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Purchasing from a developer who isn’t a builder – what are the pitfalls?

Published: 8th May 2018

Author: Hamish Kennedy, Knapps Lawyers

Published in: Property Speaking | Issue #27

Purchasing from a developer who isn’t a builder – what are the pitfalls?

One of the increasingly popular options for purchasing a new house is to buy from a property developer who may not have actually built the house. Contract builders are brought in to construct new homes in subdivisions; the developer then sells on. This can result in a nice new house at a reasonable price.

However, there are risks associated with this type of purchase about which many people are not aware. Some of these risks can be mitigated with sensible contractual protection built in, others are simply risks that you can’t reduce.

When you contract directly with a builder to build a house, you are protected by the Building Act 2004. This legislation contains warranties for your protection — in terms of the quality of the build and the builder’s obligations to you. You are also protected by the contract, as often a guarantee will come with the property from Registered Master Builders or New Zealand Certified Builders.

The main issue with purchasing from a developer is that none of the above guarantees are given by them. These protections need to be assignedto you and, sometimes, if you are not speaking with us at the time the contract is signed, this critical point can be missed. The consequence of this is that you can end up with a brand new house, but no contractual rights to enforce any warranties or claims against anyone at all, should anything go wrong.

This is particularly important because many developers use a limited liability company to contract with you to sell you the property. Should you seek to enforce a contract against a company, it may simply cease to exist, with no person or brand or reputation to back up what could be a poor quality build.

To ensure that you are as protected as you can be, you should discuss with us the options to have the various contractual and statutory warranties and protections assigned to you.

This must happen before signing the agreement. We can negotiate on your behalf to determine what protections are available to you and to draft suitable wording. There is a possibility we may not be able to secure any protection from the developer for you; in this case you will need to make a decision to proceed or not, knowing the risks.

If you’re buying a house from a developer, it’s in your best interests to talk with us very early on so we can secure the best protection possible.

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