This section takes stock of the laws (mainly in the form of judicial authorities) on off-plan housing developments, attendant risks and the implications of the same.
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· The law on off-plan housing developments (which are now common given their fair prices relative to completed units) is rather scattered and to be found in the general principles of the law of contract. There is no single codified law that speaks to the concerns of off-plan housing developments, with the consequence that various purchasers of such units have been left to deal with consequences especially where developers do not complete their units, complete units of poor workmanship or those different from what was contracted for or take loan financing with the property/land as collateral/security. In such instances, courts have relied on the principles of the law of contracts such as the privity of contract doctrine that prevents third parties such as purchasers from suing on a contract between a developer and financier claiming their interests in a property, as well as the principle of nemo dat quod non habet (which simply says that one can never give a better title than they have). This means that where title is found to be defective, it follows that even that claimed by the purchaser would be a defective one.
· The following cases determined by the courts illustrate the difficulties facing off-plan housing developments, which have shattered confidence, especially among purchasers and developers.
i)
· The court found in favour of a bank which had extended loans to a developer to build housing units and registered a charge against the said property/housing development. Purchasers of the off-plan developments who had paid deposits and monies to the developer in consideration of the housing units were held not to have a superior claim to the bank which was a secured creditor (para 65). As such, the off plan purchasers were prevented from stopping the intended sale/auction of the property by the bank for default of the loan by the developer, with the court stating at para 76 that: “It is true of the off - plan claimants...that the contracts entered into between them and the Developer appear to be confined to these parties, and prima facie, any rights or obligations arising therefore could not in the circumstances of this case be transposed upon the Bank. The certainty of financial transactions between banks and borrowers would be severely compromised if any and every kind of third party or debtor, who transacted with the borrower howsoever, were allowed to defeat the chargee’s statutory rights, especially in the realization of a security in the event of default by the borrower.”
· The court also (paras 62 and 63) took issue with the failure by the off-plan purchasers to produce evidence of any registrable interest on the property such as a caution or caveat (which the Bank would have noted when extending credit to the developer) and their failure to conduct due diligence by undertaking a search to ascertain the status of the property even as they continued to make payments to the developer. The import of this finding is that off plan purchasers may be wary of venturing and especially where a developer is relying on bank financing and where the housing development being put up is listed as security/collateral-this may depress demand for off plan houses which happen to be more affordable. On the other hand, the finding gives some comfort to financial institutions in that they can rely on the housing units as security in the event of default-essentially increasing financing for off plan housing developments.
ii)
· In a related case of loan default by a developer who had sold off plan housing developments in at para 41, the High Court refused to grant an injunction against an intended sale of the property by a bank. The court was emphatic that the seller/developer ought to have obtained the consent of the bank/financier to sell the units to the purchasers given that as a chargee the bank had an interest in the property and the purchaser must show they had obtained the consent of the bank to purchase the units or they had paid some money to the bank if there is to be a legal claim against the bank. This means that developers of off-plan developments ought to inform would-be purchasers of their financing model where the same is financed by credit and the property the subject of the sale is charged as security.
iii)
ISSUE
RECOMMENDATION
This High Court decision can improve the quality of housing delivered, but will also raise the cost of housing due to the high cost incurred by developers to provide green space or improve water quality. If applied across the industry, it would be fair as it will be considered in the densities possible, and hence market land cost. However, currently it is applied in a very ad hoc manner.
Develop clear requirements for developments of different sizes, so that developers can objectively define a feasible land cost (knowing how much they will need to invest in infrastructure).
Define clear responsibilities for county governments on the provision of public space to support housing populations from developments that are too small to provide separate playing areas etc.
Additionally, the judgment illustrated the danger of property developers exaggerating or making promises in their marketing brochures or advertisements that they do not keep for their off plan developments as they will be held to provide for the same by courts.
No recommendation – this is a fair promotion of consumer protection