New Build - Completion on Notice

22/08/2019
New Build Completion on Notice represents the final lap on what can be a protracted conveyancing process accompanying when you buy an off plan (i.e. when you put down your reservation deposit, the home hasn't yet been built). But because building projects are notorious for overrunning, you might find yourself in a stressful situation particularly as a mortgage buyer because you run the risk that your initial mortgage offer - normally for 6 months only - might expire.

Completion on Notice normally means as a buyer, once the building has been physically completed, you'll have just 10 days to complete yourself, get your keys and move in, most importantly after paying the balance of your purchase and legal fees. If you don't, you initially risk having to pay daily interest payment penalties and after that, you ultimately risk losing both 10% of the purchase price and buying the property itself. Usually, Completion on Notice (sometimes, slightly confusingly, also called the Notice to Complete) cannot be given unless a building regulations completion certificate or a new homes warranty and insurance certificate, such as an NHBC, have been issued.

Given that, under property law in England and Wales, it's the buyer who faces losing 10% of the selling price if they breach the contract to complete once they've received their completion on notice and can also be sued for a variety of other reasons, this is potentially a devastating situation. It's worth bearing in mind that all Help to Buy properties under the Equity Loan scheme are new build - so all Help to Buy actual or potential buyers should be aware of these risks.

This article considers matters surrounding off-plan new builds and the completion on notice - and examines how you can best protect yourself as an off-plan new build buyer, whether using the Help to Buy scheme or not. It is not concerned with cash buyers (who can't buy Help to Buy properties anyway) and who might have sufficient cash reserves to complete at any point and less issues with matters such as giving in rental notices. It looks at:



Buying Off-Plan including Help to Buy? Choosing the right mortgage lender is a must

Off-plan home developments can overrun and you might find that your original mortgage offer has expired before you get Completion on Notice (10 days) served on you.

It's therefore highly advisable to find a lender with off-plan experience such that they can assist you as best they can should this contingency arise.

* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels



    1

    Why is the Completion on Notice so significant regarding Off-Plan New Build properties?

As referred to above, off-plan refers to a property on a development which hasn't yet been built. There's therefore uncertainty about when - even if - the property will be ready for a potential first buyer to move in.

With preexisting properties, the notice to complete is more of a formality because both buying and selling parties will have most likely agreed a mutually satisfactory completion date and a mortgage buyer will have planned for this date to fall within the time validity of their mortgage offer. 

This is not the case with an off-plan development property. As a buyer, typically you'll have found some advert for the planned development and its units in some media (most often online) and then you'll have read a prospectus or even visited the developer's physical office after which, if you're happy and they're happy, you'll have paid a reservation deposit in the £100s (or more) normally.

Your conveyancing process and journey is also different to a standard purchase of a preexisting property. You'll either have 28 - 30 days to exchange from paying your reservation deposit - note that this means all the normal title checks done by your solicitor have to occur within this time period - and you'll also have to have your mortgage offer in place (along with your deposit funds, 10% normally or 5% minimum if Help to Buy) for the day of exchange. 

What happens after this depends on the developer. Obviously the earlier the projected date of completion, the sooner you'd hope to be able to move in, but there's no 100% certainty of exactly when. 

In rented accommodation? Be prepared for overruns with off-plans!

If your developer takes longer than projected to finish building your off-plan property, this can also cause problems if you are staying in rented accommodation. You should make contingency plans for this e.g. inform your current landlord, approach family members for potential places to stay for a period etc.

Interested parties might also find this article informative - First Time Buyers Homeless after Handing Notice to Landlord


Fixed Fee, No Sale No Fee with a 5 out of 5 rating

I agree to the Terms of Service and Privacy Policy
 
    2

    What are the penalties for failure to comply with a Completion on Notice?

In a nutshell, they can be hideous.

You'll firstly - and slightly confusingly, given the name - be served with a Notice to Complete.

A Notice to Complete means you have to pay compensation, calculated on a daily rate and equal to the Law Society's interest rate, which is 4 per cent above Barclays Bank base rate, (currently 0.75%) on the amount equal to the purchase price, less any deposit paid, for the period of your default, up to and including 10 days.

If you don't manage to secure funds to complete by the end of this period, the developer can rescind contracts, meaning you then become liable to pay the developer a full 10% of the purchase price. The developer therefore keeps any deposit money you've already paid over but if this was only 5% of the purchase price, you'll have to stump up the remaining 5% out of your own pocket.

The developer can also sue you for other expenses and, worst of all, they're free to resell your property to someone else.

This is only a brief summary of the scenario; interested parties should read our article What happens when you pull out after Exchange of Contracts?


    3

    How can you protect yourself against failing to complete in 10 days after receiving your Completion on Notice?

You can't force your developers to build your property by their projected completion date so you must therefore do all you can to protect the matter of your mortgage funds.

You need to keep your mortgage lender fully briefed as to how your conveyancing is progressing and you can help yourself at the beginning by choosing to use an independent mortgage broker who can find you a lender which has experience with off-plan developments and what can go wrong.

Essentially, you're looking at two possibilities to prevent problems in the event of a large overrun:

  • your lender extends your mortgage offer to encompass the delayed completion of your building - you should do as much as you can to establish whether your lender will be favourable to doing this at the application stage; or
  • you'll have to reapply for a mortgage offer; with the same lender, this shouldn't present such a large challenge (it would be unlikely for them to expect you to buy fresh residential property searches or search indemnities for example); with a different lender, the application will take longer.

'Secondaries'

Other secondary ways you can protect yourself involve maintaining your good credit rating and all that that entails. You'll need to ensure that you stay in employment at the very least. Summarily if you're in the position where you have to reapply for a mortgage, your circumstances might have changed in six months. Picking up a County Court Judgement (CCJ) for example in that time would derail your application.

Following from this, you should note that even if your mortgage lender offers you an extension, this is likely to be a couple of weeks or so at most.


    4

    What if the developer itself doesn't finish your property by the end of the 10-day Completion on Notice period?

This is more of a hypothetical illustration - it's not likely to happen! - however you would then yourself be able to serve a Notice to Complete on your developer as above (interest charged daily) and also rescind contracts after 10 days have elapsed without finishing the building.

You can also sue the developer for various damages and out-of-pocket expenses where these can be clearly proven, and these are also discussed in the article above, however you should note that the law doesn't favour you as a buyer - the developer, as the seller, or indeed any property seller, gets betterment, i.e. they can automatically claim 10% of the purchase price from you without having to prove any further point.


Buying Off-Plan including Help to Buy? Choosing the right mortgage lender is a must

Off-plan home developments can overrun and you might find that your original mortgage offer has expired before you get Completion on Notice (10 days) served on you.

It's therefore highly advisable to find a lender with off-plan experience such that they can assist you as best they can should this contingency arise.

* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels



Related News Articles

 
Help to Buy Equity Loan
15/08/2019
New Build Homes - What's different about the conveyancing process?
03/09/2018
Off-Plan Homes: Do You Need a Snagging Survey?
07/02/2018
What happens when you pull out after Exchange of Contracts?
12/02/2018
new-conveyancing-process.png

FREE Online Conveyancing Process for Buyers

Includes online checklists, videos, downloads and tips - plus it is free to use and remembers your progress.