CHAPTER TWO – WHAT IS “NEW BUILD CONVEYANCING”
Many people in life claim to be a specialist. Few ever are. I will make a confession. Really I am a generalist. I do a little bit of everything when it comes to property. In fact, given I spend most of my time leading these days and not dealing with the legal work I am more akin to some lazy bloke in a non-ivory tower. Acting for buyers and sellers of existing properties have been in place for years, listed building, freehold, leasehold, those with mortgages, cash purchases, a bit of commercial property and some residential development acting for the developer then handling sales of the properties that have come from the same. I also handle Equity Release work and some leasehold enfranchisement work.
Writing that down actually makes my head spin a little as I do seem to do quite a lot. Add to that that I am an active Father, husband (Mrs Sams might disagree on the active husband part), Partner in charge of Property for my firm overall, I also lecture other lawyers nationally on various legal issues, write books like this as well as articles and am a Trustee for the Rainbow Centre for Conductive Education in Fareham. My share of the profits from this book will go to Rainbow so please don’t feel that by buying this book you are lining my pockets. You are in fact helping an extremely worthwhile cause with people who live with neurological conditions that make simple tasks for most of us harder to deal with.
Now that we have established that I am not a specialist here is where I contradict myself. Yes, a U-turn but given that our Government of the past few years have been accused of the same, in all honesty I would say they have acted quickly to a change of circumstances that was fluid in nature, this though by me is a U-turn. I am a specialist in new build work. For the past 20 years of my working life new build work has dominated my professional career.
To be me it has provided the foundations for the departments I have founded in the three firms I have worked with (and in two cases including my current firm, part owned) be able to grow. Before looking at the practical legal differences in conveyancing when it comes to new property I think it is important to consider the big psychological differences between dealing with a new property compared to an existing property.
Psychological I hear you say? Am I reading the wrong book. No you are not so please bear with me. There is a huge set of psychological differences. Let me explain further.
Many moons ago when I was a young newly qualified solicitor one of the Partners in the firm where I was working asked if I could see a lady who had walked in off the street. Her late husband had been a long standing client of the firm’s Corporate team and she had told our receptionist that she wanted to buy a property.
I straightened my tie and went down the two flights of elegant stair cases in the office to meet her. Not sure what to expect I did not expect to see a rather short lady with a battered shopping trolley wearing three quarter length gloves. She explained she was buying a very large property on the Isle of Wight for a not inconsiderable sum. When I asked if she was planning on raising a mortgage to assist with the purchase she said no and handed me over the card of a Director of a well-known prestigious bank.
Not just an area Director mind you but a Director who sat on their international board. I was told to call him and he would provide evidence of her funds if I needed them. It transpired she was enormously wealthy. Purchasing the property was a drop in the ocean for her, mind you where the property she wanted to purchase was right by the sea I could see that literally happening at some point in the future.
The transaction never went through though for two reasons not connected to the property itself. Firstly the sellers were obsessed with trying to find out where my client had her funds from. The sellers had been assured by the Estate Agents who had seen proof of her funds that they need not be concerned. I had also confirmed this to the sellers’ solicitors but they kept asking if their client could see it for themselves. In fairness the solicitors themselves seemed embarrassed by their clients’ requests.
The second reason that the property feel through was because the sellers demanded that the buyer pay the grand sum of £75.00 for some less than new garden furniture. You know the type, think white plastic that you could pick up just about anywhere. The sort found at Zoos and outdoor venues across the world. The type that would not cost much to purchase brand new.
This request for £75.00 in addition to the considerable purchase price was too much for my client who simply withdrew as she decided she did not like the way the sellers were reacting. She paid my full costs without me having to ask and went on to buy somewhere else.
You may say that was not a particularly interesting story but I use it to highlight the difference between purchasing a new property and an existing one. In the case of most existing properties the person who owns it generally has lived there or has some connection to the property itself, whether that be from renting the same out or selling if for a relative through probate. Either way the seller has an emotional connection to the property and secretly most people want to know that their property, that they may have loved and treasured, will be passed to someone who will treat it as they did.
There is no such emotional connection (or should not be) when the seller of a newly constructed property is selling. This is their business. If they don’t sell what they have built then their business fails. That simple, they must sell it. For the large national developers they must sell every single unit they build. Quick sales, fast turnaround, no delays. They produce properties like widgits on a production line so they want them sold. No time for sentiment.
A developer does not have time to decide if they prefer Mr and Mrs X over Mrs and Mr Y as to who will look after the property the most once they have parted with it. They want to know who will pay the most and how quickly they will do it.
It is the speed I think that hovers in most people’s minds when dealing with new build property. That applies to both the buyers, sellers and conveyancers. Many conveyancers have said to me over the years they don’t like new build because of the time pressures. I love it. Having the mind and attention span of a goldfish then I adore the fast turnaround involved in new build property.
In the immortal words from one of my favourite movies of the 1980’s, I feel the need for speed. Given the final release of the sequel to said film last year the phrase always brings a smile to my face.
New build property is all about getting from “a” instruction to “b” exchange as quickly as possible. Nothing else matters. Obviously other things do matter but to all parties this needs to be foremost at the buyer’s and the buyer’s conveyancers’ minds. If you do this then the wheels of industry keep turning.
I have a somewhat horrible phrase that I have said to my teammates within my firm but it is true. That is “seconds or you are dead”. In this modern world if you have not dealt with something as soon as it has arrived with you then you a problem.
A developer wants exchange more than anything else. The first word out of a good developer’s mouth when they are a babe in arms is not “mama” or “dada” it is “exchange”. Followed by the word “now”, obscenities may often accompany the same.
There can be no delays. The developer will know, if they are a national developer they probably know more than the security services about your purchaser clients, during the course of their transactions. For example they will call your client to make sure they have returned their instructions to you and paid monies on account. The developer will know that a contract pack has been sent to you because they were either copied in on the email from their solicitors to you or because they have an inhouse legal department like several large national developers have. They will also probably know before you do that your clients mortgage offer has been issued. They will certainly know that the Authority to Proceed under the Help to Buy scheme has been issued to you.
The large amount of information and timing of that information that the developer has about when things happen means you need to be aware of that an act accordingly. Now I can hear some of you saying, “well they are not my clients” and that is very true. However they have influence over your client so if you want an easier life it can be best to keep that in mind. I am some of you are horrified by these comments and are of the view that your role is to protect your client. That is fine for you to have that view. It is true. However I am a realist and a capitalist at heart. Completing transactions generates funds for your firm which in turn pay your salary or drawings. The huge number of lawyers who whilst intelligent people cannot grasp that firms survive based on the fees they generate genuinely horrifies me.
So if you want to be considered good at new build conveyancing you need to be considered quick. Quick and good can happen. Some will tell you they are mutually exclusive comments but they are wrong. The same can be good bed fellows. That is because during their “courtship” quick and good need to be introduced to each other by another word. Organised. As with anything else, being organised goes a long way to getting things done. I am blessed that I have had some great lawyers and assistants work with me over the years. Putting aside Miss East’s huge ability then I have to give a special mention to Amy Briscoe who is by far one of the best I have had the privilege to work with. Super organized and rarely stressed she never ceases to amaze me.
So as I have alluded to organisation is the key. “How do I get organised?” I hear you ask. Like the boy scouts, be prepared. If you are going to be dealing with a lot of purchasers on a single site, let me share a secret with you. The title to each property will be roughly the same. There will be subtle differences but you can probably use the same report for all with a few tweaks as and when needed. You could even, I appreciate this may shock some conveyancers so take a deep breath, use the same report on the same site for freehold and leasehold properties. Changing the section on whether it is a flat or a house to include the major details we all tend to report on (each schedule in a transfer/lease with a summary is how I do things). Something I should have pointed out in edition one which I will now, make sure you are aware of changes to the site papers as it is key that you do actually update any master reports that you hold.
Well with that bombshell let me share another secret. Try to get on with the conveyancer acting for the developer. This is not combat blood sports and there is no point trying to score points from the lawyer on the other side.
Now I know sometimes I have had some run-ins with people on the other side. I admit in the past twelve months snapping at some quite frankly awful Licenced Conveyancer via email who insisted on copying her client into every email she sent me with enquiries (including wanting a peppercorn ground rent provision being amended as it did not state it would not increase in the future – that was not the worst one she sent me either). However once we exchanged she insisted on telling me that clearly I had not been loved as a child. She made a point of telling me this after exchange. I was tempted to send her a copy of one of my books but since there are no pictures in them she may struggle. The Estate Agent has indicated that their client will never be using that Conveyancer again as they were awful to deal with so that is something I suppose. By the way this is not a slight against Licenced Conveyancers either. They could easily have been a solicitor, legal executive, barrister or Barista.
However if you get on with the person on the other side of you it will make things much easier for you and your client. I have been lucky to deal with some great conveyancers for developers over the years. Janice Taylor, Louise Patterson, Zoe Owen, Rebecca Price and Gareth Fullbrook to name but a few. In fact Gareth now works with me so I no longer get to exchange with him on a Saturday morning. Although I did exchange contracts with Zoe once when I was in the queue at the Fish n Chip shop on a Friday evening. Getting on with your opposite number will help in many ways.
For starters they will probably highlight any changes to their client’s paperwork to you so you don’t have the surprise of spotting it when you do your next report. You can use them as a conduit to keep their client informed of issues that might be arising with your client. For example if your client is having issues with an associated sale then your client (and the developer) would benefit from amending an unrealistic demand to exchange on a certain date. Moving that date should not prove too much of an issue as at the end of the day developers, as I have alluded to earlier, do not have the emotional attachment that other sellers may have.
Of course sometimes you will have a problem no one has foreseen. The obligatory IT failure, power cut, flood and banking system crash, having been through all of these scenarios my “crisis bingo card” is fully ticked off. Having someone be your advocate does you no harm. We all need friends in the law so can I suggest that your opposite number be that for you.
I have alluded to above the time frames. The biggest difference some might say between resale conveyancing and new build property is the stipulation of an exchange time frame. There may be time frames imposed on resale properties but I can honestly say that these do as a rule seem to be ignored. One well respected Estate Agent I know always says “the matter will happen when it happens”. Those words are horrific to a developer. I know he has said it to many a developer over the years.
Most developers issue a four week-exchange deadline. Some say 21 days, some say 28 days and some say 35 days. Whatever the deadline is the developer will issue one. More importantly they will expect that deadline to be met. If not your client runs the risk of losing the property. Remember when the property market is buoyant a developer is likely to be far more bullish when it comes to deadlines and sticking to them.
I dealt with a developer many years ago that has to this day one of the best sales progressors in this country. Her ruthlessness though knows no bounds. She expects matters to exchange on time and if they don’t woe betide you and your clients. Exchange is what she is paid to ensure happens and she will do anything, and I mean anything, to make sure that happens.
Please keep in mind that for a corporate developer they are not like an estate agent. They are not making money from conveyancing referral fees, financial services commissions, commissions from carrying out removals or letting property. A developer’s sole income comes from buying land then developing property on that land. It must be built then sold before they can move on to the next one. The daily number of exchanges must be reported from the regional office to the group office to the national board who then need to sweet talk not just their bank but the stock market. That one property you are dealing with can have an influence on their share price which in turn affects the national share index. No pressure but your holding up that exchange could make a difference to the national economy so do think on.
To help with speed can I encourage all of you to have a seamless onboarding process for clients. Now personally I hate the term onboarding but instruction process does not really cut it these days. I hate it when potential clients call and say that “the site sales team have told me to instruct you so am calling you to do that”. Now I know this is done with the best of intentions but returning the forms, hopefully via electronic means, paying monies on account and providing identification documents are not yet really possible from a simple telephone call. Getting your client instructed early, it is now something that can be done on day one of opening a file for them, is really key to having everything in place to meet any deadline.
Now everyone has a different way of doing this but I am a fan of electronic identification checks because it is harder to fool a computer system than it is a human being when it comes to false identification. Can you honestly tell me if you would spot a fake passport as I am not sure I could? Electronic identification checks and the use of secure portals to check that your client is who they say they are (and are not a dreaded “P.E.P”) helps with conveyancing in general not least the speed element.
Personally I have always advocated reporting to a client with contract papers on a new build property as quickly as you can after receipt of contract papers from the developers solicitors. The client feels involved in the process that something is happening and you have done all you can on the file at that stage.
At a previous firm it was a requirement that all new starters and those who had failed to achieve their time posting target the year before attend a seminar presented by the then senior partner. He was hugely respected chap who had been considered one of the best “billers” that firm had ever had. His mantra was quite simple and I am huge believer in it. When you work on any file does as much on it as you can before you place it back. Don’t do half of what you can do. Do it all and then you are less likely to miss something later on. Simple task but I whole heartedly believe in the same. If you follow this you are less likely to go wrong.
Now in the report I am not going to tell you what to include but would make the following suggestions. For starters if you have engrossments get them signed now. Make sure you cover the legal title to the property, any estate charge or service charge that needs to be paid, what new homes warranty that the property may have, searches (or lack thereof), planning documents and finances.
Now you won’t be able to exchange until you have mortgage instructions (assuming you are getting a mortgage and your client wants to wait for their mortgage offer before committing to exchange), the authority to exchange under the Help to Buy scheme (see the later chapter on the same) and any associated sale or part exchange. However if you report early so you have a signed contract and have warned the client you will need their deposit to exchange (it never ceases to amaze me the number of clients who are shocked by the request for monies to exchange), this should make life easier to get to exchange.
Another thing I always include in my report with the contract is the engrossment fee that the developers’ solicitors will inevitably charge for providing the final documents at completion. Now this can vary between £50.00 to £400.00 plus VAT. Now this has been commonplace for as long as I can remember (I am getting on in years) and in the past few years developers certainly make sure that buyers are told about this at reservation. However still to this day I get asked, usually at completion to be honest “what is this engrossment fee?”.
The engrossment fee is to put it bluntly, your client paying the developers solicitors for preparing then final signed transfer or lease. To be even more blunt, paying part of the seller’s solicitors’ legal fees. I cannot dress this up in any other way. It is part of the convention that is in place for developers and I don’t see it changing any time soon.
Some developer’s solicitors take it to a new extreme and charge for acknowledging notice of transfer and mortgage at completion. I do find this one a touch unfair for the buyer as the developer’s solicitors know who the buyer is as they have provided a lease/transfer with their name in it plus their client has all their contact details! However this is not the format to begin a debate about whether that should change.
The issue I find with the engrossment fee is that no matter that the developer will have told the buyer about the same and you will have told the buyer about the same it more often than not does not get through to the buyer. When they see the completion statement at completion they always seem to query the Estate charge (see a later chapter dedicated to the same) and engrossment fee. “What is this?”, “no one told me about this” and “really? Are you sure” are some of the frequent comments I have seen.
Believe me I have tried many different ways over the years of explaining the same. Bold font in the report, coloured text, repeating it more than once in the report letter. Nope, people still keep missing the same. If anyone has any great ideas I have not tried then please feel free to share the same.
Having mentioned earlier in this chapter the need for exchange above all else from a developer’s perspective this brings is on to the most different, in my opinion, aspect of dealing with a new build property compared to that of a resale – the completion date.
Those who have ready my book on “Covid Conveyancing” (thank you by the way for your support) will know how scathing I have been over so called “covid clauses”. Said clauses seek to destroy the one thing that an exchange of contracts is supposed to bring, certainty to all parties. The idea of exchanging is to let all parties know that they are committed to the transaction, they can then make plans accordingly and a date when completion will take place is agreed for a date in the future both parties agree.
That does not tend to happen with new build properties. Unless the property is build complete then a fixed date will not be agreed for completion. Now under the Consumer Code for House Builders (again more of this in a later chapter) certain time frames have to be agreed but they are fairly wide. More importantly there is no agreement between the parties. The developer makes it clear what they are offering and that is it, take it or leave it.
Now over the years I have realized that some developers sales staff are more keen to point out time frames to buyers than others. That is simply human nature. However that does not stop me feeling like the Grinch when I have to point out that it is likely to be much longer than they had been lead to believe. Now do not get me wrong I am not blaming the site sales staff here. Quite often they have been led to believe by construction staff that a certain date is possible.
In turn the construction personnel will have been told the same by the Construction Director in conjunction with the technical department who will in turn have been told this by suppliers or utility providers. The issue with building a new property is that so many people and factors come into play that one small delay can have a knock-on effect to the whole process. For instance the delays with construction workers being off sites during the height of Covid at the end of March/beginning of April in 2020 delayed some build schedules by months. “Ripples in a pond” is a phrase I am fond of saying as you do not know what those ripples may touch or effect. The fact that we have had the energy crisis since then coupled with war in Europe then the “supply chain” issues we have all been encountering are just getting worse.
Now when it comes to exchange on a new build it is likely that the buyer will be presented with an anticipated legal completion date. That will be a date in the future. Inevitably it will probably be at the end of a month or the last Friday of a month albeit that is not actually a requirement just what tends to happen in practice.
There will either be a long-stop date or a termination period offered. Taking a long stop date that is as it sounds. Completion has to be by a certain date or the contract is rescinded, the buyer can ask for their deposit back and compensation.
Termination period are similar but rather than a specific date being given a range of dates (either two, four or six month) are given to the buyer. How I personally tend to deal with this is by adding the following paragraph to my report letter that accompanies the contract:
“The final moving or completion date is defined within the contract as taking place within 10 days of a notice served by the developers’ solicitors upon us to confirm that the property is ready for final valuation and is structurally complete. It is for this reason that we stress you monitor the build programme closely and avoid booking holidays when the developer will expect you to complete. In addition if your lender requires a re-inspection then the more notice that the valuer can have then the less chance of a complication with the valuation.
The developer has not provided an anticipated completion date at the time of compiling this report.
The contract is subject to what is known as a termination period. In this case the termination period is for six months. This means that if at exchange of contracts the anticipated completion for say 30 June 2023 then they could move completion forward by up to six months (1 January 2023) or back by six months (30 December 2023). If completion has not taken place by the end of the termination period then the seller would be in breach of contract to you and you could in turn look to take action against them for any losses you have suffered. Ultimately you could look to regain your deposit and cease to buy the property.”
I am not saying that this is always the best way to get the message across to buyers but I do find that it works the majority of the time. It is worth pointing out that in my experience it is rare for developers to go past the long stop or termination period. As stated earlier, developers have to build and then sell what they produce, if they do not, they do not make any money. No money no business. On that basis most large developers make sure they build on time to avoid such issues.
Now I am not saying that happens all the time as I have seen on occasion sites that have gone over the termination period or long stop. It has generally been down to mismanagement from the developer or some catastrophic issue caused elsewhere on a site. However again on a handful of occasions I have seen a developer deliberately go over the termination period or long stop.
Why I hear you ask? Did you not say they have to build and sell to survive. Well yes I did. However as a commercial entity if they have constructed a property that they could sell for a lot more, then the temptation to allow one buyer to withdraw, paying them compensation so they can sell for a lot more, then I can see the commercial decision behind it. I would like to point out this is very rare as for starters a developer does not want to get a reputation for doing this with the public who could be future buyers. Nor do they wish to highlight issues to mortgage lenders who could consider against lending against their properties in the future. The same applies to Homes England who administer Help to Buy. A developer would hate to have to go “cold turkey” from losing their Help to Buy funding line.
So I have looked at time frames and the absolute requirement of a swift exchange but I have not looked at one of the big differences with new build conveyancing which I think we will see more of for the next few years. Part exchange. Developers will often take a buyer’s existing property in part exchange to allow them to sell one of their new shiny properties to the buyer. Car dealers do this on new cars and it works well so why not developers. There are many companies across the UK set up to assist developers with part exchange properties. In fact some will actually buy the property for the developer so they do not have to own the same.
Please keep in mind that a developer has a major advantage over most home buyers. Under the Finance Act governing Stamp Duty Land Tax (SDLT) then a developer does not have to pay SDLT when taking a property in part exchange. Provided the seller has used the property as their main residence then the developer will not have to pay SDLT. This can be a large saving depending on the value of the property. Now I am not saying that a developer will not take a former buy to let property for instance in part exchange but their offer for that property will factor in the fact that they have to pay SDLT.
Now I always used to be under the belief that a developer would only take a property in part exchange if the part exchange property was worth only seventy percent (70%) of the new property so that there is a thirty percent (30%) difference between the two. For example if the new property is being sold for one hundred thousand pounds (£100,000.00) then the part exchange property cannot be worth more than seventy thousand pounds (£70,000.00).
However that belief has been tested over the years. I always recall that a friend of mine who was Sales Director for a national developer called me at a weekend to ask if I could quote buyers he had for a million pound (£1,000,000.00) sale he had agreed on one of his swanky new penthouse apartments. He explained it was a part exchange. After the third time of asking he managed to get my disbelieving ears to hear that he was offering than one million and fifty thousand for their current property (£1,050,000.00).
I always remember saying “but that does not work, you are paying them”. He replies calmly “Don’t worry Paul, it works on paper” to which I replied “what sort of paper, Martian??”. That sale and purchase did go through. In two weeks from start to finish if I recall correctly. The developer “had money” in the plot which allowed them to offer such a keen deal. They sold the part exchange property for seventy-five thousand pounds (£75,000.00) more which allowed them sufficient funds to cover their costs involved with the transaction. On reflection now I have to applaud the sales director for doing something so audacious.
The sales pitch that a developer makes to any prospective buyer with a part exchange is elegantly simple. They point out they are a cash buyer, magic words that Estate Agents and society as a whole hammer into people. I would temper that though that few people have a six-figure sum lying around in their current account so remember that famous phrase about all that glitters is not gold.
A developer will also mention that great panacea that society and Estate Agents love to play upon, there will be no chain. Now chains of transactions are somewhat unique in England and Wales compared to elsewhere in the world. I am not saying that this is bad nor am I saying here that other systems are better. I merely wish to place on record that we have a system and it works. It might not work as well as we want it to but it does work. Therefore we just have to accept it.
Now the developer has established they are not getting a mortgage (buyer hears delay when they hear mortgage, waiting for the buyer to get approval then waiting for a survey etc (but see below)) and that there is no chain they are beside themselves with joy. A buyer who will take the property as is, no haggling over the curtains and no waiting for funds to be in place, they are happier than a pig in you know what.
Then along comes the likes of me who have to give them the solemn news. They have the most fastidious buyer that they could ever face. One who will leave no stone unturned in the questions they will ask. Far from having an “easy ride” they will be tortured over every element of their property.
I make no excuse for saying this. I say it because this is the reality that someone undertaking a part exchange transaction has to prepare themselves for. Every developer I know who deals with part exchange wants a gas safety certificate. Not a service certificate or evidence of installation of the boiler (although they will want that to) but a certificate akin to a landlord’s safety certificate that would be obtained if a property was rented out to a tenant.
The logic behind this is that the developer does not want to have to replace a faulty boiler. They want the property to be perfect so checking the boiler and having a certificate to say it is safe is an absolute must. In addition there is a trend now for many developers dealing with a part exchange to asking for a full electrical test of the property. Neither a landlord’s gas safety inspection or electrical test are requirements under the conveyancing protocol for the sellers to provide but developers want them.
Every developer that makes such demands makes it clear in their reservation process and most follow up with a separate letter to say to buyers they should have this done. Sadly in my experience most buyers seem to fail to get this message. Whether that is because it is not made clear enough or simply it is lost amongst the thousand other things rushing through someone’s head when purchasing a new property, well I do not know but it often fails to get through. It is left to us as the conveyancers to make this clear to them what they need to do.
Some developers require that all ground rent and service charge on a leasehold property is paid for twelve months in advance before they will consider exchange. Now whilst they will of course repay the monies due to the buyer at completion by way of apportionment it is quite a lot to pay up front.
My top tip when dealing with a part exchange transaction or in fact a resale transaction where the buyer is also selling is simply to tell your client this. Forget about the new shiny property you want to purchase. Focus on your sale. If you don’t concentrate on the sale they will not get the new property. A very simple message but I think it is worth spelling out.
One other major difference comes from the magic form that can be so difficult to get hold off which is all important in new property. What is this mystical form you ask? Well that would be the disclosure of incentives form.
Rather like selling a new car developers like to offer incentives to buyers. Unlike cars you might not get a satellite navigation upgrade but you might receive from the selling developer some form of incentive to make the property more attractive to you. That could include covering your Estate Agents costs for an associated sale, a contribution towards legal costs, a contribution towards stamp duty land tax costs, a “cash” incentive (it is never a wheelbarrow full of funds) to many other options.
Those new to new build conveyancing are often perplexed by this. Having had it drummed into them that any variation or offer of incentive to a buyer is pretty much forbidden without the consent of the mortgage lender this seems to be permitted and dare I say it often encouraged by lenders on new properties. A lot of mortgage lenders will actively state in their mortgage offer that they are aware of incentives and they are fine by them.
The reason they aware is that usually their valuer has seen the form. The form itself is readily available via the UK Finance Mortgage Lenders Handbook for Conveyancers online. The form was previously known as the Council of Mortgage Lenders disclosure of incentives form or as I save it in my case management system CML DOI form. The current form has been in existence since August 2018.
The original CML DOI form was created in September 2008. Having discussed the same with all the participants in the new homes process which included developers themselves, surveyors, lender and warranty providers the form was decided upon to improve the flow of communication between all parties thus speed up the process. I believe the correct word is transparency. The idea about the form is that incentives are fully disclosed as there was a suggestion in the past that they were not.
The seller should complete this and make sure that the lenders solicitor which inevitably most of the time is the solicitor acting for the borrower has sight of the form showing the incentives. The valuer only has to see this if they request it however most do as they are instructed by the lender to see it to assist them with understanding the value of the property.
The form should be disclosed to the lender by their solicitor unless of course the lenders says they don’t need to see it if they already know the incentives. If of course the incentives change then the lender needs to be sent a copy of the revised form to confirm they are happy with the same. A generic rule that all lenders seem to have adopted (although not all) is that incentives should not be more than five (5%) percent of the purchase price.
Now the form is pretty straightforward but they are eleven (11) pages of guidance notes so that should give you an idea of the detail involved. Buyers do not need to see the form itself but it is important that the buyer’s solicitors have this. Now I have dealt with developers who have said, “don’t worry you don’t need a copy of the form there are no incentives” well you still need the form. Even if there are no incentives you need to see this form. So make sure you have it.
Now I admit I am at a loss as to why a mortgage lender will accept up to 5% of the purchase price being offered as an incentive on a new build property. In essence this means that the buyer is only paying ninety-five (95%) percent of the actual purchase price which in turn means that the lender is technically taking a higher loan to value against the property. However convention it seems allows this so you need to be aware that it exists and is likely to be acceptable to the lender.
This does mean though that you need to check the lenders instructions carefully to make sure you comply with the same. Some lenders state in their instructions that they don’t want to hear about incentives provided they are not more than five (5%) percent of the purchase price. However a lot of lenders will accept no incentives so please do not make an assumption and check. This nuance over incentives is possibly the biggest difference in new build conveyancing compared to dealing with existing properties.
So we have looked at the major differences between dealing with a new property and a resale transaction in this chapter. In the next chapter we will consider planning permissions and building regulations approval and how to ensure the necessary compliance is in place.