Be careful when buying off-the-plan

Whilst buying an off-the-plan unit or apartment is an exciting prospect for any wanna-be property owner or investor, there are inherent risks with doing so, particularly because the property is not yet built so you do not really know exactly what you are purchasing until just before settlement – typically a year or so down the track after you first entered into the contract.  You are instead relying on the developer’s plans and any specifications set out in the Contract.

OTP

Be mindful of the following:

1. Off-the-plan contracts are drafted by the developer’s solicitor, therefore they tend to have the developer’s best interests in mind.  In particular, they will typically contain a clause allowing the developer to make changes to the property if required, such as the floor plan, the location of the garage and/or storage space, the colour of the finishes etc – if such changes will not significantly affect the property being purchased.  Sometimes, the developer can even amend the square meterage of the property by a stated percentage.  Be sure you read through and understand each of the special conditions in the contract, and understand what modifications the builder can make to your property.

2. Sometimes developers will only be able to secure finance to commence building the project once they have sold a certain number or percentage of the units by a particular date.  In these cases, the developer will ensure there is a special condition in the contract allowing them to pull out of the contract if they do not reach their target by a particular date.

3. Almost all off-the-plan contracts will contain a “sunset clause” which means that if the development is significantly delayed for whatever reason (such as problems with the actual build, or delays in registering the title document) then the purchaser has the right to pull out of the contract and receive their deposit back.

4. Depending on its location, the newly built unit may be able to offer water views, and often the agent marketing the property will make promises of water views.  But what if those water views don’t eventuate, either because of a change to the floor plan of the unit (in line with point 1 above) or the view being built out by a neighbouring property?  The recent NSW Court of Appeal case of Higgins v Statewide Developments dealt with such an issue.  Whilst the yet-to-be-built property was marketed as having 180 degree views, a newly constructed wall obstructed those promised views.  The purchaser argued that there was a difference between the property as per the contract and the property that was built, which substantially detrimentally affected the property.  Whilst the Court noted that the contract did not refer to the marketing model or the promise of water views, and that there was nothing wrong with the unit per se (apart from the absent water views), it nevertheless used its discretion and found that the developer dishonoured representations made by it that the property had water views, and this was an important consideration for the purchaser when deciding to purchase the property.  It therefore ordered the developer to return the purchaser’s deposit.

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