Last week we discussed how to purchase real estate in presale or off the plan. This week we discuss the nitty gritty of how to ensure you get what you were promised through the contract that you sign.
A contract to sell for a pre-sale property is drafted and tailored quite differently to a normal contract. We recommend that before signing you review the contract thoroughly and perhaps get the assistance of a legal professional such as our property professionals who are well versed in property contract law.
These are some essential details you need to check in your contract before signing off on it:
- Reservation: A reservation period of between 7-30 days is usually given to you prior to the signing off on the contract to sell. Take this time to review the requirements, and you are also allowed to get a sample copy of the contract to sell. This means you can change your mind about purchasing the property during this time. However, if you decide to withdraw during this time you will forfeit your reservation fee. Once this period ends, you are legally bound to buy the property and any withdrawal from the contract will mean, most likely you will lease most if not all of the money you have already paid (Maceda Law only guarantees 50% of the funds paid returned after 5 years of payments).
- Adequate plan disclosure: In a pre-sale purchase you should be provided with plans and specifications of what the developer intends to build and construct as the finished product. This is usually done prior to signing the contract of sale and discussed with the agent. It is very important you read and understand these plans before signing the contract to make sure you are satisfied with the level of disclosure the developer has provided to you and the detail and standard of the finishes. In the contract of sale, developers almost always retain the right to alter these plans if required to complete the project. It also means that you are able to make modifications to the interior of the unit to suit your lifestyle, prior to it being built.
- Deposit: A deposit is usually payable after the reservation period ends and your title will usually be held by the developer until the total contract price is paid off before handing it to you (or the financier in the case you finance it).
- Inclusions and warranties: The contract usually provides that the property will be constructed in accordance with the finishes and materials described in the contract, but it usually also provides the developer with the sole right to alter the finishes and materials in certain circumstances, provided the alternatives are of no less quality. You should know that from start to finish, the developer is given some flexibility in how the project is to be completed. The developer can make changes, provided they will not materially prejudice you as the buyer. If the changes are prejudicial, HLURB (the Housing and Land Use Regulatory Board) can be alerted to the changes, and, if justified, a stop work order will be placed on the project until either planning approval is re-obtained, or the offending material is corrected.
- Finance: If you require funding from a lender to complete your purchase, you need to ensure the contract is subject to you obtaining suitable finance within a certain time frame from when you sign. Usually, developers will agree to give the reservation period to obtain finance approval. You will need to check with your loan provider that you will be able to get approved for the loan – seek a pre-approval. The downside of this method of purchasing is you will often by unable to make use of special discounts given to cash purchasers.
- Defects: Normally, pre-sale contracts provide that the developer is to remedy any defects identified by you as the buyer, prior to you taking on your purchase. Prior to turn over, as the buyer you are given a right to pre-inspect the property and identify any defects to the developer and refuse to accept it should it fail to meet your standards.
- Transfer Charges: Transfer charges (1.5%) are mandatory and charged on all property purchases. Some developers also charge a move in fee to begin using the property. It is a peculiarity of the Philippine market and they vary between projects. All properties that are above P3,199,200 are also charged VAT, which is essentially a stamp duty of 12%. Unless otherwise stated these are usually charged to the buyer. Factor these costs into mind when looking at the selling price and it is usually not disclosed until deep into negotiations.
- Completion: The contract will usually provide buyers with an estimated time of when the developer intends to complete the project. The developer is usually provided with flexibility to extend or alter these time frames whilst taking all reasonable steps to complete the project as quickly as possible. If the developer cannot complete the project within this time frame, then both the developer and the buyer can terminate the contract. In those circumstances, usually the funds are returned to the buyer, although extenuating circumstances may hinder this such as legal troubles or a preferred investor getting repaid first, especially problematic if they negotiated a mandatory multiplier on their return (this is where due diligence of the developer is required). Again, legal advice should be obtained prior to signing the contract to ensure the buyer’s rights are fully protected.