Buying a property off-plan has become a popular route into the property market across England and Wales. A buyer purchases a property that has not yet been built, usually in a new residential development such as a housing estate or a block of flats. The buyer will pay a significant deposit up front, with the balance of the purchase price paid upon completion of the construction.

It is an attractive prospect for buyers, who can purchase brand-new property for less than the market rate, which they can then either live in themselves, or (as happens more often) rent out at a high rate.

It is also an attractive prospect for developers, who have the benefit of a large pot of money before construction has even taken place.

But what happens when the developer never delivers? When construction stalls, when the SPV enters administration or liquidation, and when the building paid for remains no more than a hole in the ground or a rusting crane on a derelict site?

This article explains the legal position for off-plan buyers in this situation, with specific focus on three critical mechanisms: notices (unilateral), the buyer’s equitable lien, and the buyer’s priority as a creditor if the developer becomes insolvent.

The Off-Plan Structure: How These Deals Are Typically Set Up

Off-plan residential developments, particularly apartment blocks in urban regeneration zones, are commonly sold through a “special purpose vehicle” (SPV). An SPV is a company set up by a developer specifically for a development or construction project. As well as being a convenient mechanism for developers to separate various projects, it is also a way of a developer avoiding liability: if there is a problem with the construction site, the liability will be with the SPV and not the developer.

Buyers enter into an agreement for lease with the SPV. This is a contract under which the developer (via the SPV) agrees to grant the buyer a lease of an identified flat once the building is constructed and the flat is completed.

Typically, an agreed form of draft lease is annexed to the agreement, along with a floor plan identifying the specific flat or suite being purchased. A substantial deposit, in many cases 10-20% (but sometimes up to 50%) of the purchase price is paid at exchange of contracts. The balance is payable on completion, when the building has been fully constructed and the lease is formally granted.

This structure creates an obvious vulnerability. The buyer parts with a very large sum of money at an early stage, long before any property actually exists. If the developer’s SPV becomes insolvent, which is far from uncommon in the residential development sector, the buyer may find themselves as one of many unsecured creditors chasing limited assets.

Notices: Protecting the Buyer’s Position on the Register

One of the most important steps a buyer under an agreement for lease can take is to register a notice against the developer’s title at HM Land Registry. This is expressly provided for under the Land Registration Act 2002 (LRA 2002).

Under section 34 of the LRA 2002, a person claiming to have the benefit of an interest affecting a registered estate may apply to the Land Registrar for entry of a notice. Two types of notice are available: an agreed notice (where the registered proprietor consents) and a unilateral notice (which can be registered without the proprietor’s consent). Off-plan buyers will typically register a unilateral notice.

The notice is entered in the charges register of the burdened land (rule 84(1) of the Land Registration Rules 2003). Crucially, both types of notice preserves priority to the interest against a subsequent registrable disposition made for valuable consideration, to the extent that the underlying interest is valid (section 32(3), LRA 2002).

It is important to understand what a notice does and does not achieve. The registration of a notice does not mean that the underlying interest is automatically valid. The register is not conclusive on this point. What the notice does is to put any prospective purchaser of the development site on notice of the buyer’s claim, ensuring that a sale of the site does not simply override the buyer’s interest.

What Happens When the Developer Becomes Insolvent?

When an SPV enters administration or liquidation, the insolvency officeholder’s primary objective is to realise the assets of the SPV (including the development site itself) for the benefit of creditors. This usually means selling the development site. To achieve a sale, the officeholder will typically require that all encumbrances affecting the title, including notices registered by off-plan buyers, are removed from the register. This is because the development site can be sold for more if it is free from encumbrances.

This creates an immediate tension. The buyers registered their notices precisely to protect their positions. Being asked to consent to their removal when they have not been repaid their deposits, and when the flats they were promised have not been built, can feel like being asked to give up the only protection they have.

English courts have had to grapple with this tension directly. In the significant High Court case of Alpha Students (Nottingham) Ltd (In Liquidation) v Eason and another [2015] (Case No. 2015-008993), the court considered a situation closely analogous to what many off-plan buyers now face. A developer had exchanged agreements for lease with numerous buyers in respect of student suites in a proposed development. Each buyer had paid a deposit of 50% of the purchase price and had registered a unilateral notice. No construction had taken place when the company went into liquidation.

The liquidators found a buyer for the site. To allow that sale to proceed, the liquidators applied to the court for directions including a direction that the unilateral notices be removed. The court directed the Land Registrar to remove the notices, taking a commercial view that the sale should be enabled and that any dispute about the buyers’ underlying interests could be transferred from the land to the sale proceeds. The court explicitly noted that maintaining registration of a notice was not essential to the creation or existence of a buyer’s lien, and that the buyers would not be adversely affected by the removal, provided it was on terms that any lien transferred to the proceeds of sale.

The court also rejected an argument by one buyer that it had a right to “hold out” and negotiate individually with any prospective purchaser for a price for removing its notice. The court regarded this as unrealistic in circumstances where all buyers were in the same position and it was impractical for a purchaser to negotiate with each individually.

The Buyer’s Equitable Lien: Their Most Powerful Protection

The removal of a unilateral notice does not extinguish a buyer’s underlying rights. The crucial question, and the one that determines whether the buyer ranks as a secured or merely an unsecured creditor in the insolvency, is whether the buyer has the benefit of a buyer’s equitable lien.

The principle of a buyer’s equitable lien is well established in English law. A buyer who has entered into a contract to purchase property, and has paid some or all of the purchase price, may have an equitable lien over the property to secure repayment of that amount, if the contract remains uncompleted through no fault of the buyer. This principle derives from the case of Rose v Watson (1864) 10 HL Cas 672 and has been consistently applied since. Importantly, the lien applies even if the contract is not specifically enforceable (Chattey and another v Farndale Holdings Inc and others [1997] 1 EGLR 153).

The lien operates as an equitable charge over the property. It arises at the moment the contract is entered into and purchase monies paid. It allows the buyer to apply to court for a declaration that the lien exists, and for an order for sale of the property to enable repayment of the deposit from the proceeds. Critically, the lien survives rescission of the contract, including where rescission occurs pursuant to a contractual term in the agreement itself.

In many property sale contracts, equity treats the buyer as having an equitable interest from exchange of contracts, although the position can be more complex for agreements for lease, particularly in off-plan developments. The buyer’s lien is therefore best understood as establishing that the buyer’s equitable interest in the property survives termination of the contract, securing repayment of the deposit.

The Critical Question: Does the Lien Apply Where the Property Was Never Built?

In the Alpha Students 2015 case, the court expressly declined to determine whether a buyer’s lien could exist where the flat that was the subject matter of the agreement for lease had not yet been built at the point of exchange. The court left this important question open.

The answer came in the subsequent High Court decision: Alpha Student (Nottingham) Ltd (In Liquidation) v Eason and another [2017] EWHC 209. In this follow-on judgment, the court held that the buyers did have equitable liens, even though no construction had taken place on the site.

The liquidators had argued that, since the leases had never come into existence (because the flats had never been built), any liens were unenforceable. The court rejected this argument. The buyers had contracts which identified, with sufficient specificity, the future legal estates in the flats — each agreement had an agreed form of draft lease annexed to it and a floor plan identifying the individual flat. That was sufficient.

The court determined that:

• The liens attached to the subject matter of each individual agreement for lease, rather than to the site as a whole.
• Each buyer benefitted, as a secured creditor, from an equitable lien to the extent of the deposit they had paid.
• The buyers ranked equally between themselves in respect of their liens.

This was a landmark result for off-plan buyers. Where a buyer has an enforceable equitable lien, they rank as a secured creditor in the insolvency, ahead of the general body of unsecured creditors. Without a lien, the buyer is merely an unsecured creditor, likely to receive only a small dividend or nothing at all from the insolvency estate.

What Does This Mean in Practice for Off-Plan Buyers Today?

If a buyer has paid a deposit under an agreement for lease for a flat or a house in a development that has stalled or where the SPV has become insolvent, the buyer should be aware of the following:

1. Check Whether the Buyer has a Notice Registered

If the solicitor registered a notice at the Land Registry when the buyer exchanged contracts, it will appear in the charges register of the developer’s title. If no notice was registered, the buyer may have missed an important step — though the absence of a notice does not necessarily destroy their equitable lien.

2. Buyers should not Simply Consent to the Removal of the Notice Without Taking Advice

Administrators or liquidators of the developer may write to buyers asking them to consent to the removal of their notice. Buyers should not sign or respond to any such request without first taking independent legal advice. As the case law demonstrates, removal of the notice can be appropriate but only if removal is expressly on terms that preserve the buyer’s rights, including any equitable lien they may hold, in the proceeds of sale of the site.

3. Assert a Buyer’s Lien Promptly

The difference between being a secured and an unsecured creditor in an insolvency is frequently the difference between recovering the buyer’s deposit in full and receiving a fraction of a penny in the pound. Buyers should take urgent legal advice on whether they have an enforceable equitable lien and, if so, ensure that it is asserted in the insolvency process.

4. Engage With the Insolvency Process

As a creditor (and potentially a secured creditor) buyers have rights to participate in the insolvency process. They should file a proof of debt with the administrator or liquidator, and they may be entitled to attend creditors’ meetings. If the site is being sold, the buyer should understand what is happening to the sale proceeds and whether their lien is being preserved in those proceeds.

5. Consider Whether Other Buyers Are in the Same Position

Where a development has been sold off-plan to multiple buyers, the buyers are not alone. The case law confirms that buyers in this situation rank equally among themselves in respect of their liens. There may be value in coordinating with other buyers through a buyers’ group or committee to ensure that their collective interests are properly represented.

The Wider Landscape: Ongoing Risks in Off-Plan Purchases

The issues explored in this article are not unique to any single development. Across England and Wales, there are numerous stalled apartment and housing schemes in city centres and regeneration areas, where buyers have paid substantial deposits for properties that have not been delivered. The pattern is frequently the same: a well-marketed scheme sold through an SPV, individual investors attracted by the promise of assured yields and capital growth projections; construction beginning but stalling; the SPV accumulating unsustainable debts; and ultimately, entering into administration or liquidation.

The legal framework provides some protection to off-plan buyers, but that protection is not automatic. It must be actively asserted. A buyer who does nothing, who does not register a notice, who consents without conditions to the notice removal, or who fails to assert their lien in the insolvency may find that their legal protections have been weakened or lost.

Courts have shown a willingness to take a commercial view and enable sites to be sold, even where that requires the removal of buyers’ notices. But the case law also confirms that buyers can and do have enforceable equitable liens over property that was never built, provided their agreements were sufficiently specific in identifying the flat they were purchasing. That is a meaningful protection. But buyers need to know about it, and more importantly, they need to act on it.

If you have been affected by an off-plan purchase that has gone wrong, contact our specialist property litigation team on 0161 832 3304 or email [email protected]