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The term ‘unlicensed development’ is perhaps a misnomer as these developments are not illegal. It merely means no license is necessary to undertake such developments. Under our Housing Developers (Control and Licensing) Act 1966, only developments that comprise more than four units of housing accommodation require a license. Whether these developments comprise two pairs of semi-detached houses or three bungalows, such ‘unlicensed’ developments are also not governed by the Housing Developers (Control and Licensing) Regulations 1989 and the Housing Developers (Housing Development Account) Regulations 1991. This being the case, potential purchasers should exercise some caution.

Deviation from the standard Sale and Purchase Agreement

One of the most obvious differences in an unlicensed development is that the developer can deviate from the standard Schedule G and H Sale and Purchase.

Agreements found in the Housing Developers (Control and Licensing) Regulations 1989. Some of these agreements only contain minor deviations while others are completely different.

Potential purchaser when negotiating to buy such developments should attempt to minimize the deviations. Here are some deviations you can expect.

• Developers frequently amend the schedule of progress payment such that more money is paid faster.
• The defects liability period should be 18 months from the date of handing vacant possession. Developers often try to reduce it to as little as six months. However, some defects are only visible after more than six months if not longer. The Agreement should also provide that the purchasers’ lawyer shall stake hold some percentage of the purchase price to be released to the developer after the expiry of the defects liability period. This some of money serves as a guarantee that the developer will fulfill his obligation to rectify the defects failing which it can be utilized to pay for the rectification needed. Thus, it is important to ensure that a sufficient amount is withheld.
• Ensure that the Agreement provides for a corresponding reduction in the purchase price if cheaper materials are used or if there is omission of any works.
• Developers often amend the Agreement to put the entire burden of payment of survey fees on the purchaser instead of bearing 50 percent of the cost of the survey fees. In the event that the survey shows that the area of the property is less than the area stated in the Agreement, the purchase price should be adjusted accordingly.

Some other differences

• The rules relating to advertisements are also not applicable to unlicensed developments.
• There is no restriction on the quantum of the booking fees and some developers ask for as much as 20 percent of the purchase price or dispense with the granting of an Option to Purchase and compel conclusion of the Agreement immediately.

Developers account

This is provided for under the Housing Developers (Housing Development Account) Regulations 1991. These Regulations require that a Housing Development Account to be opened and within 14 days after the issuance of the developer’s license a certificate to that effect be submitted. Developers are further required to deposit into this account all monies it receives from the purchasers. Strict guidelines are also stipulated for the purposes and conditions under which a withdrawal can be made. While many unlicensed developments set up similar accounts – these accounts do not have the same restrictions imposed upon them. So it is important to ensure that appropriate restrictions are imposed to prevent the developer from withdrawing monies paid into the account and utilizing them for other purposes.

Financing such purchases

It is crucial that purchasers approach their financiers with the draft Option to Purchase and Sale and Purchase Agreement prior to making any commitments to purchase a unit in an unlicensed development. This is necessary as some banks are unwilling to disburse the housing loan prior to the issuance of the CFO. However, if the developer is well established and with a proven track record, they may be prepared to allow drawdown the housing loan if the property has been constructed to the roofing stage, or provide a bridging loan to meet earlier progress payments. Potential buyers should seek legal advice at the onset of negotiations before making any commitment.