Due Diligence With Developers

22.08.16

“Don’t wait to buy land, buy land and wait.” ~ Will Rogers

We’ve all heard horror stories of unscrupulous developers taking deposits for projects that have no planning permission, or even worse, no legal title to the land. So how do you know if you’re putting your money in safe hands when you buy off-plan?

Stick to major developers with a proven track record – the best deliver the promised high specification product on time and on budget. Ask about previous developments, visit them and talk to owners.

At the very least, a developer needs sufficient funding in place to cover the costs of buying the land, getting planning permission, designing the project, professional fees and developing the site infrastructure. The best will also have a sizeable chunk put aside to construct and market the properties.

When buying off-plan, a purchase contract can sometimes be passed on or sold to a third party before the unit is completed. In the UK we refer to this as an “assignable” contract. However, there’s a good case to be argued that better developments will not have a high quota of assignable contracts. Banks and developers tend to prefer investors who are there for the long term. A high turnover of assignable contracts during the building stages can severely damage a development’s reputation.

What to Check:

Company registration – the developer should be officially registered at Companies House where you can also view their accounts.

Land title confirmation: this ensures that the company is the legal owner of the land and that there are no debts or liens against the land parcel.

Bank guarantee: builders are required to take out a special bank guarantee that will compensate investors should things go wrong. Check this is in place - it will protect your money in the event of a problem.

Planning permission: ask the developer to prove the status of planning permission/building permit.

Build quality guarantee: all good developers offer a guarantee on construction and a detailed quality specification.

Bottom Line: Don’t sign on the dotted line before your lawyer has carried out full due diligence – it’s an extra cost, but worth every penny.

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