Dangers of buying ‘off plan’ (Insolvency)

In the recent case of Williams and another v Broadoak Private Finance Limited and others [2018] it was held by the High Court that a partly developed freehold property could be sold free from the buyers’ secured interests.

The lender had a secured legal charge on the freehold and there were a total of 54 buyers who had contracted to purchase various units.  The deposits of each of the buyers had been released to the seller to assist with funding.

The important factor in this case was the question of priorities. Each buyer was entitled to a purchasers’ lien over the property, but only 3 of the buyers had registered a unilateral notice on the freehold title before registration of the charge.

It was held that it was only the 3 buyers who had registered a unilateral notice prior to registration of the legal charge who had a priority interest over that of the lender.

The practicalities of the decision are there will be no funds leftover after the lender’s charge has been repaid and the 3 priority buyers each receive their share and therefore the remaining buyers will in all likelihood lose their deposits.

The buyers are provided with deposit protection by the new build warranty provider.  However, where large deposits are paid and subsequently released to the seller the buyer will need to be satisfied as to the level of protection provided by the warranty provider and whether any limitations apply, eg the NHBC provide protection of up to 10% of the purchase price. The risk is also increased if the seller is for example a special purpose vehicle.

The key points that buyers’ lawyers will no doubt take away from this decision are that to protect the buyer they first need to check the buyer’s interest will take priority over a subsequently registered legal charge and also to ensure that this interest is registered by means of a unilateral notice.

It is important to have plot sales specialists who understand this and our team are more than happy to deliver training to our clients and developer sale’s teams to discuss the case and how knowledge in this area can ensure the plot sales continue to exchange within deadlines.

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