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Purchasing off the plan

An off the plan contract refers to a contract for the sale of a residential lot (the subject lot) that has not been created at the time the contract is entered into. Essentially, a purchaser is buying a house or apartment before construction has finished. New laws set to commence on 1 December 2019 aim to provide stronger protection for purchasers in response to a number of concerns arising from recent off the plan developments. Whilst the process of buying a brand new property (as is the case with off the plan) can be exciting, it is prudent for purchasers to consider a number of matters and obtain legal advice before committing to the contract.

Contract terms and safeguards for purchaser

Firstly, purchasers should mindful that they are purchasing from a developer and that contracts (often lengthy), have been tailored to benefit the developer and protect their interests. For example, the contract may contain a clause permitting the developer to terminate the contract if a certain numbers of sales are reached. The clauses are often complex and lengthy making it harder to identify unfair contract terms.

Disclosure Statements

The new laws now require a disclosure statement to be annexed to the contract. The disclosure statement must outline key information such as:

  • The proposed plan;
  • schedule of finishes;
  • any proposed easements or restrictions;
  • draft by-laws

A solicitor can explain the terms of both the contract and disclosure Statement to a purchaser. If the disclosure statement is not attached to the contract, a purchaser can rescind the contract within 14 days from exchange.

Your deposit

When signing the contract, the purchaser is required to pay the agent a deposit, usually between 5-20%. Risks arise when contracts contain a provision permitting the deposit to be released to the developer as it can be almost impossible to recover the deposit if the developer goes into liquidation (as was the case in the recent Ralan Group collapse).

Deposits to be now retained in trust

The new laws have addressed this concern by requiring all deposits to be now held in a trust account or controlled money account until settlement. Whilst this is an added protection, it is also important for the contract to contain provision giving a purchaser the right to retrieve the deposit back if the purchaser is entitled to rescind the contract (i.e construction hasn’t commenced by a certain date).

Changes to the size/layout/inclusions

In most contracts, the developer will reserve a right to vary the size, or change the layout of the property or change the quality of the inclusions. A purchaser’s solicitor can request that and plan or changes in size are capped at a reasonable percentage. (Usually: 1-3%). In respect of inclusions, most contracts permit developers to replace items with items of the same quality. If a purchaser expects a specific inclusion, this should be drafted specifically into the Contract. A solicitor can clearly explain the terms of the contract setting out the proposed inclusions and any changes the developer is entitled to make under the contract.

Material particulars

The new laws now require the developer to notify purchasers that will affect the use or enjoyment of your property such as, changes to the plan, schedule of finishes or by-laws. The new laws further allow the purchaser to rescind if they can show they would not have entered into the contract had they been aware of the change prior to signing. Alternatively, the purchaser can proceed with the contract and seek compensation up to 2% of the purchase price instead.

Registered Plan

The new laws also provide that, after receiving the registered plan, the purchaser can rescind the contract if the disclosure statement includes an inaccuracy in relation to a material particular that the purchaser:

  1. Would not have entered into the contract had the purchaser been aware of the inaccuracy, and
  2. would be materially prejudiced by the inaccuracy.

Your solicitor can advise you of your rights if you believe the Disclosure Statement includes an inaccuracy or if you receive a notify outlining any changes from the Developer.

Sunset clauses

A sunset date is a date stipulated in the contract by which if the property is not completed and a separate title hasn’t been issued, the contract may be rescinded by either party. Under the Conveyancing Act 1919, there is some protection for purchasers against developers purposely delaying the construction past the sunset date. If the sunset date occurs, and the developer wishes to rescind, the developer must provide the purchaser with 28 days written notice setting out the reason as to why the proposed construction has been delayed. To rescind the developer must then:

  • obtain written consent in writing form the purchaser; or
  • obtain a court order by proving that the rescission is reasonable.

Change to the laws now permit the court to award damages against the vendor if the permitted is permitted to rescind the contract.

Before entering into an off the plan, a purchaser should engage a solicitor to review the Contract.