Contract Review for Villa Purchase from a Developer
Mr. Jones, or "the investor," came to us to have a contract reviewed for a villa purchase from a developer in Bali. During the review, our lawyers found a few clauses that raised concerns and could potentially affect his interests.
Lawyers' Comments:
Issues with Correcting Defects During Property Handover:
The contract does not specify a time frame for the developer to correct defects discovered during the property inspection at handover. It is essential that the contract stipulate that any defects must be addressed within 14 days of discovery.
Terms Regarding the Management Company:
The rights and responsibilities of the management company, along with the conditions for the investor’s personal use of the apartments, are outlined in a separate agreement. The investor is required to sign this agreement separately from the main one. As a result, details related to the management company would not be available when the main agreement is signed, potentially causing inconvenience for the investor.
Unspecified Payments to the Management Company:
The contract does not specify the payment amount to the management company, yet signing an agreement with them is mandatory. The investor is unable to opt out of the management company’s services, which could place them at a disadvantage.
Issues with the Management Company:
The terms related to the management company, including payments, percentages, and commissions, will only be disclosed to the investor after the agreement is signed. If the investor is dissatisfied with the services or costs later on, they won’t be able to cancel the contract with the management company. The only option would be to terminate the contract entirely, which is likely not in the investor’s best interest.
Changes to the Apartment Location:
The developer has the right to change the location of the apartments (e.g., relocating them to a different floor or building) without altering the terms of the contract. This is a serious concern, as such changes could significantly impact the property’s characteristics, potentially undermining the investor’s interests.
Warranty on Structural Elements:
The contract lacks a clear timeline for resolving warranty issues. It is recommended that a provision be added to specify that all claims and complaints related to structural elements must be addressed and resolved within 10 business days from the date the complaint is submitted to the developer.
Warranty Tied to the Management Company:
The warranty on the property’s structural elements (walls, roof, foundation) is contingent upon the performance of the management company. This creates an unnecessary risk for the investor, as poor service or inadequate performance by the management company could potentially invalidate the warranty.
Breach of Contract by the Investor:
If the investor breaches the contract by subleasing the apartments independently, the developer reserves the right to terminate the contract and sell the apartments. However, the contract does not specify whether the investor will be reimbursed for the value of the apartments, nor does it outline the process for proving subletting or breach of contract.
Non-Refundable Booking Fee upon Contract Termination:
The contract stipulates that the booking fee will not be refunded in the event of termination, regardless of the reason. This means that if the developer decides to cancel the contract with the investor, the fee will be forfeited. This is a highly unfavorable condition for the investor and may warrant reconsideration to ensure a more balanced and equitable arrangement.
Conclusion:
Before signing a contract, we highly recommend consulting with experienced lawyers to conduct a thorough review. This will help identify any potential legal and financial risks, ensuring that your interests are fully protected.
