Buying a new build property off plan

Buying a property off-plan (purchasing before construction is completed) can be an attractive investment or homebuying option. Off-plan purchases involve buying a property based on architectural plans and developer specifications rather than a finished building. Buyers typically pay a deposit and commit to completing the purchase upon construction.

Exchanging contracts to buy a property before it is built and often before construction has even started comes with unique legal and commercial risks. Advantages and upside can include potential for capital growth if the market rises during construction, the opportunity to secure the property perhaps with developer incentives and often the ability to choose fixtures, finishes, and layouts.

Consumer Protection

Off-plan purchases benefit from specific legal protections :-

• Consumer Code for Home Builders -establishes mandatory requirements that developers must meet

• Section 75 protection - if using a credit card for the deposit (£100-£30,000), additional protection under the Consumer Credit Act 1974

• Contractual deposit protection - most developers offer deposit protection schemes or insurance

• Warranty provider standards - bodies like NHBC enforce construction standards

Legal process before exchanging contracts

Buying off-plan requires careful legal due diligence to mitigate risks. Our experienced property solicitors assist with:

• Contract reviews to protect your interests.

• Deposit security checks to ensure compliance with legal protections.

• Reviewing the draft contract and transfer documents

• Examining planning permissions and building regulations approvals

• Checking for restrictive covenants or easements affecting the property

• Reviewing construction warranties (typically NHBC or equivalent)

• Examining the lease terms (for leasehold properties)

• Checking infrastructure agreements (Section 106 agreements, etc.)

• Reviewing the specification and plans for the property

• Assignment support for buyers looking to transfer their contracts.

• Dispute resolution if issues arise with developers or lenders.

Key clauses in the contract

• Completion Date & Long Stop Date: Ensure the contract includes a long stop date—the final deadline for completion—allowing buyers to withdraw if construction is excessively delayed.

• Deposit Protection: Verify that deposits are protected under a government-backed scheme or held in a solicitor’s escrow account.

• Developer Obligations & Specifications: Ensure clarity on materials, design, and warranty coverage (e.g., NHBC or other new-build guarantees).

• Defect Resolution: Understand the process for addressing construction defects upon completion.

Exchange of contracts stage

With some very desirable properties you may be asked to exchange contracts very quickly, with your solicitor given a contract package and no real option top negotiate on terms. If you decide to exchange contracts :-

• Requires payment of a deposit (typically 10%, though sometimes higher for international buyers)

• Locks in the purchase price regardless of future market changes

• Commits both parties to complete the transaction

• The contract will include a long-stop date – the final date by which the developer must complete construction, after which you may have the right to withdraw from the purchase.

Selling on the property before completion

Buyers may have the option to sell their off-plan contract before completion—a process known as assignment. However, this depends on:

• Developer Restrictions: Many developers impose restrictions or fees on assignments.

• Market Conditions: The ease of finding a buyer may depend on demand for the property type and location.

• Legal Process: Assignments require formal legal documentation, and the original buyer remains liable until the transaction completes.

Risks and pitfalls with buying an off plan property

• Mortgage Issues - lenders may change their valuation of the property or your financial circumstances may have changed, affecting financing options. Interest rates could rise, affecting affordability.

• Deposit Loss - if the developer goes into administration, deposits may be at risk if not adequately protected.

• Negative Equity - market downturns could mean the completed property is worth less than the agreed purchase price.

• Delays & Cancellations - projects can be postponed or abandoned due to financial or regulatory issues.

• Construction Quality - the final property may not match initial expectations, making snagging inspections essential before completion. Developers often reserve the right to make changes to specifications.

• Short notice before completion date - a practical completion certification will be issued and this triggers a completion notice, typically giving 10-14 days to complete the purchase.

• Specification changes: What changes can the developer make without your consent?

• Termination rights: Under what circumstances can either party withdraw?

• Deposit protection: How is your deposit protected if something goes wrong?

• Snagging procedure: What is the process for identifying and rectifying defects?

• Service charge estimates: Are there caps on initial service charges?

• Communal facilities: When will these be completed and what guarantees are provided?

Risk mitigation strategies

The following represents a "wish list" because many developers will stubbornly refuse any requests or demands, but everything depends on market conditions and the negotiating position of buyer and developer. Things to consider include :-

• Ensure the contract includes a realistic long-stop date

• including contractual price adjustment mechanisms

• compensation for significant delays

• provisions for regular construction updates

• securing mortgage offer with the longest possible validity period

• Ensure the contract clearly defines what constitutes "material" changes that would allow you to withdraw

• Negotiate limitations on the developer's right to make changes

• Secure detailed specifications in the contract with branded products where possible

• Include provisions requiring notification of changes and potential compensation