Property Hawk has already reported on a high rise apartment scheme in Leeds that will potentially cost many landlords their very substantial deposit
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Up until recently, high rise apartments were seen as the solution to all our housing woes. They delivered 'swanky pads' for design conscious professionals. They saved the green belt by not building on precious countryside. They regenerated city centres and revitalised what were often dead and deserted parts of our urban landscape by injecting new residential communities. They also importantly made lots of money for developers who found a ready market to sell them on to in the form of the throng of buy-to-letters and speculators. No more.
According to Property Week developers in London and Leeds are facing problems because landlords and investors are prepared to forgo their deposits rather than go through with the purchase of the new apartments.
The dilemma for the developer is do they pursue the landlords to enforce them to go through with the purchase or try and find a new buyer. The situation is often complicated because even where a landlord wishes to complete the purchase the buy-to-let finance has often dried up because lenders are running a mile when it comes to financing 'new' city centre apartments.
Many developers have responded by seeking to renegotiating with the purchasers on price or allowing them to walk away allowing the developer to let the property and renegotiate terms with their lenders. The developer will then aim to let the properties and hope to sell in a couple of years time when market conditions improve.
Property Hawk did warn investors about buying new builds in Docklands in 2006. Nobody could have quite imagined the scale of the journey we have been on over the last year and it ain't over yet!
I read this recent example about buyers in Ireland. It may be the case that landlords are not allowed just to walk away!
ReplyDeleteMore than 100 homebuyers have been issued with High Court writs by developers who are trying to force through deals made at the height of the Irish property boom.
Buyers are saying they cannot complete purchases agreed in 2006/7 because banks have withdrawn their mortgage approval and they can no longer afford the asking price.
“You can feel sympathy for both sides in this,” said Niamh O’Grady, a property solicitor with William Fry. “The developer is entitled to seek performance of the contract and has the banks on its back. On the other hand, if purchasers can’t physically get the money then the developer has to decide whether they are worth pursuing.”
O’Grady said some developers had taken a strong line with buyers because they fear that letting one person out of a contract will set a precedent. But many of the defendants argue that their developments were finished long after specified completion dates and are now worth far less than the originally agreed price.
Laragan Developments, part of the Roscommon-based Hanly Group, has filed more than 40 High Court cases against buyers who refuse to complete on contracts. Separately, a group of 25 buyers who paid €15,000 deposits on apartments in Milner’s Square, a 300-home complex in Santry, Dublin, are planning legal action against Laragan for the return of their deposits on the unbuilt homes.
Consumer groups say standard contracts offer little protection to buyers who have deposits tied up in delayed developments, because a clause allowing “reasonable delays” protects builders.
Ann St Leger, a civil servant, paid a deposit of €15,000 on a two-bed Milner’s Square apartment which cost €415,000 in June 2006. “When we bought the place we had been looking for a property for a long time and we were getting desperate because of the way prices kept increasing. We had bad luck with other places where we’d been gazumped,” she said.
The apartment was supposed to be ready after 18 months, but almost three years after handing over the deposit, St Leger is still waiting. She is unhappy that the standard construction industry contract she signed offers her no protection.
“It seems the magic words ‘time is not of the essence’ in the contract we signed allows them to string us along forever and a day,” she said.
When St Leger and her fiancé realised last April that their apartment would not be ready on time, they asked Laragan to cancel their purchase. She says that the company told her they could walk away from the development if they were prepared to forfeit their deposit. This offer has now been revoked and St Leger has been informed that there is “no way” they can get out of their contract despite the delayed completion.
“They can’t get blood from a stone,” she said. “We don’t have any money. Our mortgage broker has gone into liquidation. I don't know how long they expect people’s mortgage approval to last because ours was gone after six months. We had it renewed but now we wouldn’t get the same amount we were approved for.
“The only protection we might have is through the courts but that would take another year. In the meantime we are spending nearly €16,000 on rent each year. All we want to do is buy a house to live in but we can’t save a penny when we have to rent, and we can’t get our deposit back.”
Pat Rabbitte, a Labour TD and spokesman on justice, said that the developers were pursuing “people of straw” though the courts.
“In some of these cases people have lost their jobs and are then being asked to move in to a mucky field in half-completed developments when they don’t have a mortgage,” he said. “The aggressiveness of the developers seeking to enforce these contracts is the issue. It’s one thing for young people to have to walk away from a deposit they can ill-afford to lose. But to seek to enforce a contract when the building is delivered late and not to specification is unreasonable.”
Rabbitte said that the Construction Industry Federation (CIF) would be better to adopt a code for developers to deal with cases where mortgage approval for buyers had been revoked rather than “clog up the courts” with litigation.
Hubert Fitzpatrick, director of the Irish Home Builders Association in the CIF, refused to comment on the issue.
Laragan said that the delay in its Milner’s Square development was connected to the termination of the employment of Conneely Construction, its main contractor, “in favour of a fast track, precast method of construction”.
It added that it had a policy of “providing whatever assistance is required by customers in terms of mortgages, valuations, etc, to help customers meet their obligations”.
Conneely has filed a High Court Case against Laragan over the company’s termination of its contract.