Buying a new home is an exciting and vital step in your life. When you purchase off-the-plan, it can be even more so. Buying an off-the-plan property is a very big decision. This is because it means you are buying a property which has not been built yet and has not been inspected. You just have to hope that the developer will deliver a home of the same quality as the rest of their projects.
It’s not just the property you are buying but also the contract with the developer.
The contract is an essential document in any real estate purchase because it will set out your rights and obligations. It’s necessary to understand what these are before you sign.
An off-the-plan property is bought before it has been built. You enter into a contract with the developer to buy the property, and then, once it is built, you take possession of it.
Off-the-plan contracts can be riskier than your typical property contracts. However, they remain popular with first-home buyers and downsizers alike as they can represent excellent value as well.
Of course, like all contracts, it’s essential to cast a careful eye over off-the-plan contracts BEFORE you sign them.
Tick Box Conveyancing offers a thorough pre-purchase review of off-the-plan property contracts. Talk to our Melbourne-based conveyancers about your off-the-plan property. We can help you understand the risks and ensure that you are protected.
In this article, we will look at five things to consider before signing an off-the-plan contract:
- The cooling-off period
- The deposit
- Sunset clause
- Settlement date
- The other party
1. The cooling-off period
When you buy a property, you are entitled to a cooling-off period. This is a set amount of time during which you can change your mind about the purchase without penalty.
The cooling-off period for off-the-plan contracts is typically five business days.
Make sure you are aware of the cooling-off period before you sign the contract, and if you think you might need more time, try and extend it.
Of course, if you’re so unsure about the purchase that you believe you will need a more extended cooling-off period, the best course of action will be to have the contract reviewed by an experienced and licensed Melbourne conveyancer.
Then you will have a better understanding of the contract and what you’re signing up for.
2. The deposit
The deposit is an important part of any property purchase. It is usually 10% of the purchase price and you should make sure that you are happy with the contract, and that all your questions have been answered before you pay it.
It’s also important to know where the deposit will be held. The developer should not be able to access it until you take possession of the property.
If there is a problem with the property and you want to cancel the purchase, you may be able to get your deposit back. However, this will depend on the terms of the contract so it is important that you are aware of these before signing.
3. The sunset clause
A sunset clause is a unique provision in a contract of sale that essentially sets a deadline for the vendor/developer to get a plan of subdivision registration before either party may terminate the deal.
Sunset provisions are typical in off-the-plan contracts and are essential since they deal with titles that have not yet been officially released.
These contracts are often for properties that are subject to a plan of subdivision registration, such as townhouses, multi-level apartment complexes, or empty land lots on new residential estates.
Assume you’ve just signed an off-the-plan contract for a new townhouse.
Assume the contract has a sunset provision that expires on June 1, 2022.
If the townhouse building is not finished and the plan of subdivision is not registered by June 1, 2022, the buyer or the seller (the developer) may cancel the contract on June 2, 2022.
When the sunset provision expires, any party may serve a notice terminating the contract on the other, and the purchaser is entitled to a refund of their deposit.
Previously, both the vendor/developer and the consumer had the ability to automatically terminate the contract in most cases.
The new legislation, on the other hand, has reinforced the buyer’s position by putting restrictions on when and how the developer may terminate the contract.
4. The settlement date
A conventional contract will provide a certain date for settlement (either a future date or a completion time such as “60 days after the contract is dated”). Although a “off the plan” purchase contract will contain a timeline, it is normally provided that settlement will take place within a certain number of days after the construction project is completed and a separate title for the property being acquired is registered.
Most off-the-plan contracts provide that after a property is registered with Land Victoria, the settlement must be completed within 14 days otherwise the buyer will be charged penalty interest and may be served with a default notice. Purchasers often have challenges with their financing arrangements due to the short settlement term. As a result, it is essential that we, as your legal counsel, give you frequent status reports and alert you as soon as the registration process begins.
Of course, each contract is unique and whilst the above is typical, a pre-purchase contract review will give you the certainty of the particulars of the contract you are considering signing.
5. The Other Party
We left one of the most important things to look at until last.
Who is the other party listed on the contract?
When signing an off-the-plan contract, it is important to understand who the other party is. This is the party that you are entering into the contract with and, if something goes wrong, they will be the ones you need to negotiate with.
Make sure you are comfortable with the person you are dealing with and that you have a good understanding of their capabilities. If you are not happy with the other party, it is always best to walk away from the contract.
Knowing what to look for when signing an off-the-plan property contract can be the difference between a headache and a smooth transaction. By being aware of the key points, you can protect yourself and ensure that your interests are looked after.
If you have any questions or would like more information, please do not hesitate to contact our team of trusted Melbourne conveyancers at Tick Box Conveyancing.