Protecting your deposit when you buy off plan is a key consideration, particularly if you decide not to proceed to completion, because the development has been delayed, or you have concerns about the financial viability of the developer.
It is common for flat developments to be sold off plan and subject to an Agreement for Long Lease of Flat. You should make sure that the Agreement includes, details of how the deposit should be held, and circumstances when it should be reimbursed in full to you.
If the deposit is held by the developer’s solicitor as agent for the developer, the developer's solicitors can release the deposit to the developer at any time. This would usually be as soon as it has been paid by you. This is clearly a risk, particularly if the developer is in a precarious financial position and may go under.
If it is agreed that the deposit will be held as stakeholder, the developer’s solicitor will hold the deposit on behalf of both parties. They cannot pass it to either you or the developer without consent of the other, at least until completion or if there is default by either party (providing express terms are include in the Agreement). Therefore, it is more advantageous for you and lower risk, if the deposit is held as stakeholder.
You should also ensure that the Agreement for Long Lease of Flat includes a Long Stop Date provision. Essentially this provides that if practical completion has not occurred by a defined long stop date, then you may, at any time after the long stop date, but before practical completion occurs, give notice to the developer that, unless practical completion occurs within a specified period of receipt of that notice, you may terminate the Agreement. If practical completion does not occur within the specified period, you are then entitled to serve notice to terminate the Agreement.
It is important to include in this clause, an obligation on the Landlord to return the deposit to you within a defined period of receipt of your notice to terminate this Agreement.
