CONDOMINIUM SALESCONDOMINIUM SALESin Sri Lankain Sri Lanka

Some issues of concern for Some issues of concern for Buyers and Sellers of pre-Buyers and Sellers of pre-construction condominium construction condominium

propertiesproperties

by Ajithaa Edirimane LLB (Colombo) MLB (Hamburg)by Ajithaa Edirimane LLB (Colombo) MLB (Hamburg)Attorney-at-Law & Notary PublicAttorney-at-Law & Notary Public

Pre constructionCondominiums(Condominiums sold

Off the Plan)

Prior to registration of Provisional

Condominium Property

After registration of Provisional

Condominium Property

PRE-CONSTUCTION CONDOMINIUMSPrior to registration of

Provisional Condominium Property

From the perspective of Buyers

How to recover an advance if project is not completed on scheduled date?

Ideally, execute a Reservation Agreement with Developer and deposit advance with a neutral third party as an Escrow Agent (who may be the third party to the Agreement)

Request the inclusion of a provision giving right of termination.

- The third party can be the lender / bank or provider of funds to the prospective purchaser.

PRE-CONSTUCTION CONDOMINIUMSAfter registration of

Provisional Condominium Property

Is the project registered? Request for copy of the registered

Provisional Deed of Declaration. Will the project have the basic amenities? Insist on full disclosure of all important

matters (i.e completion date, amenities provided, common areas) and request for copy of Provisional Condominium Plan

Can an advance be recovered if project is not Can an advance be recovered if project is not completed?completed?

Enter into a Notary attested Sales Agreement. Enter into a Notary attested Sales Agreement. Ideally deposit should be placed with neutral Ideally deposit should be placed with neutral Escrow Agent till sufficient completion of the Escrow Agent till sufficient completion of the project (Agreement should be registered)project (Agreement should be registered)

Is the condominium unit of the size and Is the condominium unit of the size and description given in promotional documents? description given in promotional documents? – –

Check copy of registered Deed of Declaration Check copy of registered Deed of Declaration and connected Plan of subdivision for the and connected Plan of subdivision for the allocated area and description.allocated area and description.

When will the condominium project be completed? When will the condominium project be completed? – – Tentative date to be given by Developer and inserted Tentative date to be given by Developer and inserted

in Sales Agreement. (Note: Sales Agreement gives the in Sales Agreement. (Note: Sales Agreement gives the terms of sale and it is NOT a Deed of Transfer. A Deed terms of sale and it is NOT a Deed of Transfer. A Deed of Transfer can be executed only when the of Transfer can be executed only when the condominium property is registered as a ‘subdivided condominium property is registered as a ‘subdivided property’ at the Title / Land Registry)property’ at the Title / Land Registry)

How can a prospective purchaser check on the How can a prospective purchaser check on the progress? progress? ––

Sec.9© of the Common Amenities Board Act No. 24 of Sec.9© of the Common Amenities Board Act No. 24 of 2003 makes it mandatory for Developers to file 2003 makes it mandatory for Developers to file Progress Reports with the Condominium Management Progress Reports with the Condominium Management Authority.Authority.

PRE-CONSTUCTION CONDOMINUIMS Prior to registration of

Provisional Condominium Property

From the perspective of Seller / Developer:

Securing buyers for condominiums through Securing buyers for condominiums through pre-selling -pre-selling -

Pre-selling of condominiums require Pre-selling of condominiums require compliance with Sec.4 of Act No. 39 of 2003 compliance with Sec.4 of Act No. 39 of 2003 (i.e. if a sale occurs ‘off the plan’ before (i.e. if a sale occurs ‘off the plan’ before completion, project should be registered completion, project should be registered within 18 months of such agreement to sell within 18 months of such agreement to sell or within 3 months of completion of project)or within 3 months of completion of project)

How to get necessary approvals, including How to get necessary approvals, including Condominium Management Authority (CMA) Certificate Condominium Management Authority (CMA) Certificate as early as possible? as early as possible?

- Forward to the CMA for approval the Provisional - Forward to the CMA for approval the Provisional Condominium Plan (Sec. 3 (a) (b) & © of Act No. 39 of Condominium Plan (Sec. 3 (a) (b) & © of Act No. 39 of 2003)2003)

- Ensure requirements as to Common Elements as - Ensure requirements as to Common Elements as stipulated in the Apartment Ownership Act, are met. stipulated in the Apartment Ownership Act, are met. (Sec. 26 of Act No. 11 of 1973 as amended)(Sec. 26 of Act No. 11 of 1973 as amended)

- Cooperate with the Authorities to obtain all - Cooperate with the Authorities to obtain all clearances. At the same time, inform them of the clearances. At the same time, inform them of the scheduled dates of completion to honor commitments scheduled dates of completion to honor commitments to buyers.to buyers.

Does the Contractor’s Warranty period correspond Does the Contractor’s Warranty period correspond with the Warranty given by the Developer to with the Warranty given by the Developer to prospective unit owners for their individual prospective unit owners for their individual condominiums?condominiums?

Ideally Contractor’s Warranty period should extend Ideally Contractor’s Warranty period should extend beyond one year in multi-storey buildings. beyond one year in multi-storey buildings.

If not, obtain adequate Insurance Cover to be effective If not, obtain adequate Insurance Cover to be effective as soon as the Contractor’s Warranty on the building as soon as the Contractor’s Warranty on the building expires.expires.

Are Buyers honoring commitments under Sales Are Buyers honoring commitments under Sales Agreements (i.e. payment of installments)? Agreements (i.e. payment of installments)? – –

Monitor Sales Agreements and enforce conditions, if Monitor Sales Agreements and enforce conditions, if necessary. This is possible only if the Developer has necessary. This is possible only if the Developer has not breached any provisions of the applicable law not breached any provisions of the applicable law (i.e. Registering the provisional condominium (i.e. Registering the provisional condominium property, issuing proper receipts for payments, property, issuing proper receipts for payments, etc.)etc.)..

Will the condominium units be completed on the Will the condominium units be completed on the scheduled dates? scheduled dates? – –

Monitor Agreement with Contractor and claim from Monitor Agreement with Contractor and claim from Performance Bond if necessary.Performance Bond if necessary.

Who is liable for risks? Who is liable for risks? Ensure all risks are covered during construction Ensure all risks are covered during construction

stage under Contractor’s Insurance Cover. Once the stage under Contractor’s Insurance Cover. Once the project is taken over and after the expiration of the project is taken over and after the expiration of the Warranty Period, risks are borne by the Developer.Warranty Period, risks are borne by the Developer.