Member’s experience: buying a new build contract reassignment
September 3, 2015
We bought an assignment on a leasehold flat built by St George in London. Buying on assignment means we are buying the right to buy from somebody else; not directly from the builder. I thought it might be helpful to set out our experience.
There were two transactions – the assignment purchase, where the original purchaser sold the contract to us, and the final closing with the builder, where we paid the rest of the money and got the keys. I had originally thought that we simply bought the contract from the original purchaser and he was out of the picture after that. That is not the case.
The builder has a contract with the original purchaser. The deal is that the builder, when the property is ready, officially informs the purchaser, who has a fixed time (I think it was 10 days) to come up with the money and complete the transaction. Even though we had bought the right to buy, the original buyer was still involved as the builder still would officially serve the notice on him, rather than us. I suspect he may also have some residual responsibility if we failed to complete with the builder.
The purchase of the assignment involved a couple of legal agreements. This means the legal work on the assignment purchase and the subsequent closure with the builder will be greater – and therefore have more costs – than a straightforward purchase. The builder’s solicitors had to approve the assignment purchase, which was a formality in our case, but took 4 or 5 days.
The contract purchase consists of the same three steps as any purchase – agreement, contract exchange, and completion. In practice, contract exchange and completion happen on the same day. As is usual in England, there is no legal commitment on either side until this happens.
In our case, the original purchaser was in Russia, so if something went wrong after we paid him, we would lose our money. Maybe the builder would be liable for the original deposit, but the original buyer’s profit (a substantial amount) would be in Russia. The resolution involved the original buyer’s solicitor retaining some funds and not releasing them to his client until things had gone through. I do not know how common this is, or whether the situation would have been different had he been in another jurisdiction.
We chose the legal company we were dealing with when previously we were interested in buying off-plan from St George. This was one of the legal firms which they recommended. We went along to see them, as we were considering making an offer for a flat and wanted to set up a solicitor. We met a trainee solicitor there. He had been working on new build transactions with St George and impressed us. However, we did not go ahead with that transaction. By the time the assignment purchase came along, he was qualified, but still had his work supervised by one of the partners. So we decided to use him. But I would recommend that you get a solicitor who has some experience with contract assignments.
The builder was quite willing to deal with us after we purchased the contract. Note that there was no negotiation possibility regarding the contract. Later, I found out that it committed the buyer to a few extra fees to the builder’s solicitor. They were not “deal breakers”, but seemed to be me the type of thing a seller might normally pay. They were in the contract, so there could be no discussion.
We were also not able to make any changes to the flat finishes – even if we paid an upgrade cost. Maybe this was just a practical thing, as much of the work was done.
They gave us – informally – an indication as to when they would serve notice for us to occupy (and pay). This was at the early end of “Summer 2015” – the original quoted completion. We wanted to make it a bit later, so they agreed, and would not charge us a penalty. Officially, they served the notice and when we did not complete on time they served another notice. We had to pay £100 for their solicitor to serve the second notice.
The point here was that the builder was helpful. There was no danger that the legal notice would be served on the original purchaser, we would not know, and so default. Our builder had a good reputation, so the legalities around this may not have been necessary. It is something worth checking. It is sensible to make contact with the builder’s customer service group whenever you can. We arranged through them to visit the flat before construction was complete.
When we completed, we got the keys the next day. The flat was in great shape, and the builder even gave us a welcoming bottle of champagne!
In our case, we paid cash for the contract assignment purchase. This was the sum of the deposit paid by the original buyer to the builder (15% of his purchase price a few years ago) and his profit (substantial). Deposits seem to range from 10 to 20%. Mortgage companies will not lend for this transaction.
We sold our other flat, moved out, and put our stuff in storage. We stayed somewhere else for about a month. We got the money for that sale and we used it to complete the purchase of the new flat. So we were cash purchasers of the new flat, with no chain or mortgage involved. It seems that we could have delayed the occupancy of the new flat, paying interest and penalties to the builder. This could have become necessary if our sale did not complete on time, resulting in us not having enough money. In the end, it all worked out, but delays in both transactions, and the uncertainties before contract exchange caused a lot of stress. I understand it may be possible to get mortgage financing for this, but you would need to investigate.
As to stamp duty, nothing was payable on the purchase of the contract assignment. After we obtained the flat, stamp duty was payable within 30 days on the total amount, including all the money we paid the original purchaser (the deposit with the builder + his profit). So be warned!
Ask an expert
Get advice from industry experts on your homeownership issues
Members of the HomeOwners Alliance can send their questions to our experts to answer, using their industry-insider experienceAsk an expert >