Loss of Deposit Cover – Is it available to you?
February 22 2021 By Mitch Cookney
Where a deposit for a new home is taken in advance, the purchaser of an individual unit or development may seek protection for the deposit paid. Often this is required to be put into Escrow for the duration of the contract.
However, one option is to purchase a Loss of Deposit cover, which in principle would allow you to use the income from the deposit towards the cost of development or alternative costs. Cover is generally not available as an individual insurance but can be available as an extension to your Structural Warranty.
This industry norm covers 10% of the contract value and protects purchaser’s deposits where developers fail to complete the construction of the new home, in accordance with the requirements, and the buyer loses a deposit paid to the developer due to the developer’s bankruptcy, liquidation or fraud. Latent Defects, or Structural Warranty providers can compensate the buyer by either providing the financial losses up to 10% of the purchase price or alternatively by covering the cost of completing the building, whichever is the lesser.
However, this cover may not be available for a developer who has not been trading for at least three years. In respect of a Special Purpose Vehicle (SPV), the provider would be looking for the SPV to provide a parent company guarantee or cross company guarantee.
With our wealth of experience in this sector, we are well placed to work with you to see what options would be available to you, working in a tripartite relationship with you and the underwriters to ensure we reach a satisfactory position.
Contact us today to discuss your options.