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Buyer beware when you're buying off the plans

By Carolyn Hintz

Buyer beware when you're buying off the plans

Buying off-the-plans is becoming increasingly popular as buyers see the benefit in new builds which comply with the latest healthy home regulations, attract lower mortgage rates, and which enjoy certain tax benefits (for more information see our previous article - "The updated bright-line test, what you need to know".

However, the ongoing Covid 19 pandemic is continuing to affect the construction industry, with lockdowns and restricted supply lines causing delays and uncertainty.  

Developers are trying to mitigate the potential damage caused by these uncertainties by giving themselves more flexibility.  Some recent trends we’re seeing include:

  • The absence of sunset dates, or sunset dates which can be pushed out either by a broad “delay that wasn’t my fault” clause (called a force majeure clause) or a specific Covid clause. We have seen a number of contracts recently which did not include a sunset date.
From a purchaser's perspective, this is a concern as it can mean that your deposit is tied up for an uncertain length of time while you wait for a development to be completed. It’s not unusual that a contract which does have a sunset date includes an ability for a vendor to push the sunset date out if certain events outside their control occur. What we’ve seen recently is an attempt by developers to ensure that these events are defined as broadly as possible to capture everything from level 4 lockdowns to “general changes in market conditions”.
 
  • A "cancel for any reason" clause for the vendor, enabling them to pull out of the development and return everybody’s deposit.  Again, what we are seeing recently is an attempt by developers to ensure that these clauses are drafted as broadly as possible.
     
  • An increased emphasis on substitutions and variations. Developers have always tried to ensure that they can, where necessary, substitute materials in a build if materials detailed in the plans and specifications become unavailable during the course of the build. What we are seeing recently is, again, a broadening of these clauses and increased emphasis on them to give developers more flexibility to deal with what are likely to be very real supply issues facing the construction industry over the next 12 to 24 months.
     
  • Re-valuation clauses. In some off-the-plan purchase contracts we reviewed recently, the vendor gave itself the right to revalue the property prior to settlement.  This would have meant the purchaser would be liable to settle at the new price appraised by the valuer prior to settlement, completely removing the price certainty that one would normally expect from an off-the-plan purchase.

These are just some examples of the sorts of changes that are now appearing in contracts with developers. 

Each development is different and each off-the-plan agreement for sale and purchase needs to be reviewed carefully in order to determine what sort of rights and flexibility a developer is trying to build into the agreement upfront.

Our property experts would be happy to help you navigate these agreements so you know what you’re getting into before you sign up, just email or call

Carolyn Hintz
Associate
carolyn.hintz@gibsonsheat.com
04 916 7469