Sep 02, 2010 | Comments 4
Upon completion of construction works, a seller or contractor usually wishes to swiftly hand-over the completed property to its buyer and thereby trigger further payment obligations of the buyer. At the same time, a buyer may wish to thoroughly verify that all works have been performed and completed as agreed and a good quality product free of defects and faulty work constructed which may take some time. In order to address these conflicting interests, it is advisable for both parties to agree on proper written hand-over procedures which can be described under carefully drafted sale and purchase or construction agreements. This usually helps to minimize the risk of dispute over defects or non-conformities which may adhere to a property. Nevertheless, the importance of proper hand-over procedures are often overlooked or neglected at the time of executing the required sales documentation.
In practice, when a seller or contractor deems its contractual obligations as completed, he will send a completion notice upon the buyer advising completion of the construction works including invoice requesting final or further payment.
At this point it is helpful if the parties have executed legal documentation providing a clear and detailed guideline what steps shall be taken with regards to hand-over, delivery and acceptance of delivery of a property upon its completion.
Such guideline usually requires the seller or contractor to send a completion notice upon the buyer requesting inspection of the property within specified period of time and at the same time providing the buyer or its appointed representative with an opportunity to verify that the seller or contractor has fulfilled its contractual obligations. The seller or contractor should attend to the buyer´s inspection and assist the buyer with drawing up a report specifically describing any defect or non-conformity and a date until when such defect or non-conformity shall be remedied. This report should be issued in two identical sets, each signed by both parties. This stage of a purchase is often called practical completion; any payment due “on completion” should be “suspended” until the property is ready for move-in and completed in accordance with the relevant contracts and all applicable laws and regulations (save minor defects).
In practice, it is not unusual that a buyer who is not familiar with construction matters wishes to appoint a professional to assist with the hand-over and related matters. Therefore, it should be clarified under the relevant sales documentation that the buyer shall have the right to appoint a professional building inspector at his own expense. In case of dispute over existence of a defect, the parties may further agree that an independent inspector shall be consultant which determination shall be final and binding, whereby the party, whose opinion has been dismissed by the independent building inspector, shall become solely responsible for payment of the expenses incurred.
However, it is important, that both parties understand and ideally agree in writing that simple attendance of a buyer to inspection and formal “handover” of the property, must not be deemed as accepting “delivery” of the (completed) property. Acceptance of delivery, should take place once a proper defect list has been prepared on handover, any defects listed thereon cured and a further document, stating acceptance of delivery, signed by the buyer.
For the event that it appears that a seller or contractor is unable or unwilling to remedy substantial defects or non conformities, the executed agreements should provide an appropriate mechanism for such case which could include a right for the buyer to refuse acceptance of delivery of the property and to withhold all outstanding payments (without being in breach of contract) until full remedy (retention) which shall be caused within agreed period of time. In addition, the buyer could be provided with a right to appoint a third party contractor to complete the property and remedy defects or non-conformities at the expense of the seller or contractor in the event that the seller or contractor failed to complete or remedy within the agreed time schedule.
To summarize, it’s advisable that parties agree on proper hand-over procedures as they help to avoid confusion regarding the parties’ responsibilities at the time of completion and delivery of a property, provide both parties appropriate instruments required to protect their interests, and ultimately minimize the risk of dispute.
About the Author:
This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm, and for informational purposes only. It is strongly recommended to take full advice from professional advisor before conducting any business in Thailand. In case of inquiries, please contact Michael Greth, Consultant, by email (email@example.com) or phone (+66- (0) 76-222 191-5).
Filed Under: Opinion & Analysis