Developers failing to complete property purchases
There have been recent widely publicised examples of buyers failing to complete the purchase of a property on the contractual completion date.
Often this is in cases where a developer buyer has used a company specifically formed for the purposes of buying the property (a Special Purpose Vehicle or ‘SPV’). In these cases the seller is often left with a relatively small deposit and no real ability to take action against the SPV which is likely to have little or no assets.
Sellers should try and protect their position in a sale transaction by considering the following points during the legal process:
- Consider if the deposit being offered by the buyer on exchange of contracts is sufficient.
- In cases where the deposit offered is less than 10% of the purchase price, checking that the sale contract includes wording requiring the buyer to ‘top-up’ the deposit as soon as it fails to complete. This wording may have limited value where the SPV has little or no assets, but it is still worth having.
- Considering if it is appropriate for a parent company or director’s guarantee to be provided to back up the SPV’s obligations in the sale contract.