Obligations of Parties to an Off-plan transaction

 

1.0 Duties of the Developer

The duties of a developer can be drawn out as follows;

1. Adherence to Contractual Obligations on Financing Agreements

Developers must ensure that they carry out their end of the bargain with investors/lenders. This includes adhering to set timelines for completion of the project, making payments at the agreed timings to their lenders and generally acting responsibly with regards to their contractual obligations.

When dealing with a property that is Charged, the Chargee's consent must be obtained for any dealings involving the property, such as selling or leasing it. The consent protects the Chargee's interests and the interest of the person acquiring the interest. Failure to secure this consent constitutes a breach of the Charge agreement, potentially leading to legal action, foreclosure or forced sale of the property.

Section 59 of the Land Registration Act and Section 87 of the Land Act provide that it is the duly of the Chargor to obtain the written consent of the Chargee prior to dealing with any property. This includes properties in an off-plan development. Once the consent of the Chargee is obtained, a partial discharge of the charge can be procured for purposes of transferring the property, free of encumbrances.

2. Stakeholder Engagement

It is essential to engage and communicate effectively with all parties involved when carrying out land dealings. If any overriding interests exist on the property or material conditions that affect dealings with the title of the property, it is important to notify all relevant parties to the transaction and especially those seeking to acquire the interest in the property.

3. Financial Management

Effective finance management is crucial for every development project to succeed. Developers are responsible for making sure that money is spent wisely and financial commitments are fulfilled. Financial irregularities or poor management may result in default proceedings such as auctions which cause irreparable damage to stakeholders.

2.0 Duties of a Purchaser

2.1 Conduct due diligence

When purchasing an off-plan property, the Purchaser is expected to conduct due diligence for purposes of verifying the validity of the title and the legality of the transaction. This includes confirming its ownership, the physical status of the property, reviewing the legal approvals and determining financial encumbrances associated with the property.

Part of the due diligence would require assessing the credibility of the developer. The track record and credibility of the developer is crucial in assessing whether the developer is likely to fulfill their obligations. The purchaser must probe the history of the developer and determine whether there are patterns that would indicate potential risks such as stalled projects or litigation disputes that arose from their projects.

2.2 Recognizing the provisions of the Sale Agreement

A crucial stage in off-plan purchases is contract exchange. It binds you legally to purchase the property at the asking price, even if the market rates change in the future. It is the duty of the purchaser to examine all the details thoroughly before executing the contract. It is crucial to read the provisions on the anticipated completion date, interest on late payments and key terms such as default provisions to make sure that they understand the expectations from every party to the Sale Agreement which on the part of the purchaser would mainly entail payment of the purchase price.