Over the last week we have seen an influx of enquiries from developers who are concerned about their contractual position if the construction of homes is delayed (or stopped) due to the ongoing coronavirus pandemic.
For those plot sales that have not yet reached exchange of contracts, inevitably, uncertainty and confusion will be rising. Developers will be keen to exchange contract with purchasers to secure the sale transaction with a view to providing themselves with cash flow and security and to enable them to schedule and plan going forward. Before doing so, thought must be given to the delays they are likely to be faced.
The standard industry position
Prior to the Covid-19 pandemic, where a property is in the course of construction, a developer would provide an Anticipated Build Completion Date (“ABCD”) followed by a Long Stop Date.
Long Stop Date for houses
For plots which are weatherproof (i.e. have a roof) on exchange, usually, the Long Stop Date is two months from the ABCD. For those plots which are not weatherproof, usually the Long Stop Date is six months from the ABCD.
The entire construction industry is in a state of uncertainty at the moment and it is not yet clear what will happen in the coming days/weeks/months. If workmen cannot attend site due to the coronavirus, the plot construction will be delayed indefinitely.
In turn, this is could lead to developers being in breach of contract where developers have agreed fixed completion dates. Where contracts have been exchanged on notice, if the developer is unable to construct the property by the Long Stop Date, then this will give buyers the right to rescind the contract to purchase.
It is therefore imperative that developers are adequately advised and protected in so far as they can be.
Steps to take
Over the last few days, draft wording has been released in relation to residential sales. But developers should be wary of adopting this approach for new build houses – usual residential transactions have a completely different contract which imposes different obligations and conditions.
For plots that have already exchanged, each case should be reviewed on a case by case basis, and developers should keep the buyer up to date. And for impending exchanges, a contract clause should be inserted to allow for delays due to the Covid-19 pandemic.
In addition, developers who have the benefit of New Home Warranties such as NHBC and LABC, should approach with caution, since to include contract clauses may put them at risk of being in breach of the Consumer Code for Home Builders and thus put them at risk of losing the benefit of the warranty.
We are looking into this and exploring ways to protect our developer clients, so watch this space!
How Nelsons can help
If you require any advice in relation to the topics discussed in this article, then please contact Amy or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.