In a nutshell, Deferred Completion means you exchange contracts on your new property purchase early, but the actual legal completion — when you pay the remaining balance — occurs at a later agreed date. This is typically either 12 months after you move into the property or four weeks after you complete the sale of your existing home. This arrangement can be helpful if you need more time to sell your current property but want to move into your new home in the meantime.
Under Deferred Completion, you will need to pay the 10% deposit at exchange of contracts along with the Stamp Duty Land Tax (SDLT) liability, which is usually payable on completion. This is because, by moving into the property at exchange, HMRC considers this to be “substantial performance” of the contract.
Additionally, since you will still own your existing home at this point, your new purchase is treated as a second property, meaning an additional 3% SDLT surcharge will apply. However, if you sell your previous property within three years of completion and payment of the SDLT on your new home, you should be able to claim a refund of this 3% surcharge.
Once you move into your new home, you will be charged rent and a monthly service charge. Most schemes provide that if you complete the purchase within six months of exchanging contracts, the rent you have paid during this period will be deducted from the final balance due on completion.
However, it is important to be aware of the risks involved. If you do not complete the sale of your existing home within six months, you may forfeit this rent reimbursement. Moreover, if legal completion does not occur within 12 months of your move-in date, the developer may require you to vacate the property by serving you 10 working days’ notice to terminate the contract. In such a case, the developer would be entitled to retain your deposit, any reservation fees, and all rent paid.
Given these complexities and risks, it is essential to seek legal advice from a lawyer specialising in Retirement Living before entering into any Deferred Completion arrangement.
Should you wish to discuss any of the issues raised in this article, please contact Louise Peters.
