An ‘Off the Plan’ purchase is an agreement for the sale of property on which a residence is to be built before completion of the sale. Where the off the plan purchases is for a house-and-land packages or new apartment, stamp duty may be fully or partially exempted. The liability to pay stamp duty on off the plan purchases arises on the earlier of :
- completion of the contract, or
- the assignment of the whole or any part of the purchaser’s interest under the contract, or
- after 12 months from the date of the contract
The stamp duty must be paid within 3 months of the contract date to avoid any interest or penalties.
When purchasing off the plan, the completion date of the contract is usually not until the building is finished. What usually happens is the buyer pays a deposit at exchange of contracts to secure the property with the balance being payable on completion. The conditions of the contract should be reviewed by a professional and advice obtained on the benefits or restrictions set out in the terms of the contract. Questions that should be asked are, but not limited to:The conditions of the contract should be closely checked. Legal advice should be obtained on the benefits or restrictions provided by the terms of the contract. For example, consideration should be given to whether there are any penalties for withdrawing from the contract. Other questions you might need to ask could include:
- Are there any penalties for withdrawing from the contract?
- Can I select appliances such as stoves and dishwashers and items such as floor and wall tiles?
- Can I make changes to the finishes?
- Can I inspect the site during construction?
- If the building is finished earlier than expected, has all the finance been organised?
- What are my rights if construction is delayed or does not proceed?
- Is my deposit secure if the building doesn’t proceed?
- Can I on-sell during the construction period?
Home warranty insurance
Home warranty insurance is required to be taken out by the builder for residential building work (including the construction of strata units) valued over $12,000. An exception to this requirement is for the construction of new multi-storey buildings built after 31 December 2003. A multi-storey building is a building of more than three storeys (not including the car park) and containing two or more dwellings. Exemptions also apply to certain types of retirement villages. All other residential building work that is not exempt must have home warranty insurance cover in place and a copy of the certificate of insurance must be attached to the contract of sale. The certificate must show that the necessary insurance has been taken out by the builder. The insurance must insure the buyer against the risk of non-completion of the work, and breach of statutory warranties relating to the work. However, a developer who sells a non multi-storey strata unit off the plan is exempt from attaching a certificate of insurance to the sale contract, but only if the building work has not yet commenced and the contract informs the buyer that:
- the developer selling the property does not need to give a certificate of home warranty insurance if the building work has not yet started
- the law requires there to be home warranty insurance in place for the building work before commencement of the work
- the developer is required to give the buyer the certificate of home warranty insurance within 14 days of the insurance being taken out
- the buyer can cancel the contract of sale if the home warranty insurance certificate is not provided within 14 days of the insurance being taken out.
The legal right to cancel the contract under the Home Building Act 1989 is limited to situations without home warranty insurance at the arranged time. In these circumstances, the purchaser can only cancel the contract before the contract has been completed. WARNING – a contract could be completed before the building work is finished and before any insurance is taken out. Where a contract for sale is completed and settled, the legal right to cancel the contract no longer applies, even if the builder has broken the law and not provided the necessary insurance.
Things you should consider
- Price – are you paying too much?
- Finance – do you have or will you have the funds when completion comes?
- Changes to the Plans – during construction changes may be made to the plans
- Quality and Standard of Finishes – may be different from what you expected or from what they looked like in the display home
- Management Contracts – are they in place?
- Exclusive use or special privilege by-laws – the developer cannot register by-laws which give exclusive use of desirable parts of the common property (eg. a roof garden or parking) so that they are only accessible to owners of certain lots. This type of by-law can only be made after the initial period (ie. after one-third of the lots have been sold)
- Unit entitlement – may not be specified or even known at the time of exchange of contracts. Unit entitlement is what determines the voting power at meetings and the amount of levy contributions.
When buying off the plan, you are buying a property which you have not seen as it has not been built and is not finished. In fact the finished product may be different from that what you expected. It is advisable for off the plan purchasers to think carefully before entering into a contract for sale.