This case highlights two issues that are relevant to ‘off-plan’ purchasers and investors; what happens to a deposit when the developer goes bust and how much protection does your unilateral notice really give you?
In this case Alpha Student (Nottingham) Ltd (“the developer”) purchased a site for development and planned to build a block of residential flats with a commercial unit below. The developer secured buyers for nearly all the 131 residential units, buyers exchanged contracts and put up deposits of 50% before construction commenced. In accordance with usual practice the buyers’ solicitors registered unilateral notices against the developer’s title to protect their clients’ interest.
The developer, unfortunately, went into liquidation before construction work began. The liquidators found a buyer for the whole site and in order for the sale to proceed made an application to the court to determine whether, as no construction work had yet taken place, the buyers could maintain that they had a ‘buyers lien’ over the site, and if so, over what and in what proportions?
The court withheld judgement on this point citing a lack of arguments from the buyers and other unsecured creditors. However, the court did order the Land Registrar to remove the unilateral notices so that the sale could proceed. The court found that where they could allow the sale to proceed they ought to and any dispute or claim over the site could then be transferred to the sale proceeds.
The agreements for leases that the buyers’ had entered into with the developer provided for the return of the deposits, however, without a lien the buyers would become unsecured creditors and so would likely only receive a small dividend from the sale proceeds along with all other unsecured creditors. The court held that maintaining a unilateral notice was not essential to creating the buyers lien and so the point could be decided later without diminishing the buyers interest.
Developers, investors and home buyers alike should follow any further developments of the case with great interest. If any ruling were to suggest that no lien exists where property is bought ‘off-plan’ and until construction has taken place, it will impact on all parties. Long term it may put buyers off buying ‘off-plan’ and in turn restrict the cash flow available to developers, which is likely to affect the smallest developers the most.