Property Investment in the UK

Tue 18 February 2020 Property Investment in the UK

The UK is an attractive place to invest your money given the strong property market and rule of law, and property hotspots especially in the north of England provide excellent opportunities for investors wishing to take a step onto the UK property ladder. When looking across the skyline of UK cities the rapid growth in apartment blocks is evident therefore the opportunity to purchase a new build of “off plan” apartment is growing.

Although the majority of investment opportunities are bonafide, there are a small number of developers who will promise the world, but once money has exchanged hands, are failing to live up to the promises made.

The following is intended to provide you with some guidance as to what to look out for when considering purchasing an off plan property from a developer.

Who is the developer?

The brochures are glossy, the apartments look amazing, the location is ideal and the yield is very attractive. But what do you know about the developer?

As a starting point you should carry out some due diligence into the developer’s background. Do they have any other developments that you could see for yourself? Are they reputable?

If they are a UK registered company, you can carry out a simple search on Companies House. Things to consider are:

How long has the company been trading for?
Have they just been set up for a particular development?
Who are the Directors?

Check the Director’s history; have they been Director of a number of companies? Have any of them been insolvent? Why?

This is important because if a Director has had a number of companies which have been made insolvent then there is a risk that the existing company could be made insolvent after you have paid your deposit money over or before the development has been finished. This would mean that you could lose most if not all of your deposit money.

Unscrupulous Directors often create limited companies then wind them up once any money has been distributed elsewhere. This can sometimes be to building companies, often linked to them through 3^rd parties for non-existent contracts. As the company is limited there is no redress against the Director themselves.

If the developer company is not registered in the UK then if there are any issues it will cost you more to pursue any kind of Court proceedings as you would have to arrange for service of any legal documents outside of the UK, and if you do manage to obtain a Judgment against them, you may have difficulties in enforcing that Judgment.

Incentives

As a general rule, if the deal seems too good to be true it probably is. We have heard of developers offering huge incentives to entice people to invest in their projects, these include but are not limited to service charge exemption periods, rental guarantees and free trips to the UK (just to name a few).

When considering these incentives try and consider what the repercussions of this are. If there is a service charge exemption who is going to pay for repairs to communal areas? Will they definitely be carried out?

Rental guarantees may not necessarily be given by the developer themselves, they may be given by a 3^rd party. If so, again, do your due diligence; check Companies House. Is it a reputable firm, are they based in the UK? You must have in mind how you would get your money if they default on the payment.

Also if they are guaranteeing rent, are they then renting the property on your behalf? If so on what basis? Any tenant should have an assured shorthold tenancy (“AST”) and if the legal requirements which accompany the granting of the AST are not complied with, you as the Landlord would be ultimately responsible for any breaches. This could also cause issues if you wish to regain possession of your property.

Where are the developers getting money from for your free trips to the UK? Is it from your deposit money?

Sometimes less is more, and although a reputable company may offer less incentives it could be a safer bet for your investment.

Deposits

As a general rule an agreement for sale would state that if you have not been served with a notice of completion i.e. a date that the development should be completed, by a certain date, you can serve a notice to terminate the agreement and your deposit money will be paid back to you.

This may not happen in reality – the developer may claim that the development has been delayed due to unforeseen events so they cannot be held responsible and the contract cannot be terminated. If they have already used some of your money to fund the build they may also claim that they cannot repay in full or offer to repay the money in instalments over a number of years. If the payments stop during the repayment period and the company becomes insolvent you could lose your money.

It would be a good idea just to do some online research ahead of investing – are there any reviews for the companies? Are they good/bad?

A deposit should never exceed 50% of the cost of the purchase price, even 50% is particularly high, most developers would ask for about 25%.

If a seller is rushing you into making a decision they are likely to be making commission on the sale. Do not be rushed into making a decision. Take time to do your research and consider the options.

Sister companies/recommendations

Always seek your own independent legal advice, it is advised not to use the Developer’s Solicitor/Conveyancer and if you are going to use a management agent, check what their link to the developer is. It may be better to use an independent management agent of your choice.

Land banking

Not all investments are for the purchase of property, some are for the purchase of land. There have been a number of incidents of companies or individuals selling parcels of land with the promise of the land being ripe for development of buildings that will generate significant yields which have been false promises. Again carry out your research into the company and the Directors before parting with any money. Verify that they are entitled to sell the land and that the land can be developed.

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