Investing In An Off-The-Plan Property? Here Are The Legal Considerations

December 8, 2020

In any property purchase, it’s important to understand and mitigate any risks. In the case of an off-the-plan purchase, however, there are unique risks associated with buying a property that isn’t yet complete. This may include the developer making alterations or not completing the project on time.

It’s important your off-the-plan contract protects you, which is why working with a good lawyer is so important. Here’s what you will need to consider from a legal standpoint when buying off-the-plan.

What are the restrictions of an off-the-plan sale contract?

An off-the-plan contract should cover all areas which protect the buyer from risk such as cooling off periods, the disclosure of key information by the developer, when the contract can be rescinded, what happens when significant alterations are made to plans, who is responsible for defects and sunset clause dates.

Will there be a cooling-off period when I can change my mind about the purchase?

There will generally be a cooling off period which affords the buyer time to change their mind. Once this period ends, the buyer is legally bound to buy the property.

In NSW, new legal protections which came into effect in December 2019, give buyers a 10 business day cooling off period which is longer than usual five business days for most properties. Buyers who change their mind will forfeit 0.25% of the purchase price. The cooling off period can be waived or shortened, but only if the buyer’s lawyer or conveyancer provides a certificate to prove the buyer understands the consequences of varying the cooling off period. This helps protect the buyer from exploitation.

Make sure the cooling off period in your contract is reasonable and in line with the legislation in your state. If the seller asks to shorten or waive it, give this serious consideration first and talk to your lawyer or conveyancer about whether this is a good idea.

Is it possible to back out of an off-the-plan sale?

Buyers should seek legal advice on the rules and regulations around rescinding an off-the-plan contract in their state as it can vary.

Generally a buyer can terminate an off-the-plan contract under certain conditions such as if they can prove the seller engaged in misleading or deceptive conduct or if the seller hasn’t provided a complete or accurate disclosure statement.

Buyers can also terminate the contract if construction isn’t completed by the sunset clause date which is the agreed completion date, usually 12-36 months from the date of contract. In many cases sellers are also able to terminate the contract if construction runs over the sunset clause date. Historically some developers have taken advantage of this loophole to cancel the contract in order to sell to a new buyer at a higher price. In NSW, this loophole has been closed whereby developers are only able to terminate the contract with approval from the buyer.

NSW also recently made it possible for buyers to rescind the contract due to any changes to ‘material particulars’ which refers to any changes which adversely affect the use of the lot. This may include changes to the draft plan, by-laws and the schedule of finishes. Buyers must act within 14 days of being notified of the changes.

What if my apartment doesn’t reflect the renders and proposed plans?

The best way to protect against your off-the-plan property not meeting your expectations is to make sure you have detailed information about the build upfront including plans, specifications and the design and brands of fixtures, before signing the contract.

If you find yourself in a position where the property varies significantly from what was disclosed upfront, you may be able to rescind the contract. Talk to your lawyer about what’s included in your contract and what the rules are in your state.

Who will notify me if plans change prior to construction?

Generally it will be the responsibility of the seller to alert the buyer to changes, but note that not all changes may require notification. Make sure you’re aware of the rules in your state.

What happens if there are any issues with the building or my apartment?

Your contract should include how defects are treated. Ideally it will be up to the developer to remedy defects prior to settlement. Your lawyer should review your contract to make sure you are protected.

Sometimes, in off-the-plan purchases, the contract for sale will include a defect liability period in which the builder will need to remedy any defects within a specified timeframe.

Depending on the circumstances, you may also be able to make a claim under Builders warranty insurance.

What about builders warranty insurance?

Builders warranty insurance is designed to protect buyers from incomplete building projects or defects should the builder die, become insolvent or if they are deregistered. In these scenarios, buyers may be able to make a claim for compensation.

Builders warranty insurance is available in every state of Australia except Tasmania, but the rules vary state by state.

What is likely to happen if the sunset clause is enacted prior to settlement?

If the sunset date is reached before completion of the build and settlement, the buyer can choose to terminate the contract. The seller may also be able to terminate the contract, with or without the buyer’s approval. It’s best to speak to your lawyer before settlement to understand what scenarios could play out and the rules in your state.

What happens if I need to sell prior to settlement?

While you won’t technically own the property until settlement, you are still able to sell the property once you’ve paid your deposit and signed the contract.

Consult with your lawyer on the terms in your contract. Some contracts may contain restrictions on re-sale prior to settlement.

Owen Hodge Lawyers
Owen Hodge Lawyers is a top tier law firm Sydney residents rely on. We commenced providing legal services to the St George and Sutherland communities in 1951. Since then our Sydney Law Firm has grown considerably, developing a reputation for quality legal services, value for money and a strong commitment.
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