New protections when buying off the plan property
Developers will need a buyer’s consent before they end a contract using a sunset clause, otherwise the developer will need to apply to the Supreme Court to justify termination. For details, visit the NSW Land and Property (LPI) website at lpi.nsw.gov.au (see: 'Legal protections for off-the-plan purchases').
Sometimes properties are advertised for sale before they have been built. You may be able to inspect a demonstration property or show suite to get a sense of the final product.
Buying such property is known as 'buying off the plan'. This involves different risks and considerations compared with other property purchases. In some instances, the developer may be able to vary the design of the property without the buyer's approval. Sometimes buyers may need to pay more if the cost of construction varies. Construction setbacks (eg. due to poor weather or further planning approval required) may also delay completion of the property.
Potential buyers must review the contract carefully to understand exactly what they are buying. Generally, the buyer pays a deposit to secure the property with the balance payable upon settlement. The date for completing the contract is usually not until the building is finished.
Carefully check the conditions of the contract, and obtain legal advice on the terms of the contract and the benefits and restrictions they contain. Understand what you become liable for if you withdraw from the contract. Questions to consider also include:
IMPORTANT: Always read your contract and get advice from a property lawyer or licensed conveyancer.
The manner in which properties are offered for sale can vary by development. Also, the conditions attached to a contract for sale can also vary from property to property.
Generally, properties are sold either to the highest bidder (for instance, at auction) or for a fixed price. The method of sale for any particular property may change over time. So, a property not sold at auction may be withdrawn from sale, and later, offered for sale at a certain price (and vice versa).
Developers sometimes contract several real estate agencies to sell their properties. Agents may be marketing and selling properties at the same time as the developer’s own marketing and sales activities are happening. Each agent may offer the property on slightly different terms and conditions.
An expression of interest payment will not secure the property for you. It signals your ‘interest’ only. When you make an expression of interest payment, the agent must give you a receipt and confirm in writing that:
Agents can take several deposits for the same property from other prospective buyers. However, agents must tell you if other offers are later made on the property, or if it is sold to someone else.
If several agents are selling the same property, there may be a delay for the specific agent you dealt with to become aware that the property has been sold to someone else.
Agents must not mislead or deceive any parties during a negotiation or transaction. When selling properties off the plan, sales agents are not allowed to:
Where there is high demand for housing in popular areas of NSW, it may be easy for developers to market such properties months before building work is complete. Consider the following before buying:
The NSW Office of State Revenue provides certain concessions to people buying property off the plan. These include stamp duty exemption and grants. Check whether or not you are eligible at the NSW Office of State Revenue website at osr.nsw.gov.au or call 1300 130 624.
Builders carrying out residential building work (including the construction of strata units) valued over $20,000 must take out insurance under the Home Building Compensation Fund.
The Fund may help compensate you for some losses if there is defective or incomplete work in the building, and the builder or developer has become insolvent, dies, disappears, or the builder's licence is suspended for failing to comply with certain Court or Tribunal orders.
The Fund covers new houses and multi-unit residential buildings up to three storeys high. There is no cover for multi-unit buildings that are more than three storeys high. Exemptions also apply to certain types of retirement villages.
When builders take out insurance under the Fund, they are issued with a certificate of insurance (see examples of a certificate of insurance and a certificate of eligibility on our Home Building Compensation Fund web page for Tradespeople).
Attaching the insurance certificate to the contract of sale
If building work on the property has started, a copy of the builder’s certificate of insurance must be attached to the contract of sale. The certificate shows that the necessary insurance has been taken out by the builder.
Insurance is required to protect the buyer against:
Check that your certificate is valid by using the Home Building Compensation Fund certificates register available through the icare website at icare.nsw.gov.au
Exemptions for attaching the insurance certificate to the contract of sale
Sometimes builders only take out insurance shortly before building commences. If the building work has not yet started, the developer is not required to provide the certificate of insurance. In this situation:
For more information visit our Home Building Compensation Fund claims web page
The legal right to cancel the contract under the Home Building Act 1989 is limited to situations without insurance under the Home Building Compensation Fund at the arranged time. In this circumstance, the prospective buyer can only cancel before the contract has been completed (settlement).
Be warned: where a contract of sale is completed and settled, the legal right to cancel the contract no longer applies. This is the case even if the builder has broken the law and not provided the necessary insurance.
When you buy off the plan, you are paying for a property where the end product may not only differ from your expectations, but be worth less than you have paid by the time it is finished.
If you are thinking of entering into a contract to buy premises not yet built, exercise caution and obtain appropriate legal and other advice before signing any documents or paying any money.
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