Buying an apartment or house off the plan — before it has been built — can be an attractive proposition: the opportunity to secure a property at today's price with settlement deferred until construction is complete. But off-the-plan purchases carry a number of legal risks that are not present in standard conveyancing transactions. Before you sign, make sure you understand them.
What Does "Off the Plan" Mean?
An off-the-plan purchase occurs when you buy a property before it is physically built, based on plans, specifications, and a rendered image. You exchange contracts and pay a deposit, then wait — sometimes years — for construction to complete before settlement occurs.
Key Risks in Off-the-Plan Purchases
1. The Finished Product May Differ from Expectations
Developers are generally permitted to make minor variations to the plans, specifications, and finishes without buyer consent. What you saw in the display suite or on the plans may differ from what is delivered. It is critical that the contract clearly defines what variations are and are not permitted.
2. Sunset Clauses
A sunset clause allows either party to rescind the contract if the development is not completed by a specified date. In some cases, developers have used sunset clauses to terminate contracts and resell at a higher price in a rising market. NSW law has introduced reforms to restrict the use of sunset clauses by vendors, but they remain a risk that buyers should be aware of and obtain legal advice on.
3. Valuation Risk
You agree on a purchase price today, but settlement may be two or three years away. If property values fall during that period, your lender may value the property below the contract price at settlement — meaning you may need to fund the shortfall from your own funds or risk losing your deposit.
4. Developer Insolvency
If the developer becomes insolvent before the project is completed, the project may be abandoned. The protections available to buyers in this situation depend on how the deposit was held and the specific circumstances.
5. Stamp Duty Timing
For off-the-plan purchases, stamp duty (transfer duty) is generally not payable until settlement, rather than at exchange. This is a benefit — but it is important to plan for the duty payable on the settlement value.
6. Changes to Body Corporate Levies
Strata levies quoted in the contract are based on the developer's estimate and may increase significantly once the owners corporation is established and the building is actually running.
What Protections Do Buyers Have?
NSW law provides some protections for off-the-plan buyers, including:
- A 10 business day cooling-off period (longer than standard residential purchases)
- Restrictions on vendor use of sunset clauses
- Disclosure requirements about the proposed development
- Requirements to hold the deposit in trust
What Should I Look for in the Contract?
Off-the-plan contracts are complex documents, often running to hundreds of pages. Key areas to scrutinise include permitted variations, the sunset date and sunset clause provisions, finishes and specifications, car parking and storage cage allocation, the developer's disclosure obligations, and defect liability provisions.
Our Experience
We have extensive experience in off-the-plan conveyancing, including managing the conveyancing for a 200-unit residential development from plan approval through to the settlement of every individual lot. We know what to look for and how to protect buyers. Call us on (02) 9633 3122 before you sign.
Need legal advice? James Papas Solicitors offers free first consultations for all Conveyancing & Property Law matters. Our offices are in Parramatta and we serve all of Western Sydney. Learn more about our Conveyancing & Property Law services → or contact us today.