Check first, pay later 

NST-PROP  23/11/2001 By Akbal Singh Sandhu

Before releasing progress payments, financial institutions should inspect project sites to verify physical progress

As a purchaser of a new property, you need to keep constant tabs on whether the monies being released by your financier to the developer commensurates with the physical progress of the site in accordance with your Sale and Purchase Agreement.

Don't expect your contractor or developer to inform you of any delay in the project. At the same time, do not assume your financial institution is on top of things - often bank takes it for granted that works at site are as true as per the architect's certificate and really do not bother to visit the site themselves.

As far as the contractor or builder is concerned, he has no duty to you as his contract to construct is entirely with the developer. As for the architect, his scope of work related to contractor is purely that of ensuring the construction is kept on schedule with the overall delivery programmed to enable the latter to claim his monies from the developer. The sooner he completes, the faster he takes his money.

A competent and vigilant contractor may complete his work sooner than required, only to be slowed down by the irregular or delayed honouring of progress payments by the developer.

Alternatively, the situation could be reverse, whereby the inability of the contractor will undoubtedly affect the progress of delivery to purchasers.

Such a situation can happen either due to poor management by the contractor or if the developer is slow or defaults in payment to the contractor, thus making it difficult for the latter to balance his cash flow. This is why as a buyer, it is important for you to do some preliminary findings to satisfy yourself about the financial stability of not only the developer but also to be aware of whom the contractor is. You may locate this information on the project's construction signboard, which also lists all the consultants. Occasionally it could be the subsidiary company of the developer or even a relative of the developer who has been commissioned to construct the property.

Where a developer is unable to deliver or where the developer feels that his financial situation will affect delivery of houses to purchasers, the developer is required under Section 7(g) "where he considers that he is likely to become unable to meet his obligation to the purchasers, forthwith to inform the controller of such fact." This rarely happens.

The numerous abandoned housing projects are testimony that they have escaped the watchful eyes of the Ministry of Housing and Local Government and the local authorities. You may also be surprised to find that the developer without your knowledge can also seek an extension to the delivery period as allowed for in the Housing Developers Act under Regulation 11 - Contract of Sale. Sadly, the Act does not require the developer to seek the consent of purchasers let alone inform them.

In this respect, the present Act fails to safeguard the interest of purchasers. Rightly, it should be the duty of the developer to inform the purchaser but I am yet to see an instance of this happening. It is rather for the Housing Ministry to grant such an extension without due regard to purchasers who might be living in rented accommodation while awaiting the completion of their new home.

If the physical progress at site is more or beyond the stage billed to you by the developer, you should not have any complaint. But what happens if you discover that the actual physical progress on your property is less than that required according to the schedule in the guidelines to the Architects?

In this instance, you are advised to take photographs or make a record in writing and question both the financier (if the progress payment has been released) and the developer.

Although the guidelines to the architects are pretty specific, many an architect has been penalised for wrong certification. Architects can argue otherwise, but there are always some who will play to the tune of their developer paymasters despite their duty in tort to the purchaser. It is for this reason that is imperative that you question your financial institution as to whether its representatives have conducted a physical on-site inspection of your property before releasing monies.

Buyers' liability on interest payments is calculated based on the amounts of monies released to the developer on their behalf by the financial institution. The sums are released from the total principal sum that would have been set aside by the financier. Hence, should the developer abandon or delay the project, the buyer would still be liable to the interest on the amounts of monies released by the bank on his behalf. While the financial institution may proceed to take the necessary action of recovery of its monies from the developer, the institution will also seek recovery from the buyer or borrower.

It is immaterial for the financial institution as to where it recovers its money. This is why I stand by my opinion that financial institutions will not extend their umbrella on rainy days to anyone. It would therefore be worthwhile for you to put in writing to the financial institution giving out your loan as soon as it is approved that the liability will be upon it should it be found that the release of monies to the developer on stage completion is found not to tally with the physical progress so claimed or stated in the Architect's certificate.

It is an exclusion clause to protect yourself and it worthy of exploring; after all, inserting exclusion clauses are quite a norm for the financial institutions themselves, so why should a buyer not protect himself too? This is primarily because the present arrangement between the developer and the financier is that monies will be released upon the developer presenting the architect's certificate to the financier.

Akbal Singh Sandhu is a chartered architect and town planner. Saddened by the quality of building construction today, he has set up BIS Building Inspection Services specialising in independent assessment of defects.