Failed Off-Plan Property & Negligence – What Can You Claim?

Your off-plan investment has collapsed, and the developer has no money left to give back. You may still have a claim, just not against them.

Off-plan property schemes mean buying a property before it’s finished, sometimes even at the planning stage, at below market value. These investments yield significant profits by buying low and selling high. However, they are risky and can fail.

This article explores the legal options available when a scheme fails, including bringing a professional negligence claim against your solicitor and the compensation you could receive.

We act for property purchasers and investors across England and Wales in disputes with developers and professional advisers. If your off-plan investment fails, our specialist commercial and property litigation solicitors provide clear advice on all your options and those vital next steps. Reach out to our team today. We’d love to help you.

What Is a Failed Off-Plan Property Investment?

Off-plan property investments typically centre on residential property purchases that are unfinished; they may be incomplete or even still at the planning stage.

The idea is to buy low and then make a healthy profit when the developer completes the project. In some cases, there are also opportunities to influence the finished product, especially if you intend to live in it or rent it out.

From the developer’s perspective, they have the assurance that units are already sold before completion. Deposits can be as low as 10%, but typically, purchasers are required to pay substantial deposits on exchange of contracts, often as high as 50%.

Off-plan property investments fail for many reasons. These include persistent construction delays which extend the project timeline, market fluctuations which mean property values fall, and developer insolvencies.

Some projects have Special Purpose Vehicles (SPVs), corporate structures set up specifically for the development. These companies have no trading history and often no other recoverable assets.

If a development fails, an off-plan investor is left without a property and sometimes no company to recover against; this may mean the loss of a substantial deposit depending on the nature of the scheme.

Breach of contract is certainly the first route to consider in a failed off-plan property investment. However, a buyer may also have recourse against their conveyancing solicitor for professional negligence, vital if the developer has no assets.

When Could Professional Negligence Be Relevant? 

Solicitors always owe their clients a duty of care based on a legal obligation to act professionally and responsibly with a minimum level of skill.

A solicitor must provide accurate advice, maintain confidentiality, avoid conflicts of interest, and always act in their clients’ best interests unless it clashes with their overriding duty to the court and the administration of justice.

A key element in the duty of care is providing informed advice on all the available options.

In a straightforward property conveyance, this might include things like obtaining indemnity insurance for a problem that has come up on the survey or advising on environmental risks highlighted on local searches.

However, in an off-plan conveyancing transaction, a solicitor’s duty of care is more extensive.

The Solicitors Regulation Authority (SRA) sets out the duties and expectations required of legal professionals in these schemes in the 2020 Warning Notice Investment Schemes Including Conveyancing guidance.

Under current SRA principles, solicitors involved in off-plan transactions must adhere to specific standards, including acting with integrity and, crucially, in line with Principle 7, acting in their client’s best interests.

The Code of Conduct 8.6 states that solicitors have a duty to ensure their client can make informed decisions. These requirements are additional to the usual duty of care owed by a conveyancing solicitor to their client.

Off-plan conveyances require a level of professional guidance and expertise above and beyond that required in processing the transfer of a simple residential title.

A solicitor breaching this duty of care may be held liable for professional negligence.

Signs Your Solicitor May Have Been Negligent 

Your solicitor must undertake due diligence and dig deep into the reality behind the developer’s glossy brochure with its attractive projected capital growth figures and forecasted rental income.

Taking the developer’s claims at face value is itself a risk; they may be speculative and must be thoroughly stress-tested to identify any pitfalls. Research must be comprehensive and include the financial structure of the business.

Your solicitor’s report must summarise the true nature of the transaction and any inherent risks. Not every purchaser is sophisticated. Off-plan property schemes attract first-time buyers and retirees as well as experienced UK and international investors.

If the project carries significant risks, this must be stated at the top of the report with a clear warning not to proceed and/or a statement that the project is high-risk and unsuitable for most investors.

There are certain key elements which an advisory report must contain:

• commentary on the likelihood of deposit loss
• structure of the business
• risks of project failure and company insolvency.

Failure to provide this information may form the basis of a negligence claim against your solicitor.

Prospective Deposit Loss

A report must warn of the risk of deposit loss clearly and obviously to the client; typically, this should be included prominently in the report’s introduction, summary, or both. This is a critical risk that must be highlighted.

In many off-plan developments, the deposit is released on exchange of contracts to the seller’s solicitor as their agent. This means the funds can be accessed immediately by the developer pre-completion, with very little protection for the purchaser. If the project then fails, the deposit monies are probably unrecoverable.

Most purchasers won’t understand the implications of releasing a deposit to the seller’s solicitor acting as agent. Therefore, it’s the duty of your solicitor to explain the implications of this and set this against the risks of project failure, or alternatively, take steps to protect the deposit.

You could lose your money, and there won’t be a property to show for it either. A competent solicitor will advise that the deposit is held as a stakeholder or covered by insurance. 

Conveyancing Contract

Your conveyancing contract must include the Standard Conditions of Sale (5th Edition). These provide vital purchaser protections such as a requirement that the seller insure the property, stakeholder treatment of deposits (so they’re not released until completion), and remedies for default.

The absence of these conditions, and a failure to advise on the implications of this, exposes you to far higher risks and is a serious breach of duty.

The purchase contract should have a stop date or sunset clause which allows you to rescind the contract and receive your deposit back if the building isn’t completed.

Long delays may lead to liquidity problems for the developer or a change in projected market values. If the contract doesn’t contain a long stop date and a refund mechanism, then you lack a reasonable level of protection, and your solicitor must flag this.

SPVs & Planning Permissions

Your solicitor should ensure the relevant planning permissions are approved and in place. If not, there is a much greater risk to you that the scheme will fail if permission is denied after you’re contractually bound.

If the developer is using a special purpose vehicle (SPV), your solicitor must explain to you what this means. SPVs are limited companies set up for a narrow and defined purpose. It’s a company with virtually no or zero assets and no trading history.

SPVs are popular with developers because they can confine legal and commercial risks to a separate legal entity, protecting the parent or holding company by ringfencing off a specific project.

What this means for you is that this corporate entity won’t be able to refund deposits if things go wrong, which puts you at greater risk. This should be clearly stated in the report with an appropriate warning; in the event of collapse, you are an unsecured creditor.

Off-Plan Property Scheme Advice Requires Specialist Solicitors. There are many aspects of off-plan property schemes where a solicitor may not achieve the expected standard of care, and which can constitute professional negligence. However, it’s important to understand that solicitors can only give investment advice in the UK if they are authorised to do so by the Financial Conduct Authority (FCA) or fall within an exemption. 

This may limit your solicitor’s role to that of scrutinising the integrity of a scheme and establishing risk, enabling you to make your own decision. In this case, their role is not to advise you on whether an investment is suitable but to present an informed view of any risks.

What Compensation Can You Claim For?

If you have suffered loss due to poor or inadequate legal advice, then you may be able to bring a claim against your solicitor. If the firm no longer exists, you can claim against their professional indemnity insurer. 

All solicitors practising in England and Wales must have professional indemnity (PI) insurance; this is a mandatory requirement from the Solicitors Regulation Authority with prescribed minimum terms and conditions (MTC).

There is a run-off window of six years to cover the limitation period during which time you can bring a claim even though the firm is no longer trading.

You may be entitled to recover your deposit, associated legal fees, and any other consequent losses which flow from the breach of duty. Not every case will succeed, and recovery depends on the strength of the evidence, but we’ll give you an honest view of your prospects before you commit to a claim. Remember, keeping comprehensive digital or paper records helps support a negligence claim.

What Evidence Will Help Support a Negligence Claim? 

Ultimately, your solicitor’s duty is to verify the integrity of a scheme and then explain to you any serious risks apparent in the proposed transaction. Their role is to highlight speculative, unsafe investments. To bring a negligence claim, you’ll need to be able to prove they failed in their duty.

An inadequate report is a key part of the picture. Their report’s analysis must be based on detailed research. Any warnings must be flagged early in the process. Language must be crystal clear, leaving the client in no doubt about the attendant risks.

The SRA’s Warning Notice is clear that solicitors mustn’t participate in high-risk or improper schemes.

Their investigations should identify these if they exist, document their advice and, if necessary, they should decline to act, explaining to you the reasons why which may be that the scheme is unfair or possibly fraudulent.

You will need the advice of a specialist solicitor to assess the available evidence and determine whether your solicitor has breached their duty of care.

They will ask you for the correspondence between you and the developer and your solicitor, a copy of the purchase contract, details of any advice or report you received, and evidence of payments made under the agreement.

How Long Do You Have To Bring A Professional Negligence Claim? 

In English law, there are two relevant limitation periods:

1. Six years from the date of the cause of action accrued (i.e. when damage was first suffered)Three years from your date of knowledge where there is latent damage(whichever period expires later applies).

There is also an overriding long-stop of 15 years from the date of the negligent act or omission under section 14B, after which no claim can be brought in negligence regardless of knowledge. This long-stop applies to tort-based negligence claims only and does not cap claims brought in contract.

Prompt specialist advice is essential to avoid being ‘timed out’.

You may be able to join with other purchasers similarly affected by the scheme failure to bring a group action.

Pooling evidence can create a stronger negotiating position; there’s always a benefit from strength in numbers. For claimants, sharing legal costs and any disbursements makes the process cheaper.

Professional negligence claims don’t inevitably mean litigation. Skilled negotiation can create a settlement, and your legal representative should always explore the options of Alternative Dispute Resolution (ADR).

ADR is now actively promoted under the Civil Procedure Rules (CPR), courts can order parties to engage in ADR. Unreasonable refusal to consider ADR may result in costs sanction. ADR can bring a quicker and cheaper settlement.

Frequently Asked Questions

Can I claim against my solicitor if an off-plan property development fails?

You can mount a claim, but only if there is evidence that your solicitor has been negligent. This will require evaluation by another legal professional.

Claiming against your solicitor can be done as an individual, or you could join other investors who used the same practice. A group action can have more leverage and costs savings.

What evidence do I need for a professional negligence claim? 

You’ll need to provide all your records of the transaction including the purchase contract, the correspondence between you and your solicitor, plus payment records.

This evidence must show a failure to deliver the duty of care required from your solicitor in an off-plan property transaction.

How much compensation can I recover? 

You can recover any losses that flow from your solicitor’s negligence, including the deposit for the property, disbursements (which are any expenses associated with the failed transaction), and reasonable legal costs. The idea is to put you back in the position you would have been in had the negligence not occurred.

Is there a time limit for bringing a negligence claim? 

The Limitation Act 1980 in England and Wales puts a time limit on claims. You can bring a negligence claim up to six years from the date the cause of action accrued (i.e. when loss was first suffered). If you only found out about a latent defect years later, you have three years from your date of knowledge (subject to a 15 year long-stop date).

Need Advice? Contact Helix Law.

Failed off-plan property investments don’t have to spell disaster; there is another option for recourse if you can prove your solicitor was negligent and breached their duty of care.

We are a team of specialist litigation solicitors providing practical and tactical advice on all aspects of commercial property disputes, including different types of breach of contract and failed off-plan property investment schemes.

Part of our approach is to consider the possibility of professional negligence, not an obvious or first route of recourse for many property investors. We can assess your case with a clear summary of the legal merits and likely quantum of damages.

At Helix Law, we offer cost-effective solutions tailored to your situation that support your commercial objectives. If there is also an option to recover against the developer, then we can offer No Win No Fee funding on qualifying commercial and property disputes, typically valued over £10,000 with strong prospects of success, subject to case assessment and our funding criteria.

If you’ve lost money and are unsure what to do next, speak to our specialist commercial and property litigation team. Our team have decades of experience working in similar matters. We act nationally, and would love to assist you.