There is volatility in the share market and residential
rental yields have been rising as vacancy rates sit at record
lows. There are predictions of strong capital growth,
particularly for Sydney apartments. Can this be read as sure
evidence that investors are going to flood back into the NSW
residential property market?
Perhaps it can, but if lawyers were the best people to
predict these things we might not stay in the legal profession
too long. What we can do however, is offer some tips in using
off the plan contracts, the instrument of choice for developers
and investors seeking to profit from a rising market.
Off the plan contracts – recent issues
There have been several court cases in recent years where
purchasers who bought off the plan at the tail of the housing
boom sought to avoid their contract.
Claims made by purchasers include:
the vendor failed to comply with the Home Building Act:
Marguerite Pocknell v Payce Properties Pty Ltd 
the vendor made misrepresentations as to the quality and
location of the finished apartment: Mirvac (Docklands)
Pty Ltd v La Rocca  VSC 48
the contract was void for uncertainty: Pan Urban
Watergate v Graham  VSC 505
the vendor engaged in misleading and deceptive conduct in
representing that the price was a discounted 'off-the
plan price': Jebeli v Modir and Golyaei 
The cases show that whilst developers must always be careful
to ensure their selling agents avoid making inadvertent
misrepresentations, the best protection for vendors is a
carefully drafted contract.
Top 5 off the plan contract tips for vendors
ensure the contract for sale complies with the Home
Building Act. This means attaching a certificate of home
warranty insurance to the contract (unless the development is
4 or more storeys in which case the development is exempt, or
unless building work has not commenced, in which case the
purchaser must be given the certificate of insurance within
14 days of insurance being taken out)
ensure that if a sunset date for completion of the
development applies, there is a sufficient extension of time
regime to allow flexibility for unforseen delays
be wary of using put and call options. Even if a
purchaser waives their cooling off right when they enter into
the option, there is an argument that a new cooling off right
arises on exercise of the option by either party. Careful
advice needs to be obtained to avoid this risk
scrutinise the terms of any deposit bond or bank
guarantee provided by a purchaser. Ensure that the bond or
guarantee is truly unconditional and does not contain an
expiry date. The contract for sale should also contain a
provision requiring the purchaser to have the bond or
guarantee re-issued in the event the developer sells the site
prior to completion
liaise with your financier and obtain their approval not
just to the terms of the contract but to any deposit bond or
bank guarantee before it is accepted.
A carefully drafted off the plan contract will protect
developers against purchasers seeking to avoid their contract.
Despite predictions of a resurgent residential property market,
with economic uncertainty ahead developers should take extra
care to ensure they only enter into bullet proof off the plan
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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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