Off the plan Purchase : An Overview

Off the plan: an Overview 

Off the plan is a popular way of buying a residential or investment property or land before the completion of the construction or the registration. You may involve of buying it at the planning stage or nearly completion of the project. Developer/builder may offer the display sample of the project with a draft plan but not built yet and not registered.  Off the plan purchase include townhouse, unit apartment, vacant land, House and land Package, duplex and apartment. 

Off the plan purchase attract buyers for various reasons mainly it may offer a potential financial gain, tax benefit, government incentive and personalized touches in inclusion and design at the completion. However, buying off the plan is not a risk-free purchase. it requires careful consideration in every stage from signing to completion of the property to ensure a smooth settlement and successful transaction of the property. 

So before signing an off the plan contract, it is very important to evaluate the risk and benefits associated with such transaction to avoid the financial distress in future. 

Understanding the risk elements off the plan Contract 

Finance: 

As mentioned, when you signed off the plan, you are not required to get full approval from your financier and your financier may provide you only a pre-approval, but you are required to provide a formal or final loan approvals at the time of settlement which may take several months to years from the exchange of contract. There would be a significant change occurred during the period of exchange to settlement that your lender may change the policy and you are no longer qualified for the loan required for settlement because of the changes in your personal/ financial circumstances or drop in market value of the property. you are still obliged to settle the property otherwise you may lose your deposit paid to the vendor/ developer and may apply significant penalty of not completing the purchase, depending on a terms and condition of the contract. So, it is always worthful to consider the potential risk involve and review your contract before signing it when you are buying off the plan project. 

Reputation of Builder and Developer of the property:  

observing the reputation of the builder is a key to successfully navigating the buying process and being satisfied with the final purchase. understanding the builder’s history and track records of work performances will help purchaser to understand that if the chosen builders have a strength to supply the quality that purchaser is looking for in their new home. So, it is recommended to visit the display villages/unit/suites and talk to your builder/developer to inquire about the quality and standard of workmanship you except from the developer before signing a contract. 

Construction and Possible Delay:

Off the plan project may be delayed due to various reasons including council and finance approval lodged by builder/developer. In some cases, project may be delayed for a several months and years and living the buyers in uncertainty of completion of project and extra financial burden to the purchaser which may affects the future plan and changed circumstances may not help to complete settlement of the purchase.  So, it is good to check the possible delay, if any, to avoid the unfavored financial consequences and future plan because of delay in a completion of the Off-the-plan project. 

Display of the property:

When you are visiting the display house or inquire with developer/builder, it is recommended to check the quality of the fittings, finishes and fixtures in the property. you may check the display home to get feel of what the completed properties will looks like by examining the sample items displayed by the vendor/developer. You may check out the floor plan of the whole complex to check what facilities are available in the in the property if there is any gum, playgrounds for kids or swimming pool and spa are available at the property. 

Due Diligence: 

To ensure the transparency throughout the process and successful completion and avoid the potential risk, it is highly recommended to conduct the due diligence before signing off-the -plan contract. Purchasers are required to do the following consideration while applying their due diligence in their purchase are 

a) reviewing of the whole contract of sale of land and obtain a professional advice from the conveyancer/solicitors who specialize in the off-the -plan transaction.

b) scrutinize the whole contract to understand its terms and conditions and any potential pitfalls in the contract related to payment schedules, variation provision, sunset clauses and dispute resolution mechanisms, disclosure documents and etc.

c) it is necessary to seek clarification on any ambiguous terms or legal jargon included in the contract to avoid misunderstanding and avoid possible disputes with builders in future. 

d) Buyer needs to apply their due diligence on the developer’s reliability before signing a contract that purchaser may lose their deposit if the developer goes into liquidation during construction which is biggest risk of signing a off the plan contract. 

e) Track Records of the Builders/ developers: Purchaser should inquire and research on the track records previous work of the builder and developer, while applying due diligence on their purchase by checking the evidence of the past project, contacting people who previously bought an off the plan project from the same builder, check the media reports and news about the quality and workmanship of the developer. 

f) Purchaser are required to visit the site of the property and check out its neighbourhood area to confirm that whether there are any development projects are erecting in the neighbourhood area which may affect the view and quality of lifestyle. if you are buying investment property, location also may affect price. So, it is recommended to inspect the neighbourhood area and inquire the local council before signing an Off the plan contract. 

Sun Set Date Clause: 

When you are buying off-the-plan the property, Contract of Sale include the “sunset date” the date by which the developer must complete the project but sometimes this clause may allow the builder/developer to extension of such date, if necessary. For example, unavailability of building materials, caused delayed to get approval from council, inclement weather and many other unforeseen causes that encumber the construction process on time So, purchaser should carefully evaluate the sun set clause in off the plan contract to ensure that it aligns with their expectations and timelines. Extension of sunset clause may impact the future plan of the purchaser or impact financially. so, it is recommended to understand the implication of sunset clause in the contract, its extension and negotiate the favourable terms to protect buyers’ interest where possible in the sun set clause. If the developer cannot complete the contract by sun set date, purchaser may be able to rescind the contract and refund the deposit. Some developer may specify the cancellation deadline by which purchaser must rescind the contract but if you don’t rescind the contract within given deadline, it is considered that you may waive the right to rescind the contract and required to settle the property without refunding the deposit paid at the time of exchange of contract. So, it is recommended to review sunset clause before signing it by experienced conveyancer/solicitor. 

Review and Amendment of Terms and Condition including Special Conditions in the Contract of sale of Land 

It is very common that off the plan contract are quite long, large in a file and complexity in the matter. So, it is required to reviewed by experienced conveyancer/solicitor before signing off the plan contract. It may require amending the terms and conditions in the contract to protect the buyer’s interest and avoid possible risk to the purchaser during the time of settlement. The following list of questions may be asked to the vendors or/and  their representatives to make sure that everything  is in order and answer any question purchaser may have on their purchase. 

a) Will the deposit be refunded if the development is cancelled?

b) What types of defects are covered by the builder?

c) Can the property be sold to another party before it is completed?

d) Is the builder allowed to substitute fittings and finishes?

e) Will the developer fix defects have identified after the settlement?

f) Can I sell the off the plan property before completion?

g) What will happen if I cannot get finance approval?

Settlement and Transfer of the property 

As settlement date approaches, vendor and purchaser required to prepared for the settlement and register of the property in buyers name at settlement date to finalise the off the plan purchase journey.

Before finalising the settlement, purchaser should conduct the final inspection of the property to identify any defects, discrepancies or unfinished works that may require to rectify from the developer before settlement. This may include using independent building inspector or surveyor or special consultant to assess the condition of the property to ensure that all the agreed terms and conditions are meet in the contract and quality of built and standard of fitting and fixture are as per the displayed materials. When condition of the property is meet, buyer can proceed the settlement which involve the finalisation of the transaction, including transfer of the remaining balance, execution of the lodgement to LRS, transfer the title and legal ownership of the property to the purchaser from the developer. After settlement completed, buyer will receive the keys and other necessary equipment required to operate the property. 

Defect Rectification

developers are required to fix all the major defects identified in the final inspection of the property before the settlement date. Buyers may delay the settlement until the defects are fixed.

Some purchasers may obtain the services of an expert building inspector, who thoroughly inspects the off the plan property for any defects and provides a Post Completion Report outlining the defects with photographic evidence. The Purchaser may provide this report to the Developers for the purpose of defect rectification.

However, some issues that are considered a minor defect which are identified in the property may not the cause to rescind the contract, for example:  normal maintenance, wear and tear in the property, minor shrinkage and minor settlement cracks. 

Occupation Certificate  

The Occupation Certificate (OC) authorises the occupation and use of a new building or part of a building. For staged works, a Part OC may be issued which allows you to occupy the completed part of the building. Occupation certificate issued by authority of NSW is required at the time or before the settlement of  the Off the Plan  property . 

Post Settlement Obligations 

Buyer has ongoing obligations and responsibilities to fulfil as a property owner even after the settlement. One of the key requirements is to adhere the strata by-laws that regulate the management of the strata property within a strata scheme. By -laws cover the various aspect of the management of the strata property including maintenance responsibilities, noise restriction compliance, pet ownership, common usage areas, obey the rules relating to positive and restrictive covenants. 

It is highly recommended to the prospective buyer to familiarise with the  post settlement obligations to avoid possible conflict with other strata owners and ensure harmonious living within the strata community. 

In Conclusion: 

buying off the plan is exciting opportunity to the Frist home buyer and investor as buyer secure the property before it is built however conveyancing process required an expertise service of the experienced conveyancer/solicitor in the off the plan transaction for careful consideration and deal with the complexity of off the plan contract. 

Purchaser can navigate the conveyancing process with confidence and secure successful transaction by understanding the complexity of the off the plan Contract, applying due diligence and getting professional advice from the licensed conveyancer when needed for that. 

Please contact with team at KDL Conveyancing for careful review of your contract to  find out your rights and responsibilities before signing  off the plan Contract  . we will assist you through signing to completion of the contract settlement smoothly and hassle free . So, get in touch with us at info@kdlconveyancing.com.auor call at 0451525158