How Does Conveyancing Differ When Buying a New Build Home?

Many people love the idea of buying a new build home. A fresh canvas to put your mark on with the added benefits of being chain free, energy efficient and coming with a new build warranty.

The legal process of buying a new build can however be more complex. Residential conveyancing experts True Solicitors outline the legal steps involved when purchasing a new build home.

Why is conveyancing more complex for new build property?

New build conveyancing is more complex than other types of conveyancing as there a higher number of risks for things going wrong with the build, including:

• Non-compliance with planning regulations.
• Failure to arrange NHBC inspections.
• Developers failing to complete agreements for roads and sewers.
• Homes being built not in accordance with the original plans.

It is therefore very important to instruct a property solicitor who is experienced in handling the nuances that can have an impact on purchasing a new build.  A good solicitor will not only help to identify any of the above issues but will ensure that the contract is in your favour, that your deposit is protected and that there is a ‘long-stop’ completion date in place. This is a given date by when the developer must agree to have finished the build and is ready to hand over the keys to the buyer. This is typically 12 months from the expected legal completion date. If a developer fails to have the property finished by this date, then the buyer has the right to cancel the contract and have their deposit returned to them.

It is common practice for the developers’ sales team and solicitor to rush the completion date of the property, in order to hit their end of financial year targets. A good solicitor will not give into their pressure and ensure that the transaction is legally tight and in your favour before agreeing to a completion date.

What will my conveyancer look out for?

Your conveyancer will need to ensure that certain searches on the new build are conducted, including:

• Checking Planning Permission: This involves checking that the property has been built in accordance with the right planning permission. That drains and utilities i.e. gas, electricity and water supply are connected, and that roads have been adopted. They will also conduct any other relevant local searches.
• Establish if the property is Leasehold or Freehold: If you are purchasing a new build apartment this will be a leasehold property. Leasehold properties often come with expensive annual service charges, to pay for the maintenance and upkeep of the interior communal areas and grounds of the building. It is therefore important to know what the charges will be, how much they are likely to rise per annum and what exactly they cover. Read our guide outlining the differences between leasehold and freehold for more information.
• Uncovering any restrictive covenants: Your solicitor will check if there have been any restrictive covenants written into the lease, which would ban you from making certain alterations to the property. For example, prohibit you from adding an extension without prior permission, or at all.

What is the new build conveyancing process?

The conveyancing process starts as soon as you have secured your new build home or plot. You should instruct a solicitor as early on as possible. The process is as follows:

1. Secure the property

The first stage is to secure the property. For new builds, this usually involves paying a reservation fee to the developer when you make an offer to buy the house or apartment. This protects your right to go ahead with the purchase for a specified period of time, usually 28 days, i.e. prevents the developer from agreeing to sell your plot to another buyer. It also gives you the right to pull out of the purchase within the time frame.

Reservation fees are set by the developer and can range from anything from £100 to as high as £2000 or more, for more expensive, high end property. The amount will be deducted from the final amount that you will pay for the property when the sale completes. If you pull out of the purchase, you will lose the reservation fee.

Before you commit to paying the reservation fee, it is necessary to have your mortgage agreed in principle. This is a certificate which states, in principle, how much money a lender is willing to loan you to buy a house. Developers and estate agents will usually only accept offers from potential buyers who have a mortgage in principle, as it proves that that you are a serious buyer.

You should be issued with a reservation agreement from the developer which will include:

• The purchase price.
• What is included in the figure such as fixtures and fittings in the property.
• What the annual service charge and management fees are likely to be, and what the costs cover (for leasehold).

The Consumer Code for Home Builders states that a reservation agreement is to be given to buyers. If you are not provided with one you should request it from the developer.

2. Instruct Solicitor

As soon as you have reserved the property, you should instruct a conveyancing solicitor to manage the legal transaction of transferring ownership from the developer to yourself.

Your solicitor will work with the developers’ solicitors to obtain a copy of the draft contract. They will check that the contract is in your favour and raise any issues that they come across. They will:

• Check planning building regulations approvals.
• Ensure that the property has access to gas, electricity, water and drainage.
• Check for any restrictive covenants.
• Establish if the property is leasehold or freehold.
• Conduct local authority searches.
• Check the conditions of your formal mortgage offer.

You will also need to take out new-build insurance – NHBC, at this stage. You will need to check that the terms of the policy cover you against any issues that should arise, including structural damage. When purchasing with a mortgage, insurance is essential.

3. Exchange

Once your solicitor is happy that all issues have been resolved, they will exchange contracts with the developer’s solicitor. At this stage, you will also be required to pay your deposit, which is typically 10% of the full purchase value. Your solicitor will transfer the amount to the developer’s solicitor.  You will also need to sign a contract stating that you agree to purchase the property at the current asking price and to pay off the balance upon completion.

Your solicitor should ensure that the contract price is ‘locked’ at exchange, to protect the buyer from any rise or fall in property prices before completion. Changes in property valuation could have a detrimental effect on your chance of securing a mortgage otherwise.

Your conveyancer will also do any final searches and bankruptcy checks.

4. Completion

The final stage of the process is completion. For new builds, completion usually takes place 10 working days after the developer has finished the building work, and the property has been signed off as structurally secure by Building Control.

Within the 10 days, you should ensure that the final inspection can be carried out by the mortgage lender’s valuer and for a snagging list to be prepared. A snagging list is completed to notify the developer of any cosmetic or structural issues with the property. For example, smudged paint work or a faulty roof etc.

The developer should then work to fix any of the issues brought up in the snagging report.

Your solicitor will also arrange payment of stamp duty (if applicable), along with registering your ownership at the Land Registry. They will also register your ownership with the NHBC and forward your guarantee certificate to you.