‘conditions’.

If there are any conditions added, these should identify any potential risks with the building and you should seek further advice regarding those risks. Why did the developer not actually follow standard procedure? Consider whether this risk is too much to continue with the sale.

Tip 5 – Copy the files, then Archive.

It would be wise to obtain a copy of the development drawings and planning approvals. There may have been some conditions applied to the approvals and you may also spot some differences between the drawings and what has actually been constructed.

It is very important you take this opportunity to collect a full set of the drawings, their revisions and planning approvals before completing the sale, You probably won’t be offered them after everyone has closed their files!

Construction drawings are very important for future purchasers or diagnosing defects so it is very important that you obtain as much information as possible.

Once you have everything, file them together in a suitable folder then store away in the attic or cupboard. This might sound rather basic but I experience so many situations when Vendors say ‘I have them round here somewhere’ but inevitably their files are either lost or incomplete. Point being it might be hard to obtain everything from the developer, but it should be easy to keep them safe and together in a box file and this easy part is often forgotten.

Tip 6 – Dispute Resolution

Most conditions of sale stipulate Arbitration as a means of dispute resolution. They might name the current Guernsey Arbitration Act although most will fail to mention the rules of Arbitration. There are many rules and in Guernsey we have a small claims scheme. If the rules are not stipulated it will be the parties who need to agree which rules are used, if they fail to agreed then the Courts will need to decide.

This is not a very streamlined process, can be very expensive and often a pointless exercise. If you have a dispute which is less than £10,000.00 then it could be dealt with at petty debts court. If you have an Arbitration clause the petty debt will stay proceeding and send the parties to Arbitration. Thus losing the significantly cheaper solution to resolving a dispute.

If you have a dispute that is less than £100,000.00 but more than £10,000.00 then Arbitration will serve you well. If the dispute is more than £100,000.00 Arbitration will still serve well but you may want to consider an application to the Royal Court as a more reasonable solution, although the parties will either need to agree to stay the Arbitration or ask the Court to make a ruling.

The point being is that most Conditions of Sale fail to properly deal with dispute resolution and it will be too late after the sale.

Ask your legal advisor for help on this point. Let them know that you don’t want to be forced to go to Arbitration if the dispute is less than £10,000.00 and want the option to go direct to Court if the dispute is the higher value.

Tip 7 – Check the drains

Tilers adhesive, decorators paint and plaster slurry are all applied after the drains are installed and the builders will flush their waste down the drains when cleaning their equipment. This waste will often cause a blocked drain or future problem. It would therefore be advisable to obtain an independent drainage survey of all the drains, not only to check their condition and identify any areas that need to be cleaned but also to check the location, routing and appropriate falls in the pipes to adequately direct waste away from the building.

Tip 8 – Who did what?

The developer will have used a plumber, electrician, tiler and other suppliers. It would be wise to ask them to provide a concise list of who did what to the building just in case you have a plumbing leak and need the plumber urgently or need extra lights fitted, etc. It is always wise to have a list of contacts on file or more importantly, know who has been responsible for working on the property so you can check their reputation and ability.

Tip 9 – Ask for spares

There will be spare tiles, flooring brick drives, patio slabs or other finishes which if broken may need to be replaced. Ask the developer for a few spare tiles or carpet off cuts which can be stored in the house for future maintenance. It will be virtually impossible to get matching tiles years later so if you need to replace a tile for whatever reason then the spares in the loft will be very handy!

Tip 10 – Retention Fund

Before you can occupy the building, the hot water cylinder, boiler and other heating appliances will need to be commissioned. Often with the pressures of moving into the property, these items may be commissioned after the completion date. It would be wise to add a retention period into the conditions of sale to allow you to move into the property, then identify any issues, missing documents or outstanding items.

Also, consider the drying out or shrinkage cracks which inevitably appear during the first 12 months after completion. Who will repair those cracks? If you add those into the conditions of sale by a retention clause then it will give you the chance to experience the property and identify any faults that could not resonantly be seen during a short inspection.

Your legal advisor should check the boundaries, Immunity Certification and other legal related issues to ensure you have the necessary rights, etc. before continuing to purchase the property.

Produced By;

Gary Naftel

The information in this Coffee Break article is intended for guidance only. The authors cannot accept any liability for any loss or damage which may result from the use of this article.