Pre-sales – bankable, flexible and sound

by | Oct 4, 2013 | General property Law, Sale and Purchase, Subdivisions

It’s tricky – anticipating what the bank will want; especially if your plan is to change lenders once development funding is needed.  It definitely involves wearing a banker’s hat.

Balance that with matching the flexibility a residential property developer needs to manage unexpected changes, and the requirements of the contract to be something the market understands and trusts.  Here are some hints learned from acting on residential property developments for many years in many different financial environments:

• Banks distinguish the risk of residents and non-residents.  To alleviate risks they want bigger deposits from non-residents – generally 20% of the purchase price.

• Where any deposits are held and the terms on which they are held are important.  They should be sitting in a solicitor’s trust account supported by an undertaking the bank can rely on in respect of movement of funds.

• Who the professionals are that are involved in the transaction really matters to lenders.  They want comfort from competent, reliable people being involved.

• Compliance with disclosure requirements is imperative – as is a process that demonstrates that compliance.

• Manage contractual timeframes to enable disclosures to be made.

• The balance between flexibility (for the vendor and funder) and certainty (for the buyer) needs to be carefully considered.

• Incorporate default positions into the agreement so there is still certainty if options for colour schemes and specifications are not made in time.

• Identify how units are measured because there are a number of options regarding that.

• Ensure there are no retentions from the purchase price on settlement.  (The standard agreement allows for compensation claims to be made at settlement).

• In mixed-use developments, with multiple owners, manage the interplay between landlords.

• For multiple sales co-ordinate site inspections.

• Manage warranties given to tie in with warranties received from contractors.

By Debra Dorrington