Thanks for your reply.
You do have only 2 options-
1. It would be normal and favourable for you to exchange Contracts now, and stipulate in the Contract with Completion to take place on 7 or 14 days notice from the Seller's Solicitor that the Seller's new build is ready for completion.
This way, you will get a commitment from the Seller, by way of an exchange, and you will get the keys as and when the Seller's new build is ready.
Concerning the new build, the Developer's Solicitor will give your Seller's Solicitor 7 or 14 days Notice that the property is ready for occupation, and hence once the Seller's Solicitor has received this confirmation he will notify your Solicitor accordingly.
The only downside with this is there is no guarantee completion will indeed take place in March 2014- there may be delays with the new build, and if you agree to this 7 days notice/completion date, there won't be anything you can do to push the completion date if for example the new build ends up only being ready in May 2014. However, it appears that your Seller can't complete his Sale to you until his new build is ready and you won't be any worse off than if you go for option 2 below.
2. You exchange now and agree a fixed date for completion in December/Jan and allow the Seller to remain living in the property until his new build is ready.
This option wouldn't be possible if you were having a Mortgage, but note you are paying cash.
You get commitment from the Seller as you will have exchanged Contracts, but you don't get occupation until your Seller's new build is ready.
There really is no sense in you agreeing to this option, as you get no more protection than option 1 and there are a couple of possible disadvantages. Although your Solicitor can draw up a simple Licence agreement, granting the Seller to remain in occupation until his new build is ready (although he is likely to charge a bit for this extra work), there are the following disadvantages-
1. You will have provided the Seller with the Purchase monies and you have no benefit to show for it.
2. Unlikely, but what if you complete, and the Seller hasn't exchanged on his Purchase, and then he decides not to go ahead with the new build purchase. Although you have a legal document in place stipulating he has only a Licence to remain in the property, evicting an occupier would entail Court proceedings .
Hence, I certainly would advise that you go for option 1.
Unless your Seller is prepared to vacate his property before his new build is ready, these are the only 2 options open to you.
I hope this assists, but please let me know if you require any further clarification.