Apartments are all the rage in urban areas. With the rapid expansion of the middle class, young professionals with disposable income or access to financing prefer to buy apartments within the proximity of their work place or businesses.
Apartments are basically residential buildings that could be more than one storey with one or more housing units on each floor that are capable of being owned by separate owners. Apartments have common areas which are spaces or facilities within the apartment building that are shared by owners or occupants of the apartments e.g. stairs, corridors etc. A famous example of apartments in Nairobi is the Madaraka Estates. I recently attended a property expo in Nairobi organized by property developers. What was clear from every stand I visited and from the banners displayed is that apartments are hot cakes in urban areas today.
I believe that one of the reasons that apartments are on demand is the option to buy one before it is built and pay for it in installments as it is built and take possession upon completion of the construction probably in several years. This is known as purchasing off-plan. We will discuss this further.
Gated communities are, simply put, several separately owned residences in one big compound under one management. An example of gated communities is Runda in Nairobi and Greenpark estate in Athi River. Gated communities it would seem comprise of high end town houses that are constructed in their separate compounds within a larger compound. Gated communities are popular with wealthy persons who seek the advantage of having security in numbers while still enjoying more privacy and space in their own compounds as opposed to apartments.
The concept of ownership and the relationship among the owners of apartments and gated communities is similar and that is the reason both are discussed in this article.
Buying an Apartment or a House in a Gated Community Off-Plan
Developers will normally offer cheaper rates for buyers who purchase off-plan before construction commences or during construction as opposed to those buying completed units. There is no house to look at when you are buying off-plan. The building plans, designs, project master plan and other architectural documents are what you have to inspect as you consider making an off-plan purchase. If you are buying in a gated community, some developers will have the land sold to you separately with individual title deeds and prescribe building plans for owners to construct their houses or if they choose to, to retain the developer to undertake the construction.
In such a case, you would conduct due diligence as if you were buying the land only as discussed in our previous article.
Steps involved in off-plan purchase
The steps are similar to buying land save that the final product is not there to be inspected from the start.
1. Inspection of Building Plans and Project Master Plan
You will in most cases be dealing with an agent who is marketing the apartments and houses to be constructed, with beautiful almost life like artists impressions of the apartments or houses when completed.
Ignore the beautiful pictures and the sweet words of the agent who will tell you of all the amazing amenities and add-ons that will be on the project when completed. Request for copies of the approved and registered building plans and the project master plan for inspection.
Consult an architect to inspect the building plans and advise you on the structural soundness of the building once complete. Once you have received satisfactory advice on the apartment or house and you are willing to proceed, you might be required to sign a Letter of Offer and pay a reservation fee before you sign the Agreement for Sale.
2. Execution of Letter of Offer
The agents will normally have a Letter of Offer ready for you to complete your details and sign. As discussed in an earlier article, the Letter of Offer gives you time to conduct due diligence before execution of the Agreement for Sale. You should retain an advocate at this point to review the Letter of Offer before you sign it. Your advocate should make the Letter of Offer subject to conduct of a satisfactory due diligence. The reservation fee is normally refundable but just check to ensure the Letter of Offer provides expressly for its refund.
3. Due Diligence
Just as discussed in an earlier article, your advocate will instruct various professionals including the surveyor to conduct due diligence. You should look into the history of the developer who is undertaking the project, you can visit projects they have previously undertaken and inspect the quality and also have a chat with the owners to find out if they have any reservations about the developer.
The National Construction Authority (the “NCA”) has recently set up a hotline to confirm whether constructions have received their approval. It is prudent to check with the NCA to confirm whether they have approved the intended construction. Look out for any reports of financial unsoundness of the developer which might affect the project. Your lawyer should handle the technical due diligence including searches on the land, the developer and inspection of National Environment and Management Authority (“NEMA”) approvals.
4. Agreement for Sale
Your advocate will review the Agreement for Sale. It is similar to the one you enter into when buying land but more detailed. The apartments will normally be sold by way of a lease by the developer. You will get a lease document signed by you, the developer and the management company as the title document to your apartment or house. When you receive the Agreement for Sale with a draft Lease for you to approve you should look out for the completion date of the project, make sure there is a definite date for the completion of the project.
You should also confirm the payment plan, costs to be paid to the advocates (you will bear costs for both the seller’s and your advocate), breakdown of registration costs, initial service charge, share in the management company to be issued to you within a specific date, hand over of the management company by the developer to the owners within a specific date, whether the car park is bought together with the apartment or sold separately, defects liability period, the term of the lease and when and how possession will be handed over to you.
The apartments or houses in a gated community will be managed by a management company that will handle the maintenance of the common areas, security, insurance etc on behalf of all the owners. It is prudent for your advocate to review the draft lease, memorandum and articles of association of the management company and home owners rules to ensure that the management company will be run by the house owners and that the developer will hand over control to the owners upon completion of construction and sale of the apartments or house within a specific date or deadline.
Each of the apartment or house owners will have a share in the management company and be entitled to participate in decision making on matters of the running the management company. The land on which the apartments are constructed will be owned by the management company. Since apartment owners own a share in the management company, they own the land too. If the land is a lease from the government or local authority, the right to apply for renewal upon expiry of the lease (“Reversion”) must be transferred to the management company after the sale of the apartments or units but within a specific date or deadline.
5. Execution and Registration of the Lease and Handover of Possession
After you sign the Agreement for Sale, you will pay the installments as scheduled as you await completion. When the developer approaches completion, you will be called upon to sign the Lease and complete payment of all monies due. Thereafter, the seller’s advocate will register the Lease and deliver a duly registered Lease to your advocate.
You will be given the keys to your apartments as set out in the Agreement for Sale. Normally, you are entitled to possession once you complete all payments and the apartment/house is ready for occupation. You should note that the defects liability period is normally six months and you should conduct a thorough inspection of the apartment/house within this period and report any defects to the developer for repairs to be undertaken.
Ensure that you receive your registered Lease, share certificate for the share in the management company and a copy of the certificate of occupation. Welcome to modern living.