It was discussed in a previous article that unit title developments are on the rise, especially in Auckland where space is at a premium, but we expect this will also be the case in Christchurch where much of the inner city residential housing stock is being built or re-built.
We are already seeing a number of apartments being advertised for sale, but rather than attending an open home prospective buyers are staring at an empty section. To get off the ground, the developers of those buildings need pre-sales but it can also be an advantage for a buyer to purchase off the plan and strike while the iron is hot.
Often the hardest part of buying off the plan is the conflicting interests of all the parties. The seller needs flexibility of what they are selling, the buyer needs certainty of what they are buying and the lender (if any) makes the rules. Here we discuss the key issues we see in buying and selling in this way.
As with most sales and purchases the buyer will typically be required to pay a deposit to the seller. This will be held by the seller's solicitor on trust on strict terms until a certain event occurs (for example, the new title issuing, or practical completion for the proposed dwelling). It is vital for the buyer that this is held on these strict terms. These funds cannot be used by the seller to fund their development, but it is also money spent by the purchaser which they will get no return on for some time.
- Unit Title requirements
Most multi-unit developments being sold off the plans will be unit title developments which means under any agreement the seller must comply with the requirements of the Unit Titles Act 2010. The disclosure requirements in particular are difficult as initially there is very little information to disclose – especially if the agreement is still conditional on the seller confirming the project is viable. This means making an informed decision for the buyer is very difficult. For example, they will need to confirm the agreement prior to knowing what the potential rules of the development may be, or before they are aware what their annual levy for living there will be. The seller however, does not want to incur unnecessary costs in planning these proposed rules and budgets too early on, when they are unsure if the development will go ahead.
- What are you buying?
In the initial stages of marketing a property off the plan there will be scheme plans and floor plans for the buyer to review. They may not be detailed and it is likely that the vendor will reserve the right to change them should they need to for whatever reason. The extent of this will depend on where the seller is at with their plans and in some respects how many units have already been sold.
- When will it be ready to live in?
Depending on the size of the development it could be some time before the buyer is able to cross the threshold to their new home. As a buyer you should always prepare yourself that the development will take longer than expected and indicated. A buyer may want, however, to put a long stop date in the contract so that it doesn't go on forever. These are just some of the issues we see arising however this is not an exhaustive list. The agreements are much more complex and detailed than the standard and often place additional obligations on buyers than they may be aware of.
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.