When you buy off the plan, you’re purchasing a property based on a subdivision plan that hasn’t been registered. Essentially, you’re buying a property that doesn’t exist yet—it’s just a ‘plan.’ The property can be vacant land, a unit, apartment or townhouse that has not yet been built or completed. It is based on the plans and specifications of the property provided by the developer.
In Victoria, the Sale of Land Act 1962 requires a contract for the sale of a property off the plan to contain a warning notice to the purchaser setting out the following:
- The seller and buyer can negotiate on the deposit amount to be paid but the deposit payable cannot exceed 10% of the purchase price.
- A substantial period may pass between the date of the contract and when the purchaser becomes owner of the property; and
- The value of the lot may change between the date of the contract and when the purchaser becomes owner of the property.
The contract must also say that the deposit must be paid to the solicitor or conveyancer or licenced real estate agent for the vendor to be held on trust for the purchaser until the plan of subdivision is registered on title.
Why would you buy a property off the plan?
Many people buy property off the plan because of the benefits that it can provide, including:
- Lower land transfer duty: In Victoria, for the period from 21 October 2024 to 20 October 2025 (this is subject to change by the State Government), buyers may be eligible for exemptions or concessions on duty. The amount of duty depends on how advanced the construction is and the dutiable value at the time the contract is signed. Essentially, the less completed the building is, the lower the duty.
- Customisation: buyers often have the opportunity to personalise their property by choosing finishes, fittings, and fixtures. This means you can tailor the property to your tastes, although this often comes at an additional cost.
- No immediate repairs: new properties typically don’t require repairs or maintenance for some time. This can be a relief for buyers who want to avoid the hassle and expense of fixing up an older home.
- Potential value increase: property values can increase between the date the buyer signs the contract and the date of settlement. While there’s no guarantee, this can mean significant financial gains if the market conditions are favourable.
Are there disadvantages buying a property off the plan?
Although there are advantages to buying property off the plan, there are there are also considerable risks, including:
- Uncertain completion date: there’s no set date for completion and therefore for the settlement date. Construction can take longer than expected due to unforeseen delays in obtaining planning or building permits. This can be particularly frustrating for buyers who have sold their existing property and are waiting to move into their new home.
- No physical inspection: buyers can’t inspect the actual property they are purchasing and must rely on advertising material, building plans, and specifications from the developer. It’s important not to rely solely on advertising material or representations made by the developer or its selling agent.
- Changes to plans: developers might need to make changes to the plans or specifications due to unforeseen circumstances like changes in building regulations or design alterations. Buyers might not be happy with these changes, and there may be limited recourse to challenge them.
- Quality differences: there can be differences between what a buyer expects to receive and the actual quality of the property when it’s finished. Researching the reputation and past developments of the developer and builder is crucial to understand the build quality you can expect.
- Size discrepancies: there can be differences in how the developer and the buyer’s lender measure the property. This means the property can be smaller than expected, leading to the lender not agreeing to provide finance or providing finance for a lesser amount.
- Value drop: property values can drop between the date the buyer signs the contract and the date of settlement. If this happens, the buyer may not be able to borrow the amount needed to settle the property.
- Subdivision changes: the plan of subdivision may be changed after a buyer signs the contract of sale, resulting in material changes that can affect the property. Some changes may entitle the buyer to end the contract, but not all.
- Unknown fees: if an owner’s corporation is created upon registration of the plan of subdivision, the fees may not always be known. Buyers might have to pay higher than expected fees.
Contracts for buying off the plan are often lengthy and contain complex conditions. It’s important for buyers to fully understand their rights and obligations under the contract, as well as the rights and obligations of the developer and builder.
Can a purchaser end an off the plan contract?
It’s not uncommon for buyers to become unhappy about the progress of a development or to find that the finished product is not what was promised or expected. In some limited circumstances, buyers can end the contract and obtain a refund of the deposit paid.
The Sale of Land Act 1962 sets out some circumstances in which a buyer may be entitled to end an off the plan contract:
- Material changes: if there’s a change to the plan of subdivision that materially affects the lot being purchased, the buyer can rescind the contract. The developer must notify the buyer of any amendments within 14 days. The buyer then has 14 days to act if they wish to end the contract. Recent cases have clarified what types of changes are considered “material,” such as a decrease in property size, changes to lot liability and entitlement, removal of car park lots, and creation of council reserves.
- Sunset clause: if the plan of subdivision is not registered or an occupancy permit is not granted before the ‘sunset date’ set out in the contract, or within 18 months from the date of the contract if no date is stipulated, the buyer may end the contract.
The Act also limits the ability of vendors to end an off the plan contract. A vendor can end a contract under a sunset clause if they give the buyer 28 days written notice and the buyer consents. If the buyer does not consent, the vendor can seek an order from the Supreme Court to end the contract. The Court must consider several factors and be satisfied that it’s just and equitable to allow the vendor to end the contract. However, it is important to know that a vendor may have other rights to end the contract which do not require the buyer’s consent or a Court order.
How can Novum Law Group assist you?
At Novum Law Group, we leverage our extensive experience in off the plan sales and purchases to guide both purchasers and developers through the complexities of buying off the plan. Our deep understanding of the process allows us to provide tailored advice and support, ensuring you make informed decisions every step of the way.
If you have any questions or wish to discuss your off-the-plan property matter, our Property Law Team would be glad to assist you. Please call us on 9063 0300 or send us an email to discuss with one of our lawyers, or click here to make an appointment.
Authors
Renee Legg
Sheredyn Legg
The information provided in this article is for general informational purposes only and is not intended to serve as legal advice. For specific legal concerns, please speak directly with one of our qualified lawyers.
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