Off-Plan Assignment Defaults: How Cash Investors Approach Distressed Deals Before Handover, and How to Do It Safely

Procedures vary by developer and project, and rules change, but a typical off-plan assignment involves steps like these:

1. Identify the unit and the seller. Confirm the seller's identity and their rights to the unit.
2. Obtain the payment history. Ask for the sale and purchase agreement, the payment schedule and receipts showing what has been paid.
3. Check developer conditions. Many developers require a minimum percentage of the price to have been paid before a resale is allowed, and they typically charge an administrative fee and require their approval.
4. Agree the price and terms. The price usually covers the amount already paid by the seller plus any premium or discount, with the buyer taking on the remaining instalments.
5. Obtain the developer's approval, often through a no-objection certificate or similar document
6. Complete the transfer through the official registration process, so that the new buyer is recorded as the owner of the off-plan interest
7. Take over the payment plan, paying future instalments to the project's official escrow arrangements

Do not rely on any summary of these steps, including this one. Ask the developer and the authorities for the current process for the specific project.

The Hidden Complications

Distress sales often involve more complications than ordinary ones. In off-plan assignments, watch for:

• Minimum-payment thresholds. If the seller has not paid enough to qualify for resale, the transfer may not be allowed, or may need the developer's special approval.
• Overdue instalments. If the seller is already behind, the arrears may need to be cleared before the developer will approve the transfer. Who pays, and when, must be agreed in writing.
• Penalties or fees associated with late payments, which can be passed on in the deal if you are not careful
• Developer administrative fees, which can be significant and must be allocated
• Registration and transfer costs, which sit on top of the price
• Mortgage or financing on the unit, if any, which affects how the transfer can happen
• The contract's default and termination terms, which can allow a developer to take action against a buyer who misses payments, with consequences that depend on the contract and the regulations
• The seller's right to sell. Verify that the seller is the registered buyer under the contract and that no one else has a claim.

Because of these complications, a deal that looks cheap on paper can turn out to be expensive.

What Happens When a Buyer Defaults?

When an off-plan buyer fails to pay, the developer's options depend on the contract and the applicable regulations. In general terms, developers may issue notices, and if the default is not remedied, they may be able to terminate the contract and retain some or all of the amounts paid, subject to the rules that apply and the stage of construction. The detailed position is technical and has changed over time, so anyone in this situation, as buyer or investor, should take legal advice and confirm current rules with the DLD.

For the investor, the practical point is that a distressed seller who is close to default may not be able to deliver a clean transfer unless the situation is resolved first. For the seller, the practical point is that acting before default usually leaves more options than acting after it.

Due Diligence Checklist for Investors

Before you commit any funds to an assignment, confirm: