5 top tips for buying off the plan

5 top tips for buying off the plan 27 July 2022
buying off the plan

If you have always dreamt of building your own home or moving into a brand new property, you are no doubt looking into buying directly from a builder or developer and having to buy ‘off the plan’. Whilst there are many pro’s to this type of transaction, there are also a number of risks that a purchaser should consider.

What does ‘buying off the plan’ mean? 

When you’re purchasing off the plan, you’re buying either a block of land, or a brand new house/apartment which is yet to be registered with land titles (NSW LRS) as a Lot within a Strata Plan or Deposited Plan.

Even though the specific block/unit you are buying is yet to register, you can still enter into and exchange legally binding contracts. Settlement takes place once certain conditions are met, including the registration of the property with NSW LRS and, if applicable, the issue of an occupation certificate.

When you are buying a unit or house and land package, that property is either yet to be constructed or is mid-build. As a purchaser, the end product you are buying is based on the plans and designs shown to you by the vendor. This carries some risk, and is worth thinking through before entering into a buy off the plan contract.

1. Double check your inclusions

Your contract will include a list of inclusions, or a schedule of finishes, which details what is actually being included in the sale. This should cover everything that comes with your new build: tapware, paint colour, appliances, air conditioning units, tiles, carpets etc.

It’s important that you go through this carefully with your lawyer to make sure that what you end up with is the same as what you have agreed. Quite frequently, marketing brochures or the display suite may be different to what is actually provided for in the contract and ultimately the finished product.

If you have agreed to any variations to the standard inclusions, it’s important this is documented in your special conditions, otherwise there is no guarantee that the builder will ensure it’s included.

Many contracts enable the builder to replace listed inclusions with other items of an equal or better value. This is to cover the builder if products are not available at the time of installation.

buying off the plan

2. Delays can happen

Even when you are buying a block of land, the developer either has or has done a fair amount of work in preparing the property for registration. This might be building infrastructure or undertaking remediation works.

The estimate settlement date can therefore be subjected to delay. This is particularly relevant at the moment as builders grapple with interruptions to supply chains, making building materials hard to come by. Even issues such as bad weather can cause delays to a build. 

The lag between exchange and settlement is frequently months or years. Contracts therefore have a Sunset Clause built into them. This provides for a fixed date, called the Sunset Date, by which time registration/settlement must occur.

If registration has not occurred by this date, the purchaser can rescind and obtain their deposit. A vendor can also rescind but only in limited circumstances. Quite frequently contracts have an extension period added to the Sunset Date which accommodates unforeseen delays. As a purchaser, if you do not want to rescind, the vendor will be willing to work with you to extend the Sunset Date. 

3. Have you planned for market fluctuations? 

Generally, the value of the property at settlement is greater than the value at exchange ie. the purchase price. This is due to the real estate market making gains between exchange and settlement. What happens though if you have exchanged contracts at the peak of a falling market? Unfortunately, your contract price is the money you are expected to pay on settlement. You are legally obliged to pay this amount, unless there is another reason you may be able to rescind. This is particularly important to consider if you are relying on a mortgage to fund the transaction. 

buying off the plan

4. Be mindful that the developer can make changes to the final product

To accommodate issues that may arise during construction and to optimise the developer’s flexibility, contracts invariably include clauses which enable the developer to make changes between the draft plan and final plan. This means that the product you think you’re buying when you exchange contracts may look different at settlement. 

These changes can include:

  • The schedule of finishes. 
  • The dimensions and total area of the property/Lot. These can normally only vary by a threshold amount which is classically 5%. 
  • The location of the property. 
  • The address of the property. 
  • The creation or location of easements and covenants. 
  • Changes to by laws and neighbourhood scheme. 

Frequently, there is little a purchaser can do about the changes with the contract limiting claims for compensation or the purchaser’s capacity to withdraw.

5. Investigate other building work the developer has done 

If your off the plan purchase is for a new home or unit, you may want to investigate what other projects the builder/developer has been involved in in the past and how they turned out. You cannot physically inspect an off the plan purchase and there is always the risk that the final product may be of poor quality.

Contracts will include defects clauses, but these sometimes require a purchaser to complete for the issues to be rectified post settlement. This can leave a very bitter taste in the mouth of a purchaser, particularly if they have waited a long time for a dream investment to come to fruition. It’s important to make sure that the contract details how defects will be dealt with and in what timeframe. 

If you are looking to buy off the plan, Contact Us on (02) 4943 3988 to speak with one of our experienced property lawyers. We have years of experience helping people with their conveyancing needs throughout the Newcastle, Lake Macquarie and Hunter region. 

This blog was written by Senior Associate,
 Liz McIntyre
Liz practises in the areas of Family Law, Wills & Estate Planning,
Deceased Estates, Wills disputes and Conveyancing

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