Buying off the plan is when you sign a contract to buy a property that is yet to be built. Instead of a physical site to inspect, the developer provides plans and artistic renderings of how the completed property might look. The payment is usually done via installments spread out over a period of time. There are a number of legal questions that are important to consider if making such an investment?
Does the developer hold good title to the property which it can transfer to you on completion of payment?
In law good title refers to ownership of property which is totally free of claims against it and therefore can be sold, transferred, or put up as security. To verify whether a developer has good title to the property, you would need to investigate title documents, identification documents for both individual and corporations, building and constructional approvals and any other documents related to the property. The seller is obligated to provide all the documents and information to enable you to make proper investigations to the title within fourteen days of entering into a purchase agreement.
Can you recover monies paid to the developer if they do not complete the construction?
If you wish to recover monies paid for construction not done, there must first have been a written contract in place. Contracts for sale of land or property must be in writing to be valid. With a contract in place there are two grounds you can present in a claim through court to recover monies paid.
- Breach of Contract
A breach of contract is defined as: Failure, without legal excuse, to perform any promise which forms the whole or part of a contract. The legal remedy for breach of contract is to sue for money that will put you in the position you would have been in, had the breach not occurred. In this case you can sue for the deposits paid to the developer, interest and any reasonable expenses incurred to recover the money.
- Frustration of Contract
The doctrine of frustration provides: a party in a contract is excused from performance if performance has been rendered impossible through no fault of his own. You would therefore consider this option if the developer claims that the contract has been frustrated, for example a natural disaster renders the development impossible to complete. The external frustrating event renders it impossible, illegal or commercially useless to perform the contract.
The law allows a party to recover money paid before the contract became frustrated. It also prevents one from paying any further money that might be claimed. However if the developer has incurred expenses towards performing the contract they may be allowed to retain part or all of the amount paid. However, this is only possible though if the developer can prove that its conduct did not cause the frustration and that the thing that caused the frustration was unforeseen and outside its control.
Can the developer terminate the agreement if you have been making payment on time?
Termination of the agreement is referred to as discharge which means terminations of all rights and obligations arising out of a contract. Subject to the contract, there are two ways in which a developer may terminate a contract.
- By Breach. This is where the developer fails or refuses to honour further payments. The effects of breach have been addressed above.
- By operation of law. This is usually through frustration which has been covered above. However, if the developer becomes insolvent, or dies the agreement may also be terminated. It is important to note that a good agreement will anticipate all these ways which a contract may be discharged and provide for them.
What remedies do you have if the developer delays the construction beyond the completion date?
The completion of construction is evidenced by a certificate of occupation/completion provided by the county government. This is definitive confirmation that the construction is completed and the property is of standard. Failure to complete the construction would constitute a breach of contract which would be remedied as described above.
Does the promoter of the development have any liability if the final product is inferior to what was advertised?
Every consumer has a constitutional right to goods and services of reasonable quality and compensation where there are defects in the goods or services. Services have been defined to include rights and interests in property. If the promoter of a development falsely represents the property, then you can make a claim for compensation through court action.
Can you sell your interest in the development before completing payments?
Selling your interest in the development means that you transfer your rights and obligations under the contract to a third party who would now be able to enforce the contract. Since a contract involves the agreement of two parties, any transfer of rights or obligations would need the consent of all parties to the contract.
Does completion of the development include completion of any facilities and common areas and clearing of construction material?
What constitutes completion of the development is normally defined in the agreement. If that is absent, then completion of development will be defined by when the county government issues a certificate of occupation/completion.
Are you obliged to use the vendor’s advocate to register the title?
Most vendors will require you to use their chosen advocate to register the title. The rationale behind this is that since this advocate is handling several registrations, they are best placed to be the most efficient. They also prefer their advocate retaining possession of the original title documents which will be required for each of the transfers. There is no legal obligation but it is usually a non-negotiable term of the sale agreement and failure to agree with it might mean that the vendor withdraws their offer to you.
In conclusion we recommend the following actions when contemplating purchase of an off-plan property:
- Have the contractual agreements and accompanying paperwork scrutinized by a legal professional before binding yourself by signing or making any payment.
- Conduct a proper investigation of title and due diligence on the seller/developer before making payment.
- Only take possession of the property once you have secured a certificate of completion.
- Hire a conveyancing advocate to protect your interests throughout the transaction.
Do you have a legal matter relating to real estate or property law in Kenya? Contact our experts for assistance or call 0708 111 222.