Recent media concerning a Council's Deputy Mayor's
Development Company demonstrates the dangers of buying "Off
the Plan" apartments.
Almost every Off the Plan contract provides the Vendor with
flexibility to vary the plans for the units, including the areas of
units. Almost invariably, the contract then gives the Purchaser the
right to rescind if such variation is more than, say, 5% of the
Here is what can happen:
Investors search tirelessly for a good Off the Plan investment
unit and invest time and money on legal costs etc to secure a
particular unit in a proposed development.
The buyer raises the 10% deposit, often incurring significant
fees, using bank guarantees or deposit bonds or worse still, their
The Buyer then exchanges contracts, sits back and relaxes,
believing they have made a good investment.
Over the next 12 or 18 months, God willing, the market value of
the apartment under construction significantly increases,
delivering an immediate windfall to the canny Purchaser who is
often eager for completion of the unit, as either their investment
or indeed their home to be.
The Developer either notices a sharp increase in market value
or works out they can cram more units into the proposed development
and proceeds to lodge amended plans with Council (or the State
Authority if the development is worth more than $20 million). The
Developer works out that they could actually sell the units at a
higher price per square metre than what they originally contracted
for with the Purchaser.
The Developer obtains approval to the amended plans yielding a
much greater number of units but reducing the area of each unit
significantly. In the current case, according to media, the areas
of units decreased by as much as 36%.
The Developer notified the Purchaser that the area of the unit
has significantly reduced but offers no proportionate reduction in
the purchase price, thus rendering the Purchaser's investment
worthless and untenable, leaving the Purchaser with no option than
to rescind the contract (because the area varied by more than 5%)
and have their deposit returned.
The Developer goes on to construct smaller units and sells them
at the increased market value, leaving the existing Purchasers high
and dry, with no compensation whatsoever, nor reimbursement of any
banking fees or legal costs.
The Purchaser has wasted 12 or 18 months and is thrown back
into the market to start all over again with no redress against the
A good example of how Purchasers are at the mercy of the
Developers' focused financial gain.
Insist on a special condition which provides that if the area
decreases by more than 5% the purchaser can elect to either rescind
or demand a pro-rata reduction in the purchase price.
Or, simply ensure you buy from a long standing reputable
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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