Provisions in the purchase contract give a home buyer certainty. If there are unpleasant surprises with the financing or the technical condition of the home, the buyer can withdraw or renegotiate. It is important to pay attention when drawing up the contract.
A purchase contract for a home, also known as a preliminary purchase contract, almost always contains a penalty clause. If one party wishes to withdraw from the sale, it must pay the other compensation. This can amount to 10 percent of the purchase price. With a reservation, the contract can be terminated without paying that penalty. In practice, it is almost always the buyer who does.
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Foundation skewed
The reservation that buyers most often invoke is that of a structural inspection, says Thomas de Leeuw, owner of mortgage advisor Ikbenfrits. This is because the threshold is quite low. “If it turns out that there is more than 10,000 euros in overdue maintenance, the buyer can often already dissolve. It may mean that the seller has to re-enter the market. Sometimes it is just a reason to renegotiate the price.”
Thomas Visser from Delft saw the usefulness of this reservation when he and his partner bought an upstairs apartment from the 1920s at the beginning of this year. The report of the Home Owners Association showed that 8,000 to 11,000 euros in maintenance was required. “We needed work on the roof, there was wood rot in the window frames and the house was crooked.” With the report in hand, they approached the sales agent. This led to the seller taking over part of those costs by lowering the purchase price.
The sellers and Visser and partner were not there yet. When they applied for financing, it turned out that the bank had difficulty with the skew and demanded an investigation into the foundation. The costs for this varied from 1,000 to 10,000 euros, depending on the type of research.
They went back to negotiating with the sellers. “If the investigation showed that foundation repair was necessary and the purchase did not go through, we would share the investigation costs incurred.” In the end, a preliminary investigation showed that the house was stable and the sale could go ahead.
No license
While invoking the ‘construction inspection condition’ often leads to consultation between buyer and seller to find a solution, this is different with the financing condition. This often leads to a cancellation and the seller has to put the house back on the market.
However, buyers should not see the reservation as a license, warns Oscar Noorlag of Van Bruggen Advies Groep. “We see with the financing reservation that consumers think they only have to make sure they get a rejection from the bank. However, a buyer has a best efforts obligation. He must be able to demonstrate that he has made that effort.”
Please note: a reservation of financing is not a license for buyers to easily cancel the purchase
In some recent lawsuits, people who had invoked a conditional financing still had to pay the 10 percent fine. In a certain situation there was a rejection from the bank, but this was because the buyer himself had not supplied the correct documents. In another case, a buyer had resigned, which meant that the bank also refused to grant the mortgage. Noorlag: “Then a judge says: it’s your own fault, you have a best effort obligation.”
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The buyer must have all correspondence with the bank in order, so that the seller can see that everything has been done to get the mortgage. Noorlag advises buyers to write down the reservation as concretely as possible when drawing up the purchase contract. Then it is easier to meet that obligation to provide proof. Enter the minimum amount you want to borrow. Also add the maximum interest or the maximum monthly payment that you can pay. If you have a mortgage with NHG [Nationale Hypotheek Garantie] want to conclude, it is wise to mention that specifically.”
Close attention is also necessary with the reservation of a change of destination. This is especially the case in rural areas. It often concerns a house on the property of a farm. That building then has an agricultural purpose and only the entrepreneur who also runs a farm may occupy it. If someone else wants to use the house, the destination must be changed. Banks also ask for this as a condition for a mortgage.
Residential destination
If an agricultural destination changes into a residential destination, that is good for the value of the property. As a result, it can double, says legal advisor Kristel Weren. She works at De Environmental Advisors, an agency that provides advice on, among other things, permit procedures. Although it gives sellers a lot of certainty if they get permission from the municipality before they put a house on the market, they often don’t do that. This is because it often concerns heirs who sell a home.
According to Weren, changing a zoning plan takes at least a year. “First the Municipal Executive has to make a decision, then it has to go to the city council, which does not meet that often.”
An alternative is a ‘permit for deviant use’. “Only that will take six months, because a report must be made whether the house fits within the policy and whether no one is hindered in the countryside – such as a farmer who has a business further up the road.” In order to dissolve the purchase contract, written proof that the municipality has rejected the application is sufficient.
It is important that the condition still applies at that time, warns Weren. “Once the permit has been granted, you are of course not there yet. There have been cases where neighbors challenged the decision of the municipality while the dissolution period had already passed. The resolutive condition must therefore apply until the zoning plan or permit is ‘irrevocable’. That one word is very important.”