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What are the Risks of Buying Off-Plan Property Abroad?

What are the Risks of Buying Off-Plan Property Abroad?


Expert view

At this time of year when regarding the sweeping rain and sodden rooftops of central Bristol from my desk I can sympathise with those people who’ve had enough of the UK. Overseas developments where investors buy their place in the sun ‘off plan’ are attractive because they appear to offer the best return for usually modest levels of investment.   However, investors should beware as the contractual documentation produced by developers can be full of potential pitfalls.  

In most overseas development transactions, investors are generally channelled by the agent to one or a group of handpicked solicitors in England or Wales who have been approved by the developers or the agents. They act ‘en bloc’ for large groups of investors in the same transaction.

The contractual purchase documentation produced by developers is usually produced in the native language where your development is located though occasionally it will be accompanied by a translated version. More often than not though, the developers will refuse to accept any variation to what is usually a disadvantageous contract for the investor.

Here are some examples of how the cards are stacked against the investor. These examples are only a few of the genuine problems than can happen during overseas development transactions, all of which were missed by the investor’s solicitors:

  1. The developer may not actually own the land the development is to be built on, even though the buyer agrees the purchase contract with them and they are categorised as the ‘seller’ in the contract. There can therefore be some uncertainty regarding whether the developer can, without involvement of the landowner (who may or may not be named in the contract), build the development or even sell the finished unit to the buyer.
  2. The investor will be contracted to make instalment payments at certain ‘trigger’ dates. These dates usually correspond with milestones in the construction of the development. In the UK, where an ‘off plan’ property purchase is paid by via instalments, these monies would be held in a stakeholder account and released to the developer when an independent architect or surveyor has signed off the work as complete and to the appropriate standard. But in many overseas developments, purchasers do not often benefit from the same safeguards. With their development several thousand miles away, it can be difficult to know what stage construction has reached and whether the further payment is really due. If instalments are not made on time, the developer could have the right to cancel the contract and keep the payments already received. This means investors can be faced with a difficult decision if they have concerns regarding the progress of their development – should they continue to pay in the hope that the development will eventually be completed or should they cut their losses?
  3. The contracts may allow the developer the ability to transfer all of their duties and obligations laid out in the contract to another legal entity of their choosing at any stage of the development. This means the developer can lawfully avoid their obligation to deliver the development. When they pass the development on to another entity, perhaps a ‘shell’ company incorporated solely for this purpose, the new entity assumes all the legal liabilities in the contract but may have no assets for the investor to claim against if the development is not completed.
  4. The contract should give a completion date or long stop date. A long stop date is when the developer must deliver the unit to the investor or the investor can walk away with no penalties and can reclaim his money. Some contracts contain neither a completion nor a long stop date. This leaves investors with no contractual rights to make the developer to complete the development by the given date.

I strongly recommend that anyone considering investment in overseas development should seek independent legal advice on the contents of any contractual documentation before you sign and begin paying over your hard earned money.  

If you are an investor who has already signed up, made payments and now has concerns, don’t delay in getting your contracts reviewed as soon as possible.

There is a six year time limit in place which restricts you from bringing a claim against your solicitor if they have missed these things. This six year time limit could start as soon as you sign the documentation or meet your solicitor and agree their terms.

Meade King has successfully recovered millions of pounds for investors who have been let down by solicitors who failed to properly advise their clients when acting in overseas development transactions.

Most investors find that making a claim against their solicitor is the best and only option available to them as a claim against the developer may be governed by a foreign jurisdiction and, depending on the solvency of the developer, may not be financially viable.

Our experienced team of professional negligence solicitors have many years’ experience in professional negligence in overseas development property.

Call us now for an informal discussion about your circumstances on 0117 926 4121 or make a free online enquiry. We can help you.