Buying a new house or apartment in the course of construction is significantly different from buying a second hand property. This piece will look at the major differences.
Here are the main differences:
- at contract stage when buying a new property there is usually only a site which will only be a fraction of the overall value of the transaction. A second hand property will be fully built and will have all the necessary services;
- when buying new, the vendor is usually a limited company. A private individual or couple are the typical sellers of a second hand house/apartment;
- the new property will be built in accordance with a building agreement and to certain agreed standards; the legal principle of “caveat emptor” (buyer beware) applies to a second hand property;
- there can be massive differences in the closing date of new versus second hand; second hand would be typically 4/5 weeks from the date of signing the contract.
The Contract for Sale and the Building Agreement
One of the key differences between buying new and second hand is there are 2 contracts when buying new:
- a building agreement in respect of the house/apartment to be built and
2. a contract for the transfer of the site/agreement for transfer.
The building agreement is the most important contractual document when buying a new house/apartment. It sets out the obligations of both parties and the buyer is considered to be the “employer” and the builder the “contractor” in this agreement.
The Director of Consumer Affairs, at the urging of the Law Society, took a High Court action looking for an order to prohibit builders from using certain onerous and unfair terms and conditions. The High Court agreed to grant the order and made one which contains 15 unfair terms which are prohibited.
However builders can, if they choose, ignore the Order and use unfair terms.
The Building Agreement
The standard Building Agreement contains a covenant by the builder to build the property to a high standard and in accordance with the plans and specifications.
The purchaser should engage the services of an architect/building surveyor/engineer to assist with ensuring that the property is built according to the plans and specifications.
The payment clause in the building agreement will provide for 10% of the purchase price of the property to be paid on signing the contract. It used to provide for stage payments being payable at different stages of the build. These payments would only be allowed by the lender on production of an interim stage payment certificate by an architect/engineer confirming that the particular stage of building has been carried out.
Generally there were 3 stages:
1. At wall plate level
2. At roof level and
3. At the internal plastering stage.
However in 2007 the use of stage payments was done away with through agreement between the Government and construction industry representatives.
They can still apply though to one off houses since 2007.
General Conditions
The general conditions of the building agreement cover
- Possession of the site clear and fit for human habitation
• The materials to be used
• Planning permissions and building regulations
• Interest penalties being imposed for not closing on time
• Insolvency of the contractor
• Price variation
• Insurance
• Liability for defects
• Limitations on the builder’s liability
• The common law rights of the purchaser
• The estate services
• The completion date
• Provision for arbitration in the event of dispute.
The Contract for Sale
The Contract for Sale (or Agreement for Transfer or Conveyance) will be the standard Law Society contract and provides for the transfer of the site on which the new house is built. (You can learn more about the contract for sale elsewhere on this site).
The most important thing to note is that it deals with the legal title to the site and the physical location, boundaries, and dimensions of the site.
The main parts of the contract will therefore contain:
- The parties
• The closing date
• Purchase price (normally a fraction of the overall cost, often 25%)
• The particulars and tenure of the property
• Special conditions
• General conditions of the standard Law Society contract.
Other critically important documents which will be required include:
- A booklet of title showing the vendor’s title
- Replies to objections and requisitions on title
- A section 72 declaration which will deal with deaths/voluntary dispositions on title within the last 12 years and with burdens which affect registered land, whether registered or not
- A declaration of identity confirming that the site and all easements and services are within the boundaries of the vendor’s folio/title
- An indemnity in respect of roads and services which provides that pending the taking in charge of the estate by the Council that the developer/builder will give an indemnity to maintain them; also that there is a right to reach the public highway from the property
- An indemnity in respect of footpaths, grass margins, and kerbs
- The deed of assurance of the site or a lease in the case of an apartment
- A family law declaration/certificate confirming the home is not a family home within the definition of the Family Home Protection Act, 1976.
Structural Defects
If any structural or physical defects become apparent after taking possession of your new house there are 3 avenues open to you:
- A claim to the National House Building Guarantee Company pursuant to the Homebond guarantee scheme or Premier Insurance
- a legal action against the builder based on the grounds of negligence of the builder (time limit of 6 years from when the defect became apparent for commencement of legal proceedings)
- a legal action against the builder based on breach of contract on the basis that he failed to comply with some term(s) of the building agreement.
Conclusion
As you can see, buying a new house or apartment is significantly different from buying a second hand property.
The building agreement is the biggest single difference and will almost certainly require your architect/engineer to certify that the property has been built in accordance with planning and building regulations and according to the plans and specifications.