Flip/subsell a property: Is special clause preventing this legally enforceable?

[Art]

A friend of mine is hoping to flip/subsell a property on which he signed contracts last year. However there is a clause in the contract he signed that prevents this. He is wondering if this clause is legally enforceable as has heard from a number of people that there is nothing the builder can do to prevent a subsale?

 

[sheena1]

Re: Flipping a property

Yes, the builder will only sign the closing documents in your friends name. The Deed which transfers the property will be in your friends name only. Did he ask the Builder if he could delete the Special Condition?

 

[Art]

Thanks for this. He has spoken to the builder and offered them a substantial amount of money to get the clause removed. However they won't budge.

 

[ClubMan]

Has he assessed the tax implications of doing this if it does turn out to be possible?

 

[Art]

Yes. Taking the various taxes into account, it would be much more advantegeous to go down this route which is why he is so anxious to do so.

 

[Seagull]

Yes. Taking the various taxes into account, it would be much more advantegeous to go down this route which is why he is so anxious to do so.

Which is also why the builders insert that clause. They want to get any profit going. If they didn't have that clause, flipping would happen on a regular basis, and the builders would wind up having to change contracts every time, and that would cost them.

 

[Luternau]

Has he assessed the tax implications of doing this if it does turn out to be possible?

Are you aware that your friend may be liable to return VAT on the mark up? Furthermore it is possible that Revenue will see the gain as profit from trading and therefore levy income tax as opposed to CGT? The reason I say that is that CGT is liable on assets owned, whereas if you sell before completion you never owned it-you just had an option to buy at a fixed price. RE VAT, the threshold for VAT on new property is zero, so if property is flipped before completion, it is still new, still reckonable for VAT.