Purchasing Off The Plan

What is an Off the Plan Purchase?

Buying a property before the plan of subdivision has been registered (or buying a lot on an unregistered plan) is known as buying off the plan. Sometimes there are building works that are required to be completed before the plan of subdivision can be registered. This means you are buying the property based only on plans, designs and marketing materials rather than an inspection of the property.

Contracts for buying Off the Plan

Section 9AA(1A) of the Sale of Land Ac 1962 states that an Off the Plan contract of sale must contain a visible warning notice to prospective purchasers as follows:

1.          The contract is subject to a 10% deposit limit which the purchaser may negotiate with the vendor about the deposit moneys payable                          under the contract;

2.          That a substantial amount of time may pass between the purchaser signing the contract and the purchaser owning the property; and

3.          The value of the property may change during the time between the purchaser signing the contract and the purchaser owning the                                  property.

The contract of sale will also contain extra special conditions that an established home purchase contract of sale will not have such as:

4.          Warranties of the works of the vendor;

5.          When the purchaser can inspect the property during the building works;

6.          When the registration of the plan of subdivision is to occur and what the vendor will do to ensure it is registered;

7.          Occupancy permits;

8.          Calculation of stamp duty based on construction;

9.          Amendments to plan, building plans or specifications;

10.       How adjustments are to be calculated;

11.       Fittings, fixtures and finishes options; and

12.       Defect rectification.

The most important special condition to look for in an Off the Plan contract is the “Sunset Date” or “Sunset Clause”. A Sunset Date is the deadline in a contract by which the vendor must complete what it needs to complete, for example register the plan of subdivision and in some cases obtain a certificate of occupancy. If you enter into an Off the Plan contract and the plan of subdivision is not registered or the building works are not completed by the time specified in the contract or the default time of 18 months, the purchaser will have the right to end the contract, and the purchaser will be entitled to their deposit back. Alternatively, if the vendor wishes to end the contract they can do so with the consent  of every purchaser or by court order.

Risks of buying off the plan

13.       Being unable to inspect the actual property before purchasing. You have to rely on an artist’s impression, floor plan and advertising                           material for information about what you are buying;

14.       Differences in the expected and actual quality of the final finishes;

15.       Unexpected changes to the plan or specifications;

16.       An uncertain completion date;

17.       Complex contracts;

18.       Property market volatility causing the value of your off the plan home at settlement to be less than the contract price; and

19.       Potential issues with obtaining finance. For example, if the value of the property decreases or the completion date changes you may have               problems getting the loan approved.

Advantages of buying off the plan

20.       Pay less transfer duty than you would for an established property; and

21.       Contract price is locked in at the time the contract is signed. This means the contract price does not change even if the property increases               or decreases in value throughout the build, if there is a build.

Tips for Off the Plan Purchasers

If you intend to buy Off the Plan it is imperative to:

22.       Seek independent legal advice before signing a contract;

23.       Understand the Sunset Date and ensure the time period is not too long;

24.       Have your legal representative review all floorplans, materials and finishes schedules, fixtures and appliances list and external and                             common area drawings;

25.       Review contracts for unfair variation rights and negotiate stronger protections;

26.       Factor in extra costs such as legal fees, stamp duty and keep an eye on any owner’s corporation or special levy fees; and

27.       Check that the builder is registered and has domestic building insurance as well as their registration and developer history.

Ensure you understand the risks associated with an off the plan purchase and know what you are signing BEFORE you sign any contracts. Once you have signed a contract you can only end the contract within the conditions set out in the contract.

If you require assistance with an off the plan purchase or require review of an off the plan contract, please contract our office on (03) 9707 1155 or via email at admin@wslegal.com.au.