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Legal Matters: Article #4 (September - November 2005)
Issues for the Buyer - Good quality legal structures for developments
“What matters will provide me with an idea of the quality of a development?”
A buyer will often spend a long time considering the pros and cons of a property, the developer and its concept and also consider at length a preferred location. The next step often creates a tension between 'seller/developer' and 'buyer' based on their respective agendas and risk. The developer should like to keep the property on the market until a deposit has been paid and will seek assurance a buyer is genuine through securing the same. A buyer should like to avoid handing
over monies to an often unknown developer without its lawyers conducting due diligence into title and even reviewing the contracts to check they are commercially acceptable. A developer who is prepared to meet the concerns of the buyer and be flexible about these initial terms will often show the same traits of accommodation throughout negotiation of contracts, construction, 'defects snagging' and arranging effective management of the development.
(Desmond Hughes, Partner)
“If I hand over a deposit, will I get it back if I do not proceed?”
Many developers initially attempt to make all deposits non-refundable to cover administration fees for the sales time and investment in cultivating a buyer to the point he or she is interested in proceeding to the contractual stage. However, this can have a negative effect on the mind of a buyer who will be concerned about title and whether the contracts, particularly leasehold contracts, will be clear and reasonable. With a small unknown developer there is a risk that the monies will be spent, refundable or not and in the event of problem you may not receive a refund promptly or at all. With larger operators with their reputation at risk, a properly structured deposit "subject to clear title and agreement of terms" should provide strong support for a refund in the event of an issue being identified early on. Sophisticated developers will agree to escrow arrangements.
(Kris Limcharoen, Partner)
“How quickly can I sign the contract if the title is clear?”
From the moment the developer knows that the buyer's lawyers have confirmed clear title, there will be a certain amount of pressure applied on the buyer to sign. However, legal structures for contracts can often be geared towards a developer's tax position and not necessarily designed to protect a buyer. There will often be a series of contracts sometimes of voluminous length which will contain provisions mysterious or unclear in purpose to a layperson buyer. Leasehold documents in developments are still often issued as if the leasehold purchaser were purchasing a short terminable lease in a low value property and not a lease which is marketed to buyers as being 30 years plus 2 x 30 years worth of renewals in a premium class development. Such contracts should be scrutinised vigorously before large staged payments are placed prior to construction. Re-negotiation of a contract post-completion is a remote possibility. At the time the contracts are issued, it is worth taking some time if necessary to adjust terms. A developer who simply refuses amendments to contracts will be detracting from its own marketing strategy of appearing to be friendly and flexible.
(Kris Limcharoen, Partner)
“What if I am told that the contracts have been 'vetted' by several sets of lawyers/advisers and I should simply sign on the dotted line?”
Some buyers will be familiar with the timeshare hard sales techniques adopted and prevalent during the boom of such developments in Europe and elsewhere. No matter what verbal assurances are given, you should take your time in looking at a set of contracts under which are attached obligations to pay monies and other significant liabilities and risks. If you have not engaged a law firm but the developer has, then that law firm will owe no duty to you nor be responsible for detecting any of the risks that your own lawyers should detect and advise you on. A developer prepared to live with some amendments to contracts to close a deal will give a feeling of comfort both to a buyer and to its advisers as to the future that lies ahead.
(Kris Limcharoen, Partner)
This article is the fourth in a series of articles for Exclusive Homes and was co-written by Desmond Hughes (Partner) and Kris Limcharoen (Partner) based in the Phuket, and Bangkok offices of Belmont Limcharoen respectively and now with a new office in Koh Samui.
Information supplied by:
Belmont Limcharoen (Phuket)
4/1 Prabaramee Rd., Patong, Kathu, Phuket 83150
Tel: +66 (0) 7634 2882-4 Fax: +66 (0) 7634 2885
Email: desmond@belmontlimcharoen.com
Belmont Limcharoen Company Limited
39 th Fl., 3904 A United Center Building.
323 Silom Rd., Bangrak, Bangkok 10500
Tel: +66 (0) 2635 5071-3 Fax: +66 (0) 2635 5074
Email: kris@belmontlimcharoen.com
Belmont Limcharoen (Samui) Co., Ltd
23/30 Moo4 Bophut, Koh Samui, Suratthani 84320
Tel: +66 (0) 7724 6185-7 Fax: +66 (0) 7724 6188
Email: samui@belmontlimcharoen.com
www.belmontlimcharoen.com
