DLA: Rulings favour developers in off-plan battles

Emerging caselaw suggests the number of legal actions by developers against buy-to-let investors who try to cancel off-plan sale agreements will only rise, says law firm DLA Piper.

Numerous residential developers around the UK are suing investors who are attempting to default on off-plan deals struck before the decline in the property market. Investors are arguing they cannot get mortgages and the agreements should be quashed as values are now far below the level when the deals were struck.

DLA predicts a rise in inquiries from developers following a ruling at Bristol's High Court in December which forced a buy-to-let investor to pay damages of more than £130,000 to house builder Prestige Homes South West, after pulling out of an off-plan deal. Last month also saw the first 'test case' of its kind in Northern Ireland, where a Belfast court ruled in favour of property developer, Barry Gilligan, against buyers involved in a row over new apartments.

Christopher Perrin, associate in DLA Piper's real estate litigation team in Manchester, said: "Developers are taking a strong line against buy-to-let investors who bought off-plan and are now trying to withdraw from the purchase. My team has dealt with scores of these cases in the last year and we are expecting more to follow.

"Cases like these have been watched closely by in the industry and could open the floodgates for North West developers seeking 'specific performance' orders which compel the defaulting party to complete the agreed purchase.

"In lieu of specific performance, courts can terminate buy-to-let contracts and award the developer damages. However, developers need to bear in mind that difficulties in quantifying the level of damages applicable can make this a complicated and lengthy process."

DLA's Manchester-based team say the next six months could see many more cases emerge in the North West as residential schemes, started during the property boom, reach completion.

Perrin added: "Whilst the property market is stabilising some properties are still valued at considerably less than when contracts to buy them were signed at the peak of the market in 2007. It's likely we will continue to see developers being forced to take action against investors attempting to default on such agreements."

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