Buying Preconstruction: Legal Considerations
March 6, 2025Author: Camiel Koster
It often seems like a good opportunity: buying a property preconstruction. That may indeed be true depending on your wishes and type of investment. However, in our real estate practice, we have seen numerous instances where preconstruction projects lead to litigation or, worse, remain unfinished or fail to meet expected standards. It is crucial for potential buyers and investors to perform due diligence beforehand, rather than waiting until it is too late.
In this weblog, we will address only a few concerns. There are many more aspects to consider when making a significant investment, but this weblog is not intended to be an exhaustive guide.
There are many legal complexities that buyers must carefully navigate, especially if Sint Maarten is not your home. Here are some key legal factors to consider before signing a contract.
Understanding the Sale and Purchase Agreement
Preconstruction contracts are often developer-friendly and may include clauses that allow for delays, design modifications, or even contract cancellations or limitations thereof.
Deposit Protection and Escrow Accounts
Sint Maarten law requires developers to place the first 10% down payment into escrow accounts with a notary to protect against financial risks. Despite this, we have encountered contracts stipulating that the first 10% must be paid to the developer instead.
Construction Timelines and Delays
Contracts should include a clear timeline for construction and penalties for significant delays. Some agreements contain "force majeure" clauses that allow developers to extend deadlines due to unforeseen circumstances. Understanding your rights in case of delays, such as the ability to cancel the agreement, is essential.
Builder’s Reputation and Financial Stability
Researching the developer’s track record can help mitigate risks. Checking previous projects, customer reviews, and any pending or prior lawsuits against the developer can provide valuable insights into their reliability. Realtors often know a lot about developers, but lawyers have more knowledge regarding (prior) litigation.
Customization and Changes
Buyers should clarify their rights regarding design modifications, material substitutions, and upgrades. Contracts should specify whether developers can make changes without buyer consent and what recourse is available if significant alterations occur. The contract should also be clear on finishings.
Closing Costs and Hidden Fees
Preconstruction purchases often come with additional fees, such as development charges and utility hookups, closing costs, et cetera. Buyers should review the contract for any unexpected costs that could impact their budget.
Understanding Deed of Division, Regulations, and House Rules
When investing in a condominium complex, buyers automatically become members of the HOA. The Deed of Division may not be available at the signing of the Sale and Purchase Agreement, but it is fundamental to scrutinize this Deed, its Regulations, and House Rules as well as the Deed of Conveyance, to fully understand the purchase. We have seen cases where the Sale and Purchase Agreement deviates significantly from what buyers ultimately receive. This is especially relevant when the developer retains (indirect) control over the HOA board, the Administrator, or management companies (often indirectly connected to the developer) that offer rental and management services.
Conclusion
While buying preconstruction can offer financial and design benefits, the legal complexities require careful due diligence. Engaging a qualified real estate attorney in a timely manner can help buyers navigate contractual obligations, mitigate risks, and ensure a smooth purchasing process. At BZSE we are here to assist you as we represent both buyers as well as developers.
More articles →
In this weblog, we will address only a few concerns. There are many more aspects to consider when making a significant investment, but this weblog is not intended to be an exhaustive guide.
There are many legal complexities that buyers must carefully navigate, especially if Sint Maarten is not your home. Here are some key legal factors to consider before signing a contract.
Understanding the Sale and Purchase Agreement
Preconstruction contracts are often developer-friendly and may include clauses that allow for delays, design modifications, or even contract cancellations or limitations thereof.
Deposit Protection and Escrow Accounts
Sint Maarten law requires developers to place the first 10% down payment into escrow accounts with a notary to protect against financial risks. Despite this, we have encountered contracts stipulating that the first 10% must be paid to the developer instead.
Construction Timelines and Delays
Contracts should include a clear timeline for construction and penalties for significant delays. Some agreements contain "force majeure" clauses that allow developers to extend deadlines due to unforeseen circumstances. Understanding your rights in case of delays, such as the ability to cancel the agreement, is essential.
Builder’s Reputation and Financial Stability
Researching the developer’s track record can help mitigate risks. Checking previous projects, customer reviews, and any pending or prior lawsuits against the developer can provide valuable insights into their reliability. Realtors often know a lot about developers, but lawyers have more knowledge regarding (prior) litigation.
Customization and Changes
Buyers should clarify their rights regarding design modifications, material substitutions, and upgrades. Contracts should specify whether developers can make changes without buyer consent and what recourse is available if significant alterations occur. The contract should also be clear on finishings.
Closing Costs and Hidden Fees
Preconstruction purchases often come with additional fees, such as development charges and utility hookups, closing costs, et cetera. Buyers should review the contract for any unexpected costs that could impact their budget.
Understanding Deed of Division, Regulations, and House Rules
When investing in a condominium complex, buyers automatically become members of the HOA. The Deed of Division may not be available at the signing of the Sale and Purchase Agreement, but it is fundamental to scrutinize this Deed, its Regulations, and House Rules as well as the Deed of Conveyance, to fully understand the purchase. We have seen cases where the Sale and Purchase Agreement deviates significantly from what buyers ultimately receive. This is especially relevant when the developer retains (indirect) control over the HOA board, the Administrator, or management companies (often indirectly connected to the developer) that offer rental and management services.
Conclusion
While buying preconstruction can offer financial and design benefits, the legal complexities require careful due diligence. Engaging a qualified real estate attorney in a timely manner can help buyers navigate contractual obligations, mitigate risks, and ensure a smooth purchasing process. At BZSE we are here to assist you as we represent both buyers as well as developers.
More articles →
