Thousands of property investors, including buy-to-let landlords adding to their portfolios, face potential legal disputes if they avoid completion of transactions, warns a leading private wealth law firm.
Off-plan buyers will lose their deposits if they fail to complete but that would not be the end of their obligations, according to Boodle Hatfield.
Many investors are concerned that the impact of the lockdown on residential property values may push the market values of some new build developments substantially below the value at which purchasers paid, leaving some scrambling to get out of off-plan deals.
However, if the property values fall further than the cushion provided by the deposits the developers of those properties might still pursue the purchasers who, under most contracts, would still be liable for further losses.
This problem was relatively widespread following the collapse of UK residential property values after the credit crunch in 2008-2009. In some new build developments scores of investors had to be pursued to ensure they completed transactions they were legally committed to.
Colin Young, property disputes partner, at Boodle Hatfield, said: “The contracts of most residential new-build developments are fairly clear cut and deposits would be at risk. Many purchasers also forget that this might not be the end of it. You may be liable for any additional loss the developer makes from selling that property, on the market, for less than you originally agreed.”
“Hopefully property prices don’t fall too far but there are certainly developers are now exploring their options over deals where the buyers seem to have gone cold. Once the lockdown is over we expect that buyers who should have already completed will start being asked to agree to a new timetable.”
“What we are also hoping is that these problems can reach a negotiated settlement.”