Buying a Home ‘Off Plan’? Beware the Pitfalls

With the new-build property market picking up, sales of ‘off-plan’ properties will be expected to rise. However, a recent case shows that buying a property in this way has potential pitfalls.

It involved a couple who failed to complete the purchase of a flat due to the withdrawal of their mortgage offer whilst building works were still ongoing. As a result, they have forfeited their deposit and been ordered to pay compensation to the developers.

The Court of Appeal acknowledged the severe financial consequences its ruling would have for the couple but noted that the case had raised important questions of principle about time being made of the essence in contracts for the sale of land and the role of a notice to complete where there has been delay in complying with the terms of such a contract.

On agreeing to buy the flat, the couple had paid a deposit in excess of £17,000 and arranged mortgage finance for 90 per cent of the purchase price. However, completion of the development was delayed by, amongst other things, inclement weather and financial problems suffered by the contractors. The couple, whose mortgage offer had by that time expired, attempted to repudiate the contract owing to the delay and claimed their deposit back.

The County Court upheld the couple’s case on the basis that the delay of about eight months in completion of the project amounted to a ‘repudiatory breach of contract’ by the developers. They were ordered to repay the couple their deposit, plus interest and legal costs.

Allowing the developers’ appeal, however, the Court of Appeal ruled that the couple had not been entitled to treat the delay as having brought the contract to an end and it was they who had repudiated the contract by failing to complete the purchase.

Noting that the burden was upon the couple to show that the delay in construction of the flat was unreasonable, the Court ruled that the contract had still been ‘on foot’ when the developers – who had striven throughout to finish the flat on time – served a notice on the couple requiring them to complete the purchase.

On the evidence, the Court found that the couple would have lost their mortgage funding even if the building work had been finished on time. It could not be said that the delay had deprived them of substantially the whole benefit they would have enjoyed under the contract and they had consequently not been entitled to withdraw from their obligation to complete.

The Court recognised that the delay must have been ‘irritating’ for the couple and that the outcome of the case would be a ‘severe disappointment’ to them and cause them financial hardship. However, their unfortunate position had not been created by any breach of contract on the developers’ part.