The risky business of buying ‘off-the-plan’
Tuesday, August 18, 2020
It makes sense why prospective buyers are drawn to purchasing a property ‘off-the-plan’.
The possibility of having creative input into the design of your forever home, while saving money in the process, makes ‘off-the-plan’ properties particularly desirable.
This desirability is heightened by Queensland’s First Home Owner’s Grant, whereby first home owners can receive a $15,000.00 grant towards buying or building a new house or unit (where it is valued at less than $750,000.00), provided the buyer satisfies eligibility criteria.
However, purchasing ‘off-the-plan’ doesn’t come without risks.
Buying ‘off-the-plan’ means entering into a contract with a developer to purchase a property, prior to the property being constructed and the title to the lot being created.
The obvious risks of entering into this type of transaction include:
- not being able to view the final building until after you have entered the contract; and
- unexpected construction delays.
However, there are other less apparent risks:
- Buyers often cannot obtain a formal loan approval prior to entering a conditional contract to purchase a property ‘off-the-plan.’ This means you could be still bound to purchase the property, even if you can’t obtain finance.
- ‘Off-the-plan’ contracts often enable the developer to make changes to the plan or finishes in the property. Buyers typically are unable to terminate the contract even if they do not consent to the changes or the changes reduce the size, appearance or value of the property.
- Five and a half (5 ½) year sunset clauses are often features of these contracts. It is a date usually by which the developer must complete the construction works and create the title to the lot. It often leaves buyers with uncertainty around when they can take ownership of the property. However, it also enables a purchaser to terminate the contract if certain development milestones are not reached by the sunset date.
Importantly, once the buyer and developer sign the contract, it is binding.
Buyers have the right to back out of the contract on the ground of ‘material prejudice’. This right arises when there is a change to the initial disclosure about the state of the land and the change would cause significant disadvantage. However, the ‘significant disadvantage’ bar is set quite high. This right can be exercised either within 30 days of receiving notification of the change or before the property’s title is transferred to the buyer (whichever is earliest).
As with any transaction, prospective buyers should exercise caution and seek legal advice prior to entering ‘off-the-plan’ contracts.
Contact us today to discuss your conveyancing matter. Bennett Carroll Solicitors have offices located in Brisbane, Gold Coast and the Sunshine Coast.
Freecall: 1300 334 566
Fax: (07) 3343 8664