What is buying “off the plan”?
Buying “off the plan” has advantages for both the purchaser and the developer.
A purchaser can buy a property at today’s prices which may not be completed for some time. This can be a real benefit in times of rising prices.
Sales “off the plan” mean that purchasers are committed at an agreed price. This reduces the developer’s commercial risk and is re-assuring to the developer’s financiers.
The off the plan contract
There is no standard contract for purchasing off the plan. It is important to carefully review a contract for an off the plan purchase.
What are you buying?
When you buy an existing property, there is no doubt what you are buying. When you are having a building constructed, there will usually be plans and specifications describing the property in detail.
An off the plan contract rarely has a very detailed description of the property. Usually there is just a copy of the draft strata plan or perhaps a copy of preliminary plans submitted to council. The contract usually has brief descriptions of the type and standard of finishes to be used in the building. Ensure that you are satisfied with the level of detail in the contract. The developer will usually want to retain the right to alter the plans as he considers desirable or necessary.
Inclusions
Inclusions will usually be described briefly in the contract but there is likely to be a clause allowing the developer to substitute inclusions of a similar quality if the nominated products are not available.
Variations to the contract
Off the plan contracts give the developer flexibility in completing the development. They allow the purchaser to pull out of the purchase if the variation significantly affects the property to their detriment.
Time to complete
The contract will give the developer some flexibility regarding the time within which the project is to be completed. The contract usually provides that the developer must use their reasonable or best endeavours to complete the development by a particular date (generally referred to as the ‘Sunset Date’). If the developer cannot complete by the Sunset Date (including any extensions referred to in the contract) then either party may have the right to cancel the contract. In that event, the deposit is refunded to the purchaser.
Entitlements of developer over common property
Most off the plan contracts contain provisions designed to give the developer entitlements over the common property for a reasonable time after completion of the sale.
These clauses may be required because the developer wants to conduct selling activities on the common property or has to do further work on the development after settlement to comply with some statutory or contractual requirement. The Strata Schemes Management Act 2015 (NSW) prohibits the developer from voting on any matter at any meeting of the Owners Corporation as your proxy or attorney regardless of whether a contract for sale of land (or any ancillary document) asserts such a right.
Defects
The contract often includes a defects liability clause. Make sure that the developer agrees to remedy any defects which appear after completion.
Finance
There is always a delay between the date of signing the contract and the completion date. Not all lenders will be prepared to give you a formal finance approval with an open ended time frame. In addition, your financial circumstances may change between the date of contract and completion. You must be satisfied that you will be able to obtain any required finance when the time comes for completion.
Transfer duty
Normally, transfer duty must be paid within three months of the date of the contract. However, a transfer duty concession applies to off the plan purchases if the property will be your principal place of residence. In that event, that transfer duty can usually be paid 15 months after the earlier of:
- the date of the contract; or
- the completion date.
If you are purchasing the property (including vacant land) as an investment, the transfer duty must be paid with three months of the date of the contract.
Here to Help
Contact us for free no-obligation initial telephone advice and assistance if you’re considering buying an off the plan property.
