Buying off the plan is a popular option, particularly with first home buyers. For many, it offers more affordability and flexibility than buying an existing property. Buying off the plan also comes with uncertainty, as you are committing to a property that hasn’t been built yet. Due to market shifts, there is a risk that the finished property may be worth less than the price that it was originally purchased for. Buyer confidence has also been affected by incidents such as the evacuations of Sydney Olympic Park’s Opal Tower in December 2018 and Mascot Towers in June 2019. The discovery of the widespread use of combustible cladding continues to cause major issues for many apartment buildings.
We’ve outlined below things that you should consider before buying off the plan.
What does it mean to buy ‘off the plan’?
Buying a property ‘off the plan’ means buying a property that hasn’t been built yet. In Australia, the term is most commonly used when referring to units, villas and townhouses.
Buying off the plan has a range of advantages for purchasers. It can mean buying a property at today’s prices which may be less compared with the price of an established property.
As a deposit is paid to the developer when the contract is entered into and the balance is paid on completion of the property, this gives the buyer more time to save before settlement, while the property is being built. For contracts signed after 1 December 2019, the deposit must be retained in a trust or controlled money account for the duration of the contract. As the money can’t be released to the developer before settlement, purchasers now have greater protection if the developer becomes insolvent.
The earlier in the development stage that you buy in, the more ability you may have to customise your property in terms of floor plans, finishes and colours.
What are you buying?
The obvious distinction about buying off the plan is the inability to inspect a finished property. What you see in the plans and read in the specifications may not match exactly with the finished product.
Typically, the developer is able to make changes to the strata scheme, buildings and lot including changes to the design, location or configuration of the lots, the size of the lot by up to 5%, the fittings and finishes (as long as the new items are at least the same quality) and the unit entitlements of lots in the strata scheme.
You’re not able to cancel the contract based upon any of these changes unless the alteration materially hinders or impedes the use or amenity of your lot. For instance, you only have a right to cancel based upon these alterations if the lot size is reduced by more than 5%, the boundaries of the lot change by more than 1 metre or there is a major variation to the draft floor plan.
Time for completion
Completion of the contract will be dependent on particular conditions precedent having been satisfied. Common conditions precedent are the issue of an occupation certificate and the registration of the strata scheme.
When all of the conditions precedent have been satisfied, the developer will provide a full copy of the registered plan to the purchaser at least 21 days before settlement.
The contract will provide the developer with flexibility as to the timeframe in which the building is to be completed. The contract will usually provide that the developer must use reasonable and best efforts to complete the development by a particular date, which is referred to as the ‘sunset date’. A sunset date will be nominated in the contract, which can be extended under the terms of the contract, often by up to 12 months.
If the developer can’t complete the development within this period (including extensions) then the purchaser may have a right to cancel the contract and the deposit will be refunded to the purchaser. Under new laws, the developer will need the purchaser’s consent before they end the contract using a sunset clause, failing which they will need to apply to the Supreme Court of NSW to justify termination.
As the time for completion may only be known with 3 weeks’ notice, this can often cause practical difficulties as you may need to finalise your financing arrangements and terminate current living arrangements with little notice.
Payment of transfer duty
Normally, transfer duty (previously called stamp duty) must be paid within three months of the contract date. For off the plan purchases, the payment of transfer duty can be paid 12 months from the contract date, provided the property will be used as your main residence.
If your property finance includes an amount for the payment of transfer duty, it will be problematic if settlement doesn’t take place within 12 months of the date of the contract as the funds for the transfer duty won’t be released by your lender prior to completion. The payment of transfer duty may have to be paid significantly earlier than the completion of the property, so you’ll need to factor this into your financing arrangements. You can find out more about transfer duty for off the plan purchases here.
Off the plan contract review
When we review contracts for clients considering an off the plan purchase, these are the main questions that we ask and which you should consider carefully before signing a contract.
- What are the provisions relating to completion and termination of the contract?
- What are the purchaser’s rights if construction is delayed or the design is altered substantially?
- Is there a requirement for pre-sales? That is, do a certain number of lots need to be sold by a specified date before the development will proceed?
- What adjustments for council rates, water rates, strata expenses and land tax will be made on settlement that the purchaser is responsible for?
- Does the contract include a schedule a finishes and can changes be made to the finishes?
- What changes can the developer make to the design of the property and the individual lot?
- Who is responsible for defects and what is the process for dealing with defects?
- Can the property be on-sold by the purchaser to someone else prior to completion?
- What are the purchaser’s rights relating to inspection of the property prior to completion?
As you can see, there are many factors that need to be taken into account when purchasing an off the plan property that just don’t arise when purchasing an existing property. At SRM Lawyers, we regularly act for clients purchasing properties off the plan and can assist you with any queries or concerns that you have. Please contact us at any time for an obligation-free chat.
Address: Level 1, 102-104 Longueville Road
Website: SRM Lawyers
Phone: 02 9188 9631
Mobile – 0419 257 392
Email – [email protected]
Mobile – 0410 466 286
Email – [email protected]
Linked In: SRM Lawyers
This is advice of a general nature, this article does not constitute legal advice and is not meant to be complete or exhaustive.
This is a sponsored post. SRM Lawyers are ITC Gold Sponsors. Thank you to all our ITC Gold Sponsors who support ITC. This support enables us to to fund our website and our community work. #itcgoldsponsors.