How to solve a problem over deposits on new properties
QUESTION: I am relocating from West Yorkshire to the Bristol area with my employment and am in the process of selling my home in a Wakefield suburb and buying a new property in Bristol.
The property I am buying is a new-build house and the developer is a well known and established UK builder. This development company has its own “in house” legal department and do not use the services of an established firm of solicitors or licensed conveyancers.
The exchange of contracts is scheduled to take place by the end of February but an issue has arisen regarding the payment of the ten per cent deposit on exchange.
My buyer’s conveyancer is insisting that my conveyancer must hold the deposit to be paid by my buyer and will not agree for this to be paid over on my purchase. The reason given is if the deposit is paid to the developer’s legal department it will be banked by the development company and is at risk if something untoward happens and the contracts are not completed.
I do not have sufficient funds of my own to pay a separate deposit to secure my purchase and the developer’s legal department is insisting I pay over a ten per cent deposit to exchange. They add that if I am unable to do this they will remarket the property. Is there any solution to this?
Answer: The developer sale contract should be subject to the Law Society’s Standard Conditions of Sale 5th Edition. In transactions whereby solicitor or licensed conveyance firms are involved for both sides, the deposit can be legally and securely passed between the firms in the chain of transactions, being held by the solicitor/ conveyancer at the top of the chain pending legal and financial completion of the contracts.
A small number of the larger developers have their own legal departments. It is a regulatory requirement that a qualified solicitor or registered licensed conveyancer heads the legal department and ensures compliance by that department to the terms and conditions of the Standard Conditions of Sale, and operates in accordance with the Council of Mortgage Lenders Handbook.
However, the deposit received will be paid into a bank account in the name of the development company and if the company should collapse then the bank account, and all assets, will be frozen pending resolution of the company’s financial affairs.
The developer will be offering a building warranty, most likely provided by the National House Building Council or Premier Guarantee. Both these companies provide a guarantee in respect of the ten per cent deposit and this should provide your buyer and his conveyer with sufficient comfort in respect of deposit.
It is important for your conveyancer to check that the development on which you are buying has been accepted by and registered with the building warranty provider. If not, then no such cover or warranty will be available.
One other point to be considered is the legal completion date. If the property you are looking to buy is not build complete, it is unlikely the developer will agree to a fixed and specific completion date. The developer will, in the circumstances, structure the legal completion date in the sale contract to occur within a period of working days, usually ten, from the date of final build completion of the property.
Your buyer may not agree to these terms as to the completion of your sale and it may be you will have to complete your sale ahead of your purchase.
Please bear in mind any redemption penalty payable upon your current mortgage may not be cancelled out if you do not complete your sale and purchase simultaneously; assuming you are taking out your new mortgage with the same lender.