Buying a new-build home: what to look for in the contract

Before you sign

• Title deed: who owns the plot, and what encumbrances (mortgage, easement, notice of litigation) are registered on it?
• Building authorisation: is the necessary final building permit, or the simplified notification appropriate to the procedure and its documentation, available?
• The developer: how long has it been operating, does it have completed projects, and is it subject to liquidation or enforcement proceedings?

Key points of the contract

Earnest money or advance payment?

The difference matters. If performance fails for a reason within the responsibility of the buyer who gave the earnest money, the buyer loses it; if the seller who received it is responsible, the seller repays double. If neither or both are responsible, the earnest money is returned. An advance payment, by contrast, is generally returned if the contract fails.

Payment schedule

Instalments are best tied to the stage of construction, not just calendar dates. The progress of the works should be checked by an independent technical expert; the schedule alone does not guarantee that payments will be recovered.

Attorney escrow

Part of the purchase price can be placed in attorney escrow and released to the seller only once specified conditions are met, for example after the occupancy permit is issued.

Registering the buyer's rights

When the contract is signed, it must already be settled which right in the land register protects the buyer until ownership is registered. The right solution depends on the stage of construction and of establishing the condominium. Where the developer has mortgage loans, the exact conditions for releasing the home from the encumbrance must also be set out.

Deadlines and penalties

The contract should set the deadline for handover of possession and what happens in case of delay: a contractual penalty, a right to withdraw, damages.

Technical specification

A precise description of the finishes, windows and doors, building services and fittings should be an annex to the contract. What is not written down is hard to argue about.

Handover

At handover, record any visible defects and shortcomings in a protocol. The conditions for technical handover, handover of possession and the occupancy permit are worth settling separately.

For real estate, warranty claims for defects generally become time-barred five years after performance. In addition, mandatory guarantees apply to certain building structures and fixtures of new homes: for three, five or ten years from completion of the technical handover, depending on the annexes of the relevant government decree. Warranty and guarantee are different legal grounds, and may not necessarily be enforced against the same person. Report defects as soon as possible in a verifiable way, and ask for the guarantee documents as well.

This article is for general information only and does not constitute legal advice. For advice on your specific situation, please get in touch.