Buying off the plan can be a great course of action. You can select a property you want, and it will be made brand new. If the property is to be used as a primary place of residence, you have a 12-month extension to pay stamp duty (i.e. 15 months in total), provided completion does not occur before then. And, ideally, there will be an uplift in price by the time you have to settle (although many banks refuse to take that uplift into account when assessing their loan applications).

Buying off the plan does, however, carry risk. The following is a discussion of some of the important risks we see in practice.

  • Buying off the plan – what does that mean?

When you buy ‘off the plan’, it means the land you are buying has not yet been created into a registered “Lot”, either in a Strata Plan or a Deposited Plan.

For example, if you are buying an off the plan apartment, the registered Lot in the Strata Plan will not actually be created until construction of the apartment and building is complete.  

There may be some changes to the shape and size of the apartment which alter the layout on the plans contained in the contract (the Draft Plan) and the registered plan (Final Plan).

Only once the construction is finished can a surveyor draw up and register the final plan.

  1. Risk 1: changes in size between the Draft Plan and Final Plan

Invariably, a contract for an off the plan purchase will allow the Vendor to reduce the size of the Strata Plan by up to 5% in size (some contracts have slightly different provisions) without the Purchaser having any claim whatsoever.

In other words, the Vendor can reduce the size by up to 5% and you cannot claim compensation, or terminate or rescind the contract. 

If the reduction in size is more than 5%, the contract will ordinarily limit your remedy to that of being able to “rescind” the contract. That is, you can ‘unwind’ the contract and ask for your deposit back, but you cannot sue for damages.

In practice, it is rare for a property to be reduced in size by anything close to 5%. It is rarer still for the 5% threshold to be exceeded. But it does of course happen.

What is more common is that the property may be reduced in size by a small amount (such as one square meter) as insufficient allowances were made in the Draft Plan, for pipework/services for example which take up additional space when built.

Conversely, a property may actually increase in size, and ordinarily you do not need to pay more for that.

  • Risk 2: Delays and Sunset Dates

Even in an off the plan purchase for a vacant parcel of land in a subdivision, the time it will take to complete any required infrastructure (such as roads) and register the Final Plan can only be estimated and can be subject to delay. The completion date cannot be fixed to a specific date.

Accordingly, the Completion Date of the contract will be variable, and will be triggered by the registration of the Final Plan (and the provision of the Occupation Certificate unless the purchase is of vacant land only).

The contract will have a capped date, called a Sunset Date, by which the registration of the Lot must have taken place.

If the registration does not occur by the Sunset Date, the Purchaser can rescind (no other remedy is available) and obtain a refund, whereas the Vendor can only rescind with approval from the Supreme Court: s66ZL of the Conveyancing Act 1919.

Most contracts will have an extension provision to the Sunset Date for unforeseen delays, and some contracts do not have a cap on this extension provision.

  • Risk 3: Drop in price

While there can be, and often is, an uplift in price, there can be a crash in the market and you are still contractually obliged to settle at the agreed contract price.

Purchasers will often ask how they can get out of an off the plan purchase in such circumstances, but the contract is binding and another ground is required in order for the buyer to be able to rescind the contract.

  • Risk 4: Inclusions not being what you imagined

Most contracts will allow the builder to replace listed inclusions (chattels, appliances, features etc included in the sale) with other inclusions of equal or better quality. This is understandable, as the product initially listed may, for example, be discontinued by the time it comes to install the inclusion.

But what can upset buyers is when they imagined the final inclusions would be different; usually because they had a different impression from marketing brochures or the display suite.

It is important to discuss with your lawyer what is actually intended to be included in the sale, so that the list of inclusions (or the ‘schedule of finishes’) is as detailed and accurate as possible.

  • Risk 5: Structural Quality

Finally, an off the plan purchase has the disadvantage of not being available for inspection. Therefore, a risk arises with any off the plan purchase that the final product might be of poor structural quality.

A practical solution is to investigate other buildings which the developer and/or the builder have been involved in in the past.

Having regard to the above risks, purchasing off the plan still carries its benefits and can be a great investment.

For expert property law advice, contact Maclarens Lawyers on 96823777.

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