Written by Andrew Best, Trainee Solicitor, Residential Property team
Purchasing a new build property can be an exciting step, whether you’re a first-time buyer or looking for a home that meets modern standards of design and energy efficiency. However, buying a property that is yet to be completed or has only recently been finished raises several legal considerations that do not typically arise with older properties.
New build contracts are often prepared by the developer’s legal team and are designed to protect the developer’s interests. While this is standard practice, buyers should take care to understand the terms they are agreeing to, particularly when it comes to deadlines, specifications, financial commitments, and ongoing obligations.
Below, we look at some of the key provisions that should be reviewed before contracts are exchanged.
Key Takeaways
- Check completion dates and costs: Review the long-stop date, potential delays, additional costs, and any financial commitments before exchanging contracts.
- Understand what you are buying: Make sure the property specification, plans, boundaries, restrictions, ownership structure, warranties, and snagging arrangements are clearly covered in the contract.
- Get advice from Howell Jones Solicitors: An experienced conveyancing solicitor can review your new build contract, raise appropriate enquiries, and help protect your interests before you commit to the purchase.
Completion Deadlines and Protecting Against Delays
The long-stop date clause within a new build contract is often seen as the most important. This is the deadline for when the developer must have completed the build. If the build is not finished by the deadline, the purchaser has the legal right to terminate the contract and recover any deposit paid in full.
Contracts normally contain a completion date, though this is only an estimate and not usually binding. The long-stop date provides the genuine protection. It is imperative that the Long-Stop date is realistic and falls before the mortgage offer expires. Mortgage offers typically last between three and six months. If the Long-Stop date ends up overrunning past that point, there is a potential need to reapply for a mortgage, which could be on unfavourable terms as compared to the previous offer.
There is also a potential issue that there may not be a clause for compensation if the completion of the purchase is delayed; as such, it is advised that you may wish to negotiate this to be included in the contract before exchange of contracts can take place.
Specification of the Property and What You Are Actually Buying
Conveyancing contracts should include items such as plans for the property and floor, drawings approved by the Local Authority and a map of the site, which shows where your plot will sit within the newly built development. There can be a potential dispute if descriptions of fittings and finishes are considered vague; as such, a remedy would be to specify any and all materials, appliances, and finishes within the final build in the contract.
There may be a small possibility where a clause in the contract will give the developers the right to “minor” changes to the specification without requiring any consent. The definition of minor in this instance can vary and can create a major impact depending on the interpretation. To remedy this, your solicitor should push back on any wording that gives the developer unchecked discretion and ensure that any substitutions to be made are of the same or better quality.
You should also check that any plot boundaries, parking spaces, driveways, and fencing are clearly defined within the contract. These aspects of the plan can shift as the estate develops in the future, and a clear description within the contract can avoid potential issues in the future.
Additional Costs and Financial Considerations
When looking to potentially purchase new build properties, you must bear in mind that there may be additional expenses which aren’t included in the main purchase price. Things like flooring, garden turfs, light fixtures, and utility connections can be added as chargeable additions rather than being contractually part of the purchase price. This can run the risk of causing the purchase price to skyrocket as the additions quickly add up.
Developers can also offer to include certain additions to incentivise purchase, such as contributions to stamp duty or legal fees for the purchase; however, this promise must be formally added into the contract as it may not be legally imposed otherwise. Any assurances from sales agents regarding these types of promises can’t be relied on as they’re not legally binding.
When you’re purchasing a leasehold property, or if there are communal estate areas in the development, it is advised to ensure that you check the service charges or estate management fees, how they are calculated, and any provisions which can lead to the charges increasing.
With recent reforms in law, namely the Leasehold and Freehold Reform Act 2024, leaseholders now have greater rights to be able to scrutinise and challenge service charges. The Act also has the power to ban the creation of new leasehold houses in most circumstances, though these provisions aren’t in force yet and will be subject to commencement regulations. As such, a solicitor should be prepared to scrutinise any new build leasehold transactions to stay in line with the changing law.
Ground rent has now been capped by the Leasehold Reform (Ground Rent) Act 2022 for new residential long leases in England and Wales. There is an expectation that the 2024 Act is expected to build further on this, with restrictions being added into the Act, though full implementation remains subject to secondary legislation. There is an understanding that for most standard residential property purchases, a developer isn’t allowed to include a provision for financial ground rent in the contract.
There are plans to continue introducing additional legislation throughout the 2025/2026 year to support the 2024 Act. There are further plans to improve upon and reform the laws surrounding Leaseholds and Ground Rent, and as such, using a solicitor who is aware of the current situation in the law is advised for assistance on your purchase.
For your deposit in the purchase, there will always be a risk that if the developer becomes insolvent prior to completion, you may end up losing your money. As such, it is advisable to protect your deposit using insurance schemes. There are many schemes which fit the different types of deposit you may be using, so there is a need to get appropriate advice on which one fits best.
Ownership Structure and Property Restrictions
It is always advised to ensure you confirm if the property is sold as a freehold or leasehold. Most new build houses are now sold freehold, though there are some new developments which follow estate management arrangements where a management company controls any communal areas and charges the owners accordingly. It is imperative that you understand what obligations arise from this arrangement before you commit.
Restrictive covenants may apply to the property you intend to purchase. Restrictive Covenants are legal obligations that run with the land and bind you and all future owners of the property. As such, you must review any covenants on the property title carefully. Common examples include restrictions on extending the property, altering its appearance, or using it for business purposes.
It is prudent to check if there are any estate roads and communal infrastructure which will be adopted by the local authority once the build is complete. If they are not, there is a possibility that you will be contributing to private maintenance costs of the roads and communal areas indefinitely. The contract should state clearly that the developer will bring roads and services up to adoptable standard.
Warranties, Snagging, and Defects of the Property
It is advised to ensure that a structural warranty is in place for any new build properties before purchasing, and mortgage lenders will often ask that a warranty is in place as a condition of the mortgage. These warranties are often of a fixed term of 10 years and should be provided by a recognised provider.
There are different types of structural warranties; for example, the most well-known is the NHBC Buildmark warranty; however, other warranties like Premier Guarantee and LABC (Local Authority Building Control) warranties can be accepted by most mortgage lenders. If you sell the property during the warranty’s term, it is important to ensure the warranty is still in place and that it is transferable to the buyer.
During the first two years of the warranty term, the developer is typically responsible for rectifying any defects and snags that develop within the property. The procedure for reporting and solving the issues for the warranty should be clearly set out within the contract, and you must ensure it is present, as it can always be missed.
It is advised to seek a pre-completion snagging inspection prior to completion. A solicitor can include this in the contract as an express right or check if there is a consumer code applicable that makes it mandatory, but there is no automatic right to carry it out under legislation. The surveyor can check for defects in the property before you own it, allowing you to act on any before completion rather than trying to remedy them afterwards.
Reservation Agreements
A reservation fee is required in most circumstances to secure the plot of land where the property will be built, prior to any contracts being issued. It is therefore common that a reservation agreement will be agreed. It is advised to pay careful attention to the terms of this agreement, however.
Members of a recognised consumer code, i.e. the New Homes Quality Code, typically provide a 14-day cooling-off period to allow the option of withdrawal and refund of the reservation fee. The position of this, however, is entirely dependent on the terms set out in the agreement and any code the developer is bound to, rather than through any statutory right. It is therefore advised that you review the agreement with the solicitor prior to any money being paid.
After the cooling period, the position of any remedies becomes more dependent on the terms of the agreement; otherwise, any remedies available become less straightforward. The reservation agreement will usually set out what happens to the fee if you fail to exchange contracts within the specified timeframe, typically around 28 days.
Seek Professional Advice With Howell Jones Solicitors
Purchasing a new build property often involves additional documentation, tighter deadlines, and considerations that may not arise in a standard residential transaction. Taking advice at an early stage can help identify potential risks, clarify contractual obligations, and avoid unexpected costs later in the process.
An experienced conveyancing solicitor like Howell Jones Surrey solicitors can review the contract, raise appropriate enquiries with the developer, and ensure that your interests are properly protected before you commit to the purchase. Obtaining legal advice early can help make the transaction smoother and provide greater confidence throughout your move.
Contact our experienced conveyancing solicitors in Surrey at Howell Jones Solicitors on 0800 011 9813.
