Expectations not met

Recently I wrote about the rights of a buyer to withdraw from the transaction for the purchase of a property when the developer fails to complete the building by the agreed date.

Of course, many would rather wait for the building to be completed and handed over despite the additional cost and inconvenience. This is because it is better to have the building later than not at all. That is the general view of most buyers, given the complexities involved in the purchase of a property.

However, there will be situations whereby the buyer may withdraw from the Sale and Purchase Agreement on grounds permitted by law, and seek a refund for payments already made.

When this happens, two possibilities exist. Where the development is ongoing and the developer can meet its obligations, it is likely that the buyer may get his money back, with interest and damages if he diligently pursues his claim to the end.

The situation could be different, however, where the developer is having difficulties.

One reader wrote in to say that he entered into an agreement with a developer and paid the 10% deposit of the purchase price. However, apart from some groundwork, work on the site seems to have stopped and the time for completing the building is almost up.

The developer has indicated that he is about to restart work. If he completes the next stage, he will be entitled to claim the next progress payment. For this purpose, a loan has been granted by a lending institution, and the loan agreement and other documents have been signed.

Even though the developer has intimated that he intends to resume work, the buyer is apprehensive about the developer’s ability to complete the project. He wants to know the risks involved if he continues with the Sale and Purchase Agreement, and the lender releases the loan. What if work stops again and the project is abandoned?

If there is a delay in completing the building or work is suspended, the reader wants to know if the lender is obliged to wait for the construction of the building to be completed before asking the buyer to repay the loan.

The buyer posed the question because when he purchased the property, the entire transaction was packaged together; the loan facilities had been arranged and other services agreed to. All the necessary documents pertaining to the purchase and the loan for the property as well as related services were signed at the same time with the same solicitors, giving the impression that it was all one transaction.

On the basis of arrangements ordinarily entered into for obtaining a loan, it is most unlikely that the lender would have agreed to wait indefinitely for the loan to be repaid if there was an indefinite delay in completion or, worse, the project was abandoned.

If there was such an arrangement, it would mean that if the work was never completed, the lender would never get paid. Of course, there is nothing to stop a lender from agreeing to such an arrangement but, in reality, such an arrangement is non-existent.

This is because in all such transactions, the financial institution considers itself a provider of finance to purchase the property and nothing else. The lender does not associate itself with any construction work to be carried out.

From the lender’s point of view, any grievance as to delay in the completion of the building is a matter between the buyer and the developer.

Of course, at the time the transaction was entered into, it may appear that all the parties involved – including the developer and the lender – were acting as a group to help the buyer acquire the property. However, this is only a matter of outward appearance and does not create any joint liability.

In real terms, the rights and obligations of each party depend on the actual contractual documents executed in each transaction. It is on the basis of such contractual documents that any party will be able to assert its rights and be obliged to fulfil its obligations.

There have been cases in which lending institutions have advanced payments to developers when the work for such payment has not been done. But then the lending institution is likely to rely on the fact that the progress of work has been certified by a pre-agreed designated person.

In such a situation, it may be that the person who certified the work done has been negligent or fraudulent in issuing the certificate that results in such payments being made. As far as the lender is concerned, it would not be a ground for the buyer to refuse payment to the lender.

It is apparent that the buyer, in such a situation, is quite helpless in denying the demands of the lender. He may risk losing the initial deposit paid and still have to pay back the lender. On top of that, he may not even get the property he bought.

Faced with such a situation, what should a buyer do? It can be difficult for the ordinary individual to make a decision. This is because of the need to cut one’s losses if necessary. If the buyer is convinced that eventually the project will fail, it would be better to terminate the contract and the agreement with the lender as well as stop the release of the loan. In this way the loss will be limited to the deposit that he has paid, in the event that this cannot be recovered.

Of course, many buyers would want to think positively and hope that everything will be well in the end rather than call off the transaction. This is for the individual to decide. Knowing the consequences if expectations are not met will, hopefully, help the buyer to make an informed decision. - By Bhag Singh (The Star)

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