So, you are thinking of buying a property \u2018off-the-plan\u2019.<\/p>\n
It could be that you are looking at buying a duplex, townhouse or unit where the building is yet to be constructed (or is under construction).<\/p>\n
It may be that a large block of land is yet to be subdivided into smaller blocks, including the block you are looking at buying.<\/p>\n
In either instance, the title to the lot being purchased will not have been created at the time you enter into the contract.<\/p>\n
In other words, buying \u2018off-the-plan\u2019 means the lot (or property) you intend to buy simply does not exist at the time you enter into a contract.\u00a0 You will not actually be able to see the final result until after you have already contracted to buy the property.<\/p>\n
This is what makes the purchase different from buying an existing lot (or established property).<\/p>\n
<\/p>\n
The standard REIQ or ADL contracts, which are used every day by selling agents for the sale of established properties, are generally not suitable for the sale of an \u2018off-the-plan\u2019 lot.<\/p>\n
Instead, \u2018off-the-plan\u2019 contract documents are prepared by the seller\u2019s solicitors which are specifically tailored for the project you are buying into.\u00a0 These documents comprise a contract and a disclosure statement which are much more detailed than the standard REIQ or ADL contracts.<\/p>\n
An \u2018off-the-plan\u2019 contract will be binding once you and the seller both sign.\u00a0 Therefore, the only way to limit the risks with buying \u2018off-the-plan\u2019 would be to request changes to the contract prior to you signing.<\/p>\n
However, the seller will more than likely be reluctant to agree.\u00a0 This is because the seller wants to keep intact their standard \u2018off-the-plan\u2019 contract to be able to maintain a consistent approach with all buyers and to preserve the seller\u2019s flexibility to deal with issues should they arise during the course of the project.<\/p>\n
Unlike the standard REIQ or ADL contracts, it is usual for an \u2018off-the-plan\u2019 contract not to include a finance condition.<\/p>\n
This is because lenders generally only provide a 90 day finance approval.\u00a0 This works well with the purchase of an existing property but, \u2018off-the-plan\u2019 properties take longer considering the project timeline.\u00a0 Even then, it is usual for any finance approval to still be conditional on registration of the survey plan and a title being created for the lot being purchased.<\/p>\n
Where a building is concerned, it is usual for finance approval to also be conditional on completion of construction and the issue of a final building certificate (certificate of classification) so a final valuation can be done before formal finance approval is given.<\/p>\n
The risk for the seller in having an \u2018off-the-plan\u2019 contract subject to finance, is that the contract may be terminated by a buyer because they simply cannot obtain formal finance approval, or the buyer may seek an extension of the finance condition right up until notice of registration is given (which may or may not be granted by the seller).<\/p>\n
The reason for the seller requiring an \u2018unconditional\u2019 \u2018off-the-plan\u2019 contract as opposed to a \u2018conditional\u2019 \u2018off-the-plan\u2019 contract is for project (construction) funding purposes.\u00a0 Those contracts form the necessary security a lender requires prior to providing funding to the seller.<\/p>\n
If you do decide to enter into an unconditional \u2018off-the-plan\u2019 contract, or you satisfy any contract finance condition, then you need to be confident that your financial position will not change between the time you sign the contract and settlement taking place.<\/p>\n
You should also take into account the possibility of any interest rate rises during that time.<\/p>\n
The seller is obliged to make certain disclosures to you about the project prior to you entering into an \u2018off-the-plan\u2019 contract.\u00a0 This is because you cannot actually see or inspect the property as it does not exist.<\/p>\n
The seller must provide you with a disclosure plan and a disclosure statement clearly identifying the proposed lot you are purchasing.\u00a0 The disclosure statement must also state the period within which settlement is to occur.\u00a0 This applies whether you are looking at buying vacant land, a duplex, a townhouse or a unit.<\/p>\n
If the purchase involves a duplex, townhouse or a unit, then the seller must also disclose details as to the proposed body corporate.<\/p>\n
If the seller fails to give you the appropriate disclosures, then you may be entitled to terminate the contract at any time prior to settlement.<\/p>\n
Any changes made to the disclosure documents by the seller must be provided to you by way of a further statement which must be given to you at least 21 days before settlement.\u00a0 If you are materially prejudiced by any change, then you may be able to terminate the contract before settlement.<\/p>\n
As a general rule of thumb, you will be required to pay a 10% deposit under an \u2018off-the-plan\u2019 contract.\u00a0 However, a maximum deposit of 20% is able to be paid.<\/p>\n
The deposit will be payable by you at the time you sign the contract unless the seller agrees to another timeframe for you to pay.<\/p>\n
The contract will also stipulate how you are to pay the deposit but most \u2018off-the-plan\u2019 contracts provide for two ways: either a cash deposit or by a bank guarantee or deposit bond.<\/p>\n
If you pay a cash deposit, then those funds may be able to be invested pending settlement.\u00a0 The \u2018off-the-plan\u2019 contract will state whether this is allowed and if so, how the interest is to be paid.<\/p>\n
Usually, any interest is shared between the buyer and the seller, however, you may be able to reach agreement with the seller for all interest to be paid to you on settlement.<\/p>\n
The main reason you would choose a bank guarantee or deposit bond would be to allow you to leave your savings in your account to earn as much interest as possible until settlement takes place (remembering settlement could be years away).<\/p>\n
However, you would need to weigh up the cost of a bank guarantee or deposit bond -v- the interest on your savings -v- interest on any deposit investment.<\/p>\n
A drawback with an \u2018off-the-plan\u2019 purchase is that the exact settlement date is not known.<\/p>\n
An \u2018off-the-plan\u2019 contract will include a provision for the seller to give you 14 days (sometimes 21 days) written notice of when the survey plan has been registered and a title for the lot being purchased has been created.\u00a0 The difference with an existing lot is that the lot is already titled allowing for a specific settlement date in a contract.<\/p>\n
Because the lot being purchased will not exist at the time of entering into an \u2018off-the-plan\u2019 contract, then the seller is required to disclose to you the timeframe within which the project will be completed.<\/p>\n
This is known as a sunset date and is the date by which settlement must occur.\u00a0 This date will differ depending on what type of property you are purchasing.<\/p>\n
With an \u2018off-the-plan\u2019 purchase of vacant land, then settlement must occur within 18 months of the contract date.<\/p>\n
On the other hand, if you are purchasing a duplex, townhouse or unit \u2018off-the-plan\u2019 then, if the contract specifies a sunset date, then the parties can agree upon a settlement date, then the parties can agree upon a settlement date which is up to 5 \u00bd years from the contract date.<\/p>\n
Otherwise, if the contract does not have a sunset date, then settlement must occur within 3 \u00bd years from the contract date.\u00a0 If settlement has not occurred by the sunset date, then either party may request the other party to extend the sunset date (which may or may not be agreed to.).<\/p>\n
No matter what type of property is being purchased \u2018off-the-plan\u2019, if settlement has not occurred by the sunset date, then you can terminate the contract by giving written notice to the seller.\u00a0 Your deposit is then required to be refunded to you in full.<\/p>\n
It is important to note that there are no statutory rights for a seller to terminate an \u2018off-the-plan\u2019 contract if settlement has not occurred by the sunset date.\u00a0 However, it is very usual for a seller to include such termination right in an \u2018off-the-plan\u2019 contract.<\/p>\n
You need to remember that any timeframes given to you by the seller or the selling agent for settlement or completion of the project are indicative only.<\/p>\n
Most likely the selling agent will have given you glossy brochures depicting what the finished product will look like.<\/p>\n
Make sure you are aware of the risks when buying \u2018off-the-plan\u2019 as you will not be able to see the end result until sometime after you have signed the contract.<\/p>\n
Your decision to buy a property \u2018off-the-plan\u2019 will depend on your personal circumstances, your financial position and the amount of risk you are willing to take.<\/p>\n
Buying property is the single largest financial commitment you will make.\u00a0 It is important for you to have \u2018off-the-plan\u2019 contract documents reviewed by an experienced solicitor<\/a> before you sign so you understand the terms of the contract and what it all means for you.<\/p>\n There are only limited circumstances where you may be able to terminate the contract at a later stage.<\/p>\n Our experienced property and conveyancing lawyers<\/a> can assist you before you sign any \u2018off-the-plan\u2019 contract documents.<\/p>\n If you have any questions about conveyancing or buying a property off the plan,\u00a0 please do not hesitate to contact us<\/a> for more information or call us on (07) 5532 3199.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":"Contact ABKJ Lawyers<\/h3>\n