What should I be mindful of before buying a property Off-the-Plan?

Property Law: 12 February 2024

Author: Lauren Woolley & Ralph Davies - Our People

An off-the-plan purchase may have its benefits, but equally, there are inherent risks.

Broadly speaking, an off-the plan contract means you are buying a property where the plans have yet to be formally approved by the relevant council. The land associated with the purchase is often vacant or minimal work has been undertaken. Off-the-plan contracts are commonly used when purchasing an apartment (or similar) from a developer, or for house & land packages.

Purchasing an off-the-plan property may be a more attractive option than purchasing an established property, as these properties are brand new, you may be eligible for stamp duty concessions or exemptions and the property may increase in value once the build has been completed. However, purchasing a property off the plan has inherent risk.

Some of the inherent risks of purchasing an off-the-plan property include:

• Ordinarily, there is no definitive date for settlement, making it difficult to plan for things to come. Some off-the plan-contracts can take several years to complete, and in some cases, the vendor may terminate the contract for various reasons prior to completion (e.g., the vendor didn’t meet pre-sale targets, the conditions imposed by council, the title’s office, etc, were not to the vendors liking, etc). Where the vendor terminates the contract, many months or years may have passed, and in some cases, finding an equivalent property may cost significantly more.
• The uncertainty with respect to the settlement date is also problematic for those requiring finance for the purchase. The pre-approval obtained on signing the contract may need to be revisited closer to settlement where your circumstances may have changed.
• Most off-the-plan contracts are drafted to substantially favour the vendor and are often over 150 pages in length. Trying to decipher through a carefully constructed contract has its unique challenges, particularly when you are not familiar with this type of contract or relevant laws. For example, ordinarily, the vendor may make changes to the building plans, specifications, etc without the ability to object or terminate the contract. You might be stuck with something that doesn’t reflect what you signed up for.
• For multi-story developments (and in other circumstances), you may not be entitled to domestic building insurance (also known as builder’s warranty insurance).
• The amount payable at settlement is often only known a few days before settlement, as some vendors may include various additional fees or charges (e.g., connection fees, both the cost to install and any fees/levies imposed by an authority). These “hidden” charges often appear scattered throughout the contract.

The above list is not exhaustive and could fill many pages. At Aitken Partners, we would be happy to review and advise on the off-the plan-contract (preferably before you sign). Please get in touch and let us guide you through the process.