Can you withhold an off-plan payment, and what happens if you do
Sometimes, and the consequences are severe if you are wrong. Most off-plan contracts treat late payment as a default with interest, and many allow termination and forfeiture of what you have already paid. Establish the facts and the clause before you withhold anything.
What your contract almost certainly says
Off-plan contracts are drafted by developers, and the payment clauses are the ones drafted most carefully. Expect interest on late payments at a punitive rate, a cure period measured in days, and a right to terminate and retain a substantial share of what you have paid if the default continues.
Expect also that the right to withhold is either absent or narrowly conditioned. Withholding because you are dissatisfied is rarely a contractual right; withholding because a condition precedent has not been met sometimes is.
The distinction that decides it
There is a difference between 'the work is not good enough' and 'the payment is not due'. The first is a dispute about quality, and quality disputes are usually handled by the defects mechanism, not by stopping payments. The second is a question of fact: the trigger in the contract has not occurred.
If your schedule is progress-based and the stage genuinely has not been reached, the payment is not late, because it is not yet due. That is a much stronger position than withholding a due payment in protest, and it needs the same thing to stand up: evidence of what is actually built.
Before you withhold anything
- 01Read the payment clause, the default clause and the termination clause together, not separately.
- 02Establish, with dated evidence, what state the building is actually in.
- 03Compare that state against the contractual definition of the stage, in writing.
- 04Take advice from a lawyer in the country of the property. This is where general reading stops being enough.
- 05Notify in the form and within the time the contract requires. A valid objection made the wrong way is often no objection.
The middle courses
- Paying under protest, in writing, reserving your position, where the risk of default is too high to accept.
- Paying into escrow or into your lawyer's client account where the contract or local practice allows it.
- Paying and claiming, treating the overpayment as a debt to be recovered rather than a payment to be stopped.
- Agreeing a revised schedule, which developers under pressure sometimes prefer to a dispute.
Questions on this
The building is obviously behind. Is that enough?
Only if your payments are tied to progress. On a date-based schedule the building being behind has no effect on when your money is due, which is the whole problem with date-based schedules.
How much evidence is enough?
Enough that somebody neutral could reach the same conclusion without visiting. Dated photographs, a record of what was and was not built, and the contractual definition it is being measured against.
Will withholding damage the relationship?
Probably. That is a real cost and worth weighing. It is also worth noting that a developer who responds to a documented, correctly notified objection by becoming hostile has told you something about the rest of the build.
Read one before you buy one
The specimen shows the whole structure: status, what each payment was meant to buy, the forecast with its range, the photographic record and the limits of what was checked.