Property court cases on the rise

Feb 20 2008 by Tony McDonough, Liverpool Daily Post

THE credit crunch and the slowing down of property prices – in particular, with apartments in Liverpool – is now starting to cause potential problems for both developers and investors alike.

It is very common for investors to exchange contracts on sales off-plan which only complete some time later. In the current property market, the current valuation may have gone down rather than up.

Where does this leave investors and developers?

An investor may be reluctant to complete due to problems in obtaining finance over a property which has now been valued less than the purchase price.

An investor can choose to continue with the sale or pull out. The consequences for the investor are fairly costly as the developer is entitled to take the investor’s 10% deposit.

A developer would also be entitled to claim compensation if in fact the property was then sold at a lower sale price and for any other legal and other costs of remarketing.

If an investor wanted to drag matters out and re- arrange finance, the investor could argue that any notice to complete was not valid on the basis of the quality of the build and the property is not ready for completion.

This, however, would be a long and potentially costly route for the investor and is not without its risks.

The investor may also have to take advice on whether, in fact, there may be a claim against a surveyor who provided a report on the basis of over valuation of the property at the time of exchange.

All these factors mean that property litigation is on the increase for both developers and investors alike.

Cash flow is paramount for most developers, and the issue will be whether the parties decide to take a pragmatic view in trying to negotiate a compromise suitable for both parties.