Australia: Purchasing OFF-THE-PLAN apartments - the right way

If you are purchasing an off-the-plan apartment, you probably have some concerns, and rightly so – as there has been plenty of negative news in the media. On the upside, if you are committing to buying a fresh new apartment, just like you see in the brochures, but on the downside, you may be worried about obtaining finance or whether the developer will complete the development on time, or at all! And if all that goes well, what do you need to do about any defects?

It may feel like a risky path, so you need to understand what you are in for and what is in your contract from the outset and give yourself the peace of mind that you are actually making a good investment.

Can I complete?

Over the past year there has been an alarming trend of purchasers failing to obtain finance.

When buying off-the-plan, you are given a lengthy time between exchange and settlement - many years in some circumstances – and during that time, things can change. Financiers require a loan to value ratio that is within the lenders acceptable range. We have had:

  • Clients whose apartments significantly decreased in value to an extent where financiers would no longer lend the amount required to settle or would require the purchaser to provide more funds towards the purchase price to ensure that the banks loan to value ratio is within the lenders acceptable range; or,
  • Clients whose personally circumstances have changed, meaning they have been unable to obtain a loan.

This has placed our clients in difficult and stressful situations.

I'm not cashed up. What should I do?

Some strategies our clients have considered are:

  • Finding an alternative source of funds: this is one possibility. However, it is becoming more difficult given the tighter lending criteria. The key here is to act as early as possible to ensure you can meet the settlement deadline by obtaining finance from a different financier or even obtaining assistance from a family member;
  • On- selling the property: in some circumstances, clients have been successful in on-selling the property so that their purchase and the on-sale, settle simultaneously. This has allowed them to settle and move on. However, the problem with this solution is that there may be restrictions in relation to on-selling in the Contract. Further, at times, clients have not recouped the purchase price, leaving them to cover the shortfall as well as cover their out of pocket expenses; or,
  • Negotiating a rescission: some clients have been successful in negotiating a rescission by mutual consent with the developer or (less frequently) terminating the contract. Terminating the contract is unlikely, given that the purchaser can only terminate the contract if the developer is in default. However, rescission by mutual consent can occur especially if they developer perceives they can sell the apartment for a higher price than they sold it.

What if the developer fails to complete?

Even if you are ready to hold up your end of the bargain, it does not mean the developer will. There are many reasons why developers simply fail to construct apartments even though they have entered into numerous contracts for the purchase of their apartments. These include a lack of presales required to obtain sufficient finance, banks tightening their lending criteria on developments, or developer insolvency.

In the event this happens, purchasers have limited options. In some circumstances the development will be acquired by another Developer who will continue and complete the building. Sometimes, but not always, purchasers can rescind their contracts and get their deposit back. In other circumstances, the developer will assign the contract to another developer which can cause delays. It is very important to understand the terms of the developer's contract and the purchaser's rights and entitlements in each of these scenarios.

Post settlement qualms

More recently there have been several high-profile cases of major defects such as the Opal Tower scandal, which has left many purchasers questioning what to do in such circumstances.

One big issue that purchasers face when buying into a development over 3 storeys, is that they do not receive the benefit of the home-owners warranty scheme. Whilst there have been recent reforms requiring developers to lodge a Bond with the NSW Fair Trading for residential and mixed-use high-rise strata buildings of four storeys and over, the Bond is held to ensure that defects due to defective building works are rectified.

For buildings that are 3 storeys or under, legislation requires the developer to have taken out insurance known as the Home Building Compensation Cover. Purchasers having difficulty with any major defect rectification can lodge a claim through the insurance. In these circumstances' purchasers should be prepared for the fact that they may have to face lengthy insurance claims or even litigation.

NSW government stepping in further

To enhance purchaser protections, there have been recent legislative reforms to address off-the-plan risk issues. For example, in recent years laws were enacted to ensure a developer could not rescind a Contract as a result of the sunset date expiring without seeking leave from the court.

Further amendments commencing 1 December 2019, seek to further enhance consumer protection and cover the following issues:

  1. New disclosure statement requirements: In the past a developer did not have to disclose all aspects of the development, in some situations Contracts did not even hold an appropriate Draft Strata Plan. This essentially meant that a purchaser did not have a clear indication of a number of things including the size, inclusions, any easements or by-laws anticipated to be registered. From 1 December 2019, the developer is required to provide a disclosure statement in an approved form, which outlines much of the above and it must be attached to an off-the-plan contract before it is signed by the purchaser. Failure to provide a disclosure statement will allow the purchaser to rescind the contract within 14 days after the contract is entered into.
  2. Requirement to notify the purchaser if the disclosure statement is incorrect: In the past developers would usually not provide a purchaser with any updated draft plans or documents after contract signing, until the property was completed and settlement was called for, catching purchasers by surprise at settlement. New legislation imposes a requirement for the developer to serve a notice on the purchaser if anything in the disclosure statement is incorrect or inaccurate. If the changes are substantial and would have a detrimental outcome on the property being purchased, within 14 days, the purchaser may then either make a claim for compensation or serve a notice of rescission.
  3. 10 business days cooling off period: the purchaser will now receive a 10-business day cooling off period, which is an additional 5 days on top of the usual 5 days. The cooling off period can be waived or shortened by a certificate signed by the purchaser's lawyer, which is often required by developers.
  4. Deposit to be held in trust: In the past many developers would have a condition in the Contract allowing the deposit to be released to the developer. The new legislation requires the deposit or instalment monies paid by the purchaser be held either a solicitor's, conveyancer's or real estate agent's trust account until completion.
  5. Purchasers are not required to complete until 21 days after receiving registered plan and documents: it is common practice for completion to take place 10-14 days from the date on which the purchaser receives written advice that registration has occurred. The amendment will ensure the purchaser has more time, namely 21 days after receiving full copies of the registered strata plan or deposited plan and ancillary documents relied upon for registration, before completion takes place, this will ensure that the purchaser has sufficient time to ensure their lender is ready to settle and their Solicitor or Conveyancer will have sufficient time to prepare for settlement and obtain and searches that may be required.

Buyer beware

The Sydney property market and apartment market has endured a rollercoaster ride over the past few years. With increasing auction clearance rates in Sydney and Melbourne, the market is starting to gain traction and will likely result in more off-the plan- apartments coming on the market.

Conclusion

With many purchasers signing contracts at display suites without legal advice, it is important that purchasers understand their rights and obligations early from the outset to ensure that their investments and the purchase process result in a positive experience without any surprises.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions