Incomplete investor deals facing legal risks

21 October 2009

Lawyers have recently warned that investors affected by the economy slump who choose not to complete property transactions can still be forced to by after court orders.

Many investors who agreed to purchase property being built in the boom have now found difficulties in decreasing values and problematic mortgage deals.

Although many believe that they risk only their deposit by pulling out after the exchange of contracts, lawyers have stated that the legal obligation to complete the transaction still stands.

Many ‘amateur landlords’ invested in property as prices rose during the boom but have since pulled out, despite exchanging contracts, after the tightening of mortgage finance and the realisation that a fast profit is no longer available. The knock on effect of this is that developers have since had to pressurise investors not to pull out of contracts, several applying for a court order of “specific performance” – an injunction that makes the buyer perform their part of the contracts and complete the purchase agreement.

Buyers do have a defence against this but only if the development was not “substantially completed”, if the property was not adequately represented, or if the value of the property overtakes the contract sale price. A reputable builder will usually offer insurance to a buyer of new build property to cover defects and some of these policies provide the repayment of deposits in cases such as this.

Source: BBC News

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