Buying a property that is yet to be built or completed is often called an “off the plan” purchase. That is because the property may not yet exist and be no more than a part shown on a plan of an intended subdivision or an intended strata or unit development. Buyers should be very careful when entering into an contract to purchase a property without having first been able to view and assess the finished product.
Before signing a contract the buyer must ensure that they understand all the conditions in the contract. Careful consideration should be given to whether there are any penalties for withdrawing from the contract.
Contracts for off the plan purchases necessarily contain milestone dates for the achievement of various stages of development. Often the contracts will contain conditions for what is to happen if certain things are not achieved by a milestone date.
Milestones can be:
- approval of a Development Application,
- the gaining of other statutory approvals,
- completion of construction and
- registration of the subdivision, unit or strata plan.
Depending on the stage the project has reached, the milestones can sometimes be many months or even some years ahead.
It is important for an intending purchaser to consider the consequences if a time requirement is not met by the developer.
For example, the purchaser may or may not have the right to rescind the contract and walk away. The purchaser may be happy to do that if the market or the purchaser’s own circumstances have changed to the extent that the deal is not suitable any more. The seller may also have that right to rescind and in that case the purchaser will lose the bargain the purchaser thought he or she had. The loss of the contract would also leave the purchaser out of pocket for legal and other expenses.
A purchaser and a seller will often have different interests when delay occurs. If the market is going up the seller may be happy to have the contract be rescinded so the seller can sell it for a higher price to someone else. The considerations will be different in a falling market.
Sometimes the contract will not provide a specified “out” for either party. In that case it would usually permit the developer to extend the time limits but not allow rescission. If that is the case and the purchaser agrees to such a contract then the only way out of it after inordinate delay, would be for the purchaser to try to terminate the contract because the extension of the settlement date had become unreasonable. That course of action can be difficult.
In all cases a purchaser of an off the plan property must examine carefully and understand the milestone clauses in the contract. If the milestone clauses do not suit and changes cannot be negotiated then the purchaser must think twice before committing to the contract. It is essential to understand the timing aspects of a contract and their consequences before commitment to the contract.
For more information please contact one of our experienced property lawyers or conveyancers to make an appointment on 6206 1300, or by email on info@elringtons.com.au
