Buying off-plan property abroad

When buying an off-plan property abroad, the developer is committed to certain deadlines. Increasingly we are seeing developers claiming that the delays are as a result of an Act of God and therefore clients are not entitled to cancel or claim compensation.  So what happens when these deadlines simply aren't met?

In most countries where Brits are buying properties you tend to find that the majority of buyers are buying a new, off-plan property abroad rather than resale. There are notable exceptions to this - France and Italy being two of them.

There can be very good reasons for this:

• They want to be able to spec the property to their own tastes
• They like being the first to live there
• They may wish to take advantage of increasing property prices whilst the off-plan property is being built to make a profit
• There may be a greater choice of new properties compared to resale - particularly in some of the newer markets
• Modern construction techniques and planning regulations often mean that newer properties are better built than older properties.

There can be many other good reasons why somebody would wish to buy an off-plan property abroad rather than a resale.

One problem that we are seeing more and more of at the moment is delayed construction and buyers wanting to claim compensation or even wanting to cancel because an off-plan property has not been finished on time.

In some countries - particularly those where there has been an explosion of construction many developments are running late. This is often because of a shortage of workforce or building materials and therefore you tend to find that most developments in that area are delayed.

In some areas you can almost assume that a development is going to be delivered late.

So what can be done about this? Well everything flows from the contract. First of all does the contract actually have a completion date in it? You would be amazed how often a contract doesn't. If it doesn't then why? Are they starting off on the basis that it is going to take longer than they have verbally informed you?

If the contract does have a completion date is it measurable? By this I mean is it easy to work out when completion should take place. 24 months after the start of construction is no good if it takes five years to start construction!

In many cases we see contracts that state that the off-plan property abroad should be finished by a certain date but then allow three or six months flexibility just in case there are any problems. Why the final date isn't simply stated as the final date rather than having one date and then an extension I will never understand.

Lastly is there penalty clauses for late completion? Are you entitled to compensation if the developer fails to complete on time? Are you entitled to cancel your contract and get your money back?

It is vital that your independent lawyer checks the contract in any purchase. When buying an off-plan property abroad these are the sorts of things that need to be investigated in addition to the usual checks (whether they own the land and so on).

Increasingly we are seeing developers claiming that the delays are as a result of an Act of God and therefore clients are not entitled to cancel or claim compensation. I often think that there are some very religious developers out there because everything seems to be an Act of God nowadays. I have even seen one developer try and claim that the fact that the authorities rejected their planning permission application was an Act of God!

Sometimes these delays can work in your favour. You may be happy to have a property on which they have only paid a part but which is going up in value as if they had paid the whole amount and also receive interest for late completion. On the other hand you may have re-mortgaged your property in the UK to buy the off-plan property abroad and are relying on the rental income from that off-plan property abroad to pay that mortgage every month - in which case this is a major problem.

Often you will see a developer offer you a deal when completion is delayed. You may be offered a free furniture pack, for example. Before accepting such an offer speak to your lawyer about the consequences.

There is no problem in buying off-plan property abroad, providing that you and your lawyer put into place certain safeguards. One of these safeguards is what happens if the property is delayed for some reason. 

The author, John Howell, is a senior partner at the International Law Partnership.

First published in April 2008.
Some information contained herein may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and/or financial advise from a qualified professional.

See Also:   Buying off-plan property abroad