Protect Yourself with Off the Plan Purchases

By 31 May 2018Conveyancing
Protecting your assets

The contract for purchase of an off the plan property is of critical importance and requires to be diligently reviewed by a skillful conveyancing solicitor.

One of the major issues of dispute between the purchasers and vendors (developers) in an off the plan contract is the Sunset Clause.

What follows is an overview of off the plan purchases.

Sunset Clauses

The sunset clause in off the plan contracts allows developers and purchasers to lawfully rescind the contract if the building or a particular stage of construction is not finished by a specific date. The intention behind the sunset clause is to protect the developers and the purchasers to end the contract in case of unseen delays and pursue other options.

Rescinding off the Plan Purchases

Previously a developer could rescind an off the plan contract if the sunset date for the completion of the building works had passed and the building was not complete.

NSW legislation changed in response to claims that some developers deliberately delayed the construction work so they could rescind the contract, refund the deposit and sell the properties shortly after for a higher price.

The new legislation which only applies to residential properties allows the developer to rescind an off the plan contract if the developer gives each purchaser under the contract at least 28 days written notice prior to rescinding under the sunset clause.

The developer must give reason for rescinding and for the delay in completion.

Further the developer can only rescind if each purchaser consent to the rescission in writing or if the developer has obtained a court order from the Supreme Court of NSW permitting the rescission.

Unless the purchaser’s refusal to consent to the rescission is considered unreasonable, the developer is liable to pay the purchaser’s costs of the application to the Supreme Court.

The order permitting the developer to rescind an off the plan contract will only be made if the Court is satisfied that such order would be just and equitable.

In determining whether it is just and equitable to rescind off the plan contracts the Court will consider factors such as the terms of the off the plan contract, whether the developer acted reasonably and in good faith and effect of such rescission on the purchasers.

In a recent case before the Supreme Court of NSW, dismissed the vendor’s application to rescind an off the plan contract and found it was not just and equitable to do so.

The new legislation, however, does not limit the right of the purchaser to rescind an off the plan contract if the sunset clause has not passed.

Special Conditions in off the Plan Contracts

There is no standard contract for purchasing off the plan developments. Any sale contract needs to be reviewed meticulously, but this is particularly important in off the plan purchases.

Some of the issues in respect to off the plan purchases which should be considered by your legal advisor is

  • What are the entitlements to your property
  • Can the plans of the property be changed without notification to you
  • what happens if the size of the property ends up smaller or if your finance falls through
  • what are costs and fees you are liable to pay under the contract
  • what happens if you fail to obtain finance.

The special conditions in the off the plan contracts are often voluminous and it is easy to miss the conditions that could be prejudicial to the purchaser such as GST being added to the price or the interest of the deposit being paid to the developer, excessive land tax, inclusions and guarantees.

Purchasing an off the plan property whether for investment purposes or to be your dream home is a daunting task.  At Pavuk Legal our experienced solicitors and conveyancers will provide you with a full range of property legal services, including reviewing the contract and negotiating with the developer in respect to the terms of the contract.

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