The difference between buying a new build property and an existing property

Purchasing a new build property is slightly different to purchasing an existing property. Here Adam Crawford, Partner at Prince Evans Solicitors LLP, looks at some of the key differences from a legal view

RESERVATION

Generally, once you have an offer accepted for a new build property you will be asked to pay a reservation fee to the developer. Typically this is anything from £500 to £2,000 but can vary depending on the developer. This reservation fee will be taken as a contribution to the deposit payable on exchange of contracts.

The reservation fee will often be stipulated to be non-refundable if you withdraw, or if you do not meet the exchange deadline set by the developer.

The reservation form will set out the terms of your purchase of the property together with the address or plot number, the purchase price and any incentives you have agreed with the developer.

The reservation form does not legally bind you to buy the property or the developer to sell the property.

INCENTIVES

When you buy a new build property the developer may offer you certain incentives (for example, there may be a contribution towards your Stamp Duty or legal fees). These incentives will be stated on the reservation form and included in the contract. The incentives must also be disclosed to your mortgage lender and this is achieved by the developer completing a Disclosure of Incentives Form.

EXCHANGE DEADLINE

When you buy a new build property the developer will set you a deadline to exchange contracts; this is generally 28 days (but does vary by developer) from the date it issues the contract papers required by your solicitor to progress the conveyancing for your purchase.

If you do not meet this deadline to exchange then you may lose your reservation fee or part of your reservation fee and any incentives you have agreed. The developer may also cancel the sale to you.

CONVEYANCING

When a new property is sold for the first time, whether it is a flat or a house, rights have to be granted for and reserved over the property (such as rights to use the roads, footpaths, service pipes etc), covenants/ obligations that must be observed are set (such as not to alter the property without consent) and management arrangements must be set up (such as who maintains the roads and landscaped areas).

As this is the first sale of the property and these arrangements remain with the property permanently, it is especially crucial that your solicitor ensures these are accurate and adequate for the benefit of the property, not just for you but for all future owners.

Your solicitor will also check the planning permission and any planning obligations for the development and how these may affect your use of the property (for example, it is common in London for there to be a restriction preventing you from applying for a parking permit from the local council).

They will also check that the appropriate building regulations and new build warranty are in place, which ensures that the new property is structurally sound when constructed.

Searches will be carried out; standard searches include a Local Authority search, a drainage search, an environmental search and a chancel check, although others may be required depending on the location of the property. These will reveal important matters such as any planning entries/

restrictions which affect the property, whether roads are publicly maintained, whether there are any orders you must observe (such as a smoke control order or tree preservation order) and will identify any potential contaminated land issues.

Your solicitor will ensure there are adequate arrangements in place for the management of any estate and any service charges you will incur. It is standard these days, even when buying a house, for service charges to be payable for the maintenance of the estate where the property is located.

If you are buying with a mortgage then your solicitor will ensure any mortgage conditions can be complied with and will report to you on the legal aspects.

As you can tell from the above, there is much work for your solicitor to undertake to ensure you can achieve the deadline to exchange set by the developer. Therefore you are strongly recommended to use a solicitor with considerable expertise in new build properties.

The developer may recommend a solicitor to you. You are not obliged to use this solicitor but it may be wise to do so as they will likely have the necessary experience/expertise and may have already carried out due diligence on the legal aspects of the development.

EXCHANGE AND COMPLETION

Once all of the above steps have been completed and you have signed your contract and paid a deposit (usually 10% of the purchase price) then you will be ready to exchange contracts (which is when your new purchase will become legally binding).

When you are buying an existing property a completion date (moving date) would normally be fixed on exchange of contracts on a date agreed between the seller and the buyer. However, if you are buying a new build property then often this will be “off-plan” meaning that completion will take place on a future date once the property is constructed and ready for occupation. You will normally be given 10 working days notice that the property has been constructed and you are required to complete on the date prescribed by the notice (ie you will not get to choose your completion date).

It is worth noting that delays can sometimes occur to the build of your property, often outside of the developer’s control, and therefore you may find that completion takes place several weeks/ months later than you expected, so you must plan for this accordingly.

In this situation, any mortgage offer you have obtained may expire before completion. You may be able to arrange an extension, or you may have to obtain a new mortgage offer adding more expense to you. There is a risk that your personal circumstances and/or the mortgage market may have changed and you cannot secure a new mortgage in time for completion. This would put you at risk of breach of contract and result in the loss of your 10% deposit and potentially other costs/damages.

The searches which were carried out may also have expired and you may have to obtain new searches or a search insurance policy adding more cost to your purchase.

Hopefully none of the above points will apply to or affect you and you will complete as scheduled.

On the day of completion, most developers will arrange for a formal handover where you are not just given the keys but are also given a demonstration of how the utilities work and provided with any user manuals and guarantees.

AFTER COMPLETION

Once completion has taken place, most developers will offer a “snagging” or “defects” service. This means they will repair any items of disrepair you find for a certain period. You are best advised to inspect and prepare a list of the snagging/ defects on or before completion and to enquire before completion what the developer’s snagging procedures are.

Please bear in mind when buying a new build property that you are part of a new development and some of the shared facilities such as landscaped areas may not be completed for some time after you move in. You may also have to accept that works may be ongoing on the development for some time creating noise and inconvenience to you.

Your solicitor will register your ownership of the property at Land Registry after completion but you should be aware that the registration process can often take months for Land Registry to complete. This is nothing to worry about as you are the owner of the property from the date of completion and your interest will be protected until the land registration has been completed.

Prince Evans specialise in all aspects of new build property. Please contact Prince Evans’ New Build Homes team for all your conveyancing needs and for a friendly no obligation quote on 020 8567 3477 or nbh@prince-evans.co.uk

OTHER POINTS TO CONSIDER

Help to Buy – If you are buying a new property you may be eligible to take advantage of the Government’s Help to Buy scheme. This is where you can borrow 20% (or up to 40% in London) of the purchase price from the Government and pay no interest on this for the first five years. When you sell the property you will have to repay the loan at the same rate as the value of the property at the time you sell. More details can be found at: helptobuy.gov.uk/ equity-loan/equity-loans/

New Build Warranty – The vast majority of new build homes are sold with the benefit of a new build warranty. The most popular warranty provider is NHBC (although there are other providers such as Premier Guarantee and LABC). This warranty will provide a 10-year guarantee against structural defects to the property.

Consumer Code – If you are buying with a new build warranty then most developers are obliged to subscribe to a Consumer Code. This is a code of conduct and practice developers are required to observe to ensure the home buying process is fair and transparent to the buyer. More details can be found at: consumercode.co.uk/

CONCLUSION

While buying a new build property broadly follows the process of buying an existing property there are notable differences. Some are positive (such as the benefit of a new build warranty) but some are less positive (such as the potential uncertainty over completion dates).

It is important to ensure you use a solicitor who is experienced with dealing with new build properties so they can explain these points to you clearly.

One thing that cannot be in doubt if you buy a new build property (and the author can speak from personal experience) is the joy you will feel at being the first owner of a brand new property which you can make into your own home.