‘Off the plan’ is the term used to describe the purchase of land that may not yet exist as separate blocks and may not yet be built. In principle, it’s a great opportunity that offers many advantages over buying an existing property. However, if not done right, there can be hidden costs and hassles.
A great analogy for understanding the risks of buying off the plan is hiring an artist to paint your portrait. Will the painting turn out as you expected? Will it be painted using the materials you agreed upon? Will it be ready by the time you agreed upon? Will the artist even show up at all?
To reduce the legal risks associated with buying off the plan, ask us to read over your contract before you sign. Here are the most important traps to watch out for:
Unpredictability of the settlement date
Settlement may not take place on the date suggested by the agent/developer. This date is only aspirational as settlement can only occur after the plan of subdivision is registered and the building complete. In practice, this can mean waiting a lot longer than the stated settlement date.
Once the subdivision is registered, most contracts will allow 14 days for settlement so your lawyer needs to be able to move quickly!
Vendor’s ability to cancel vs. your ability to cancel
Given the uncertain nature of many developments, many off the plan sale contracts contain conditions allowing the vendors to cancel the contract if certain specified circumstances eventuate (for example, if the development is refused or if the proposed subdivision cannot be registered quickly enough).
As for your right to cancel, either party can end the contract if the plan of subdivision is not registered in the specified time period. However, there is no way to cancel before this time has elapsed, even if you were led to believe your dream home would be ready by a certain date.
Most contracts for off the plan purchases contain a condition that prevents you from ending the contract on the basis of minor adjustments to the dimensions of your lot. This does often occur, for example where a council demands a certain amount of land be earmarked for public space and all the lots are adjusted to account for this.
Finishes, fixtures and handiwork
These kinds of things often change as the development progresses due to fluctuating market demands and availabilities. Unfortunately, many contracts for off the plan purchases contain a special condition that prevents you from ending the contract because of such changes.
As for the workmanship of the property, there is usually a specified “maintenance period” during which the developer will agree to take care of small repairs. However, it is important to be wary that what constitutes a repair can be a subjective issue. A developer may refuse to rectify a fault if they can argue it was properly constructed at the beginning and there is space in the contract for them to do so.
Stamp duty savings
One of the main benefits of buying off the plan is the potential for stamp duty savings. However, be skeptical of estimates provided by real estate agents. The ultimate stamp duty will be determined by the Land & Building Packages statutory declaration, which is only given to you at settlement.
All in all, the contracts for off-the-plan matters are complex documents. A lawyer can help you write and interpret them so you are fully aware of your rights and the risks when buying off the plan.