Any property bought before its completion is termed as an off-plan purchase. This necessitates thorough due diligence by the potential investors before investment. The investor ought to consider issues of critical importance including: late completion or non-completion, non-adherence to the agreed finishes or fittings, issues of defect liability period, room measurements, ceiling heights, inclusions and the developer’s lenders.

Involving qualified professionals, such as valuers, lawyers, risk analysts and financial advisors before committing to the investment will assist the potential investor arrive at an informed decision.

Due diligence can be in three-fold: Developer Due Diligence, Project Due Diligence and Contracts Due Diligence.

Developer Due Diligence entails:

1. Interrogating the developer and his business wholly;
2. Knowing the developer company’s directors and their track records;
3. Interrogating the mode of financing the project; and
4. Knowing whether the developer is a member of a professional organization which advocates for better market conditions for both parties (e.g. Kenya Property Developers Association).

Project Due Diligence requires the investor to:

1. Visit the project site;
2. Confirm the developer is the registered proprietor of the subject land;
3. Confirm relevant authorities have approved the project plans; and
4. Demand for the site development plan, an elevation (shows the completed unit from different perspectives), a detailed floor plan and a specifications schedule (outlines finishes that will be used).

Contracts Due Diligence involves documenting the agreed terms of purchase. A lawyer’s input in the contractual stage will ensure important clauses are captured and appreciated which include, but are not limited to:

1. Investor’s pulling out options;
2. Property dimensions;
3. Purchase price;
4. The agreed mode of payment;
5. Defect liability period; and
6. Legal remedies available in case of default of conditions and warranties.

An off-plan investment is quite risky but due diligence conducted well will alleviate any fear of paying premium price for inferior units, signing standard contracts that downplay defects liability and falling victim of false advertising by developers.

Please contact us at info@cfllegal.com should you require more information.