Buying to build – tips to get it right
If you’re thinking of building from scratch, either with a house and land package or you’re buying a section, it pays to research and conduct due diligence which could end up saving you time, money, stress and heartache. Whether it’s a dream home you’re planning or a family bach, the details are important to get right before you sign a sale and purchase agreement or builder’s contract. Here are a few areas to consider.
Plans and specifications
You need to give yourself time to properly review the plans and specifications. That means checking the measurements, the materials and products that will be used, as well as the plan itself right down to the number of electrical plugs in each room. If you don’t feel confident about doing this, talk to your lawyer for a recommendation of an external expert to help. Remember the plans you sign up for in the agreement will determine what your future house will look like so it’s important to take the time to check them off against your expectations and make sure it includes everything you discussed with the builder or developing company.
Land that doesn’t have a certificate of title
When a title hasn’t yet been issued, an agreement for sale and purchase will need to include a ‘sunset’ clause that title will be provided within an agreed time frame. This gives the buyer the right to cancel the sale if there are significant delays. Your solicitor will need to review the head title and resource consent for the subdivision as well as the title plan, if available, to determine what easements, land covenants and consent notices will be registered against the new title. As there is no separate title with registered interests for the section that you are purchasing, your solicitor may have to review a large amount of documentation to identify what will and will not be relevant to you.
THE LAND – ARE THERE ANY COVENANTS?
With land that is being built on for the first time, it’s important to check carefully to see if there are any covenants that may impact on what you want to build. This could be around access, size and style of house and outbuildings, building materials and where the house can be built on the lot, so it’s critical for the design and planning of your property. Similarly, Council consent notices may impose specific geotechnical and foundation requirements that could add significant building costs.
UNFORESEEN BUILDING PROBLEMS
It’s a regular occurrence that an unforeseen problem like bad weather or an increase in cost of materials impacts on the design, cost and/or time frame of a build. That’s why it needs to be clearly outlined in a written contract with the builder as to what happens in these situations. Often it can be external issues, so the sensible option is that both parties agree, at the outset, how these issues will be handled, what variation in time frames are acceptable, and if things do blow out time or cost-wise how that burden will be distributed.
TIMING OF PAYMENTS
The timing of payments under your sale and purchase agreement and building contract are critical and you will need to make sure that you can meet your payment obligations as they come due, especially if you are relying on bank financing. Most standard form building contracts provide for progress payments to be made at each major stage of the build. However, if your build begins before title has been transferred you will not have any mortgage security to offer your bank. It is important that you talk to your bank before confirming your purchase even if you have pre-approval.
Finally, all these issues revolve around the documents – the sale and purchase agreement and any contracts with builders. These are the legal documents that state your rights and obligations and those of the developer and builder. It’s vital that you consult a lawyer to make sure that each agreement meets your specific situation and that in the worst-case scenarios you will be sure of the outcomes.