Land and home packages are becoming more common. They have over-taken builder’s spec homes which seem to have fallen out of favour. Read on for useful information and helpful tips when considering a land and home package.

Atticus Legal has a separate article dealing with residential building contracts on our website. Some of the considerations in that article also apply to a land and home package situation. For example, see our comments in that article concerning homework before contract, time-frame for completion, Master Build and other guarantees, variations and extras, defects maintenance period, etc. That article on residential building contracts is at https://atticuslegal.co.nz/building-a-home-building-contracts/

Good legal advice is crucial to maximise your rights and remedies, especially at contract stage and/or if there is a delay or default by the seller-builder. At Atticus Legal, we’ve advised on many building contracts and land and home packages. We know them inside-out.

Land and home package – Important terms of the contract

A land and home package is where the seller-builder owns the land and sells and transfers the land and completed home to you when the build is complete. Usually they are ‘fixed price’ (see below). No progress payments are involved, other than an initial deposit of say, 10%.

The land and home package contact should attach detailed plans and specifications, as they represent the specifics of what you are entitled to expect. From the number and placement of power outlets in each room to the interior and exterior materials and finish (eg. undercoat and two top-coats?), the devil is in the detail. I have noticed that a lot of ‘land and home’ package contracts are short on detail when it comes to attached plans and specifications. That’s a potential problem in the making.

You should ask for as much detail as reasonably possible to be made in the plans and specs attached to the contract. What if your expectations don’t match with the (unspecified) intentions of the seller-builder? It’s very difficult to argue your position if it isn’t detailed in the specifications.

A vague arrangement for materials and finish the same as a completed dwelling you have been shown, without detailed plans and specs attached to your contract, is not enough. And make sure all contract attachments are initialled by all parties.

The land and home package contract is effectively a ‘fixed price’ contract. However, even fixed price contracts may be subject to price increase for any variations and ‘extras’ you request (ie. something not in the plans and specs).

Land and home package – Time frame for completion

A land and home package contract will often simply state that settlement is due say 5 working days after title issue, practical completion and the issue of a code compliance certificate. That is, the seller-building company does not commit to complete within a certain time period.

However, building delays (and I don’t mean caused by weather) are quite common. As noted above, builders can spread themselves too thin. I’ve had clients waiting 18 months or more for completion. What to do?

We recommend that you insist on including an effective time-frame obligation for completion

in the land and home package contract. We suggest you choose a ‘generous’ time period (say, 8 – 10 months from date of contract) so the seller-builder is more likely to be comfortable including it in the contract. And make sure it starts from the contract date.

Also make it a condition of the contract (called a ‘sunset clause’) rather than a promise or ‘warranty’ by the seller-builder. Ultimately this may enable you to cancel the contract if it is breached.

And to give it further teeth we recommend that you insist on a ‘liquidated damages’ clause being inserted in the contract before you sign. This clause provides that for every week of delay in completion (and issue of a code compliance certificate) beyond due date the seller-builder must compensate you (by deduction from the remaining contract price) a fixed amount to cover your loss/expense. For example, a weekly liquidated damages sum might be say, $400 to cover your weekly rent while you continue to wait. Note that a liquidated damages sum must, in order to be enforceable, be a reasonable estimate of your ‘loss’ arising from the breach. It can not be an inflated amount (eg. $500 per day) which would represent a ‘penalty’ and be unenforceable (and not worth the paper it’s written on).

Other important aspects of a land and home package

1. If the seller-builder has made a particular promise you should ensure it is written into the contract. Verbal promises can be very difficult to prove months later.
2. If there are any variations or extras you should insist on agreeing in writing the cost of it (and any related time-extension for completion) at that time. A seller-builder will often suggest “we’ll deal with it later on settlement”. By then, the build has been completed and you are champing at the bit to get into the house. When faced with a real surprise as to how much the seller-builder wants for the variation or extra, the pressure is on you to pay (otherwise you won’t get possession). If it is an unexpectedly expensive item you may not have been prepared to proceed with it if you’d known the cost before-hand.
3. Ensure the contract includes a ‘defects maintenance period’ of at least 90 days, requiring the seller-builder to promptly remedy any problems with materials/workmanship that become apparent during that period. In addition, to give this some teeth, you should have the contract provide for a retention from the contract price of say, 5% until all defects are remedied within the defects maintenance period.
4. Be aware that the contract will provide that ‘practical completion’ does not include ‘minor’ matters and a code compliance certificate may issue without those ‘minor’ matters being attended – eg. lawn and garden works, clothesline, letterbox, etc. These may not be completed by the time settlement becomes due. Another good reason for including in the contract a retention during the maintenance period.

There’s a lot to digest. If you take our above advice you will at least protect your interests as much as possible. And hey, homes get built every day. We hope you enjoy your new home!

WANT TO KNOW MORE? Just Ask Atticus Legal, Property Lawyers Hamilton NZ, Business Lawyers Hamilton NZ

CALL ANDREW SMITH, the owner of Atticus Legal, for expert professional advice on any of the matters referred to in this information sheet.

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Lawyers Hamilton

LAWYER HAMILTON

11 Garden Place (Level 7), HAMILTON

Ph: (07) 839 4558, Fax: (07) 839 4559, Mob: 021 508 189

Email: andrew@atticuslegal.co.nz

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Disclaimer: The information contained in this information sheet is, of necessity, of a general nature only. It should not be relied upon without appropriate legal advice specific to your particular circumstances.

This information sheet is copyright © Atticus Legal, July 2016.