Off the Plan

When a property is advertised for sale before it has been constructed, this is known as “buying off the plan”. This situation is most common for units and apartments, where the developer often does not commence building until a certain percentage of the building is pre-sold.

When buyers choose to buy off the plan, they are often hoping to benefit from rising property prices. In an ideal scenario, the price that the buyer agrees with the developer will be less than the property is worth when it is complete. The buyer is therefore able to settle on the purchase with an instant increase in equity. In addition, because the property is constructed after the contract is signed, the developer may be willing to customise the property to the preferences of the buyer.

Challenges

Unfortunately, this ideal scenario does not always work out. There are numerous pitfalls that a buyer should be wary of when buying off the plan.

Sunset Clause

A property that is bought off the plan may not be constructed on time (or at all). A developer may struggle to sell enough of the properties in a development, they may not be able to secure all necessary approvals, or it may not be financially viable to complete the project for any number of reasons. Most off the plan contracts will include what is called a “sunset clause”, which allows the buyer to withdraw from the contract if the property is not constructed in a timely fashion.

At one time, unscrupulous developers in rising markets would use the sunset clause to end existing contracts so that they could resell the property for a higher price. A developer now needs a buyer’s consent before they end a contract using a sunset clause (or they need to apply to the NSW Supreme Court to justify the termination).

Variations

When buying off the plan, a buyer cannot view the property that they agree to buy. There is often a great deal of leeway in an off the plan contract for the developer to make changes. These can range from the minor (such as slight changes to the property façade), to major changes that impact on the value and amenities of the property (such as deciding not to build promised facilities or blocking views from the property).

Falling Values

Along with the potential that the end product may differ from the buyer’s expectations, it is possible that when the property is complete the market may have fallen. When this happens, the buyer not only does not have instant equity, they may even have difficulty with their finance because the property is no longer worth the price that the buyer agreed to pay.

Protections for Purchasers

In New South Wales, vendors who sell a property off the plan must provide a disclosure statement that outlines key information, like sunset dates and other conditional events, and provide draft documents like a plan, proposed schedule of finishes, and draft by-laws.

Vendors must now notify purchasers when something they disclosed is no longer accurate in a way that could adversely affect the use or enjoyment of the lot. In some cases, where purchasers are materially prejudiced by a change to a material particular, they can pull out of the contract and get their deposit back. As an alternative, they may choose to settle the purchase but claim compensation for the change.

Cooling off period

Off the plan buyers have a 10-business day cooling off period. Purchasers can decide to pull out of the contract during the cooling off period, though they forfeit 0.25% of the purchase price.

The cooling off period can be waived or shortened, but only if the purchaser’s conveyancer provides a certificate required by legislation and explains the contract and the consequences of varying the cooling off period.

If you propose buying a property off the plan, there is a lot to consider before signing a binding contract. We are property specialists and will provide you with focused, quality advice for your off the plan purchase. We can go through the contract with you to help you understand your rights and obligations so you can make an informed decision. If you do proceed with your purchase, we will liaise with you and the relevant parties involved to keep you up to date with the progress of your transaction.

If you need any assistance, contact [email protected] or call 02 9481 7000 for expert conveyancing and property services.