Are you thinking of buying ‘OFF THE PLAN’?

Under Section 49A of the Duties Act, an off the plan purchase means an agreement for the sale or transfer of property, being land on which a residence is to be erected or developed prior to completion of the sale.

With increasing house prices, buying “off the plan” may be attractive to prospective buyers.  Generally, provided that the purchaser has funds for the deposit, he/she can buy now and pay the balance when the property is completed.  It also means that the purchaser has extra time to save a little bit more prior to settlement.   However, as usual there are uncertainties and risks buying off the plan and a purchaser should proceed with caution.  A purchaser should be aware of the following:

1. Price – Do your research and make sure that you do not pay a premium for the property. Developers generally include future price rises to their properties and you must ensure that your purchase price does not exceed the value at completion.
2. Developer – You are buying the property based on the plans, specification and marketing materials. However, you cannot rely on the information and representations by the vendor unless they are incorporated in the contract.  Have a look at the previous works of the developer and inspect the display unit to have an idea of the quality of work you may expect from your purchase.  Check the list of inclusions and Schedule of Finishes and be aware that modifications and minor changes may be permitted.
3. Contract – Before you sign anything, make sure that you get advice from your solicitor. Normally, off the plan purchase contracts are more complex than standard contracts as they involve proposed restrictions, easements, by-laws and “draft” plans which are not finalised until registered at Land and Property Information (LPI).
4. Uncertainty of Finance – Generally, a valuation of the property will only be carried out by the Lender after the Occupation Certificate has been issued, and the completion date follows soon after. It is possible that the property may be valued less than the purchase price so make sure you factor possible changes to your family and income situation and that your loan approval does not expire prior to the “sunset date”.

CONTRACT

As a guide, purchasers should have a basic understanding of common special conditions such as:

1. Sunset Date – this is a condition which stipulates when the contract would end and by which time the plan should be registered otherwise, the contract may be rescinded without penalty by either party. It is not unusual for the developer to extend the sunset date subject to the approval of the purchaser.
2. Completion Date – following notification from the vendor’s solicitors that the plan has been registered, normally settlement is to be completed within 14 days. It would be best to have the finance in order well in advance prior to completion of the development.
3. Defects Period – Prior to settlement, the purchaser is allowed to carry out final inspection and is permitted to submit a defects notice within a specified period.  This however does not allow the purchaser to delay the completion, unless the defect makes the premises inhabitable. This is of course subject to the statute of limitation and the Owners Corporation needing to enforce defects rectification.
4. Adjustments – With the settlement date required soon after the registration, rates and charges are not separately levied and still waiting for valuation from LPI.  Settlement figures are then adjusted pursuant to the contract which includes council, water rates, land tax and for strata title, strata levies/insurance based on unit entitlement basis.

PAYMENT OF STAMP DUTY

Generally, stamp duty is payable within 3 months from the contract date, subject to mortgagee’s requirement.

However for off the plan purchases, duty must be paid within the earlier of 3 months from the date of the completion of the agreement or the assignment of the whole or any part of the purchaser’s interest under the agreement, or the expiration of 12 months after the date of the agreement.  This means that even if the property is still “a hole in the ground”, stamp duty is due within the specified period referred to as above, otherwise penalty interest applies.

Contact us or check with the Office of State Revenue website for any stamp duty exemption and concessions available as your eligibility depends on when the contract was entered into and the value of the property.

Care must be taken that payment of duty is based on the total contract price of the property.  Any upgrades or variations agreed upon after the contract has been entered into for additional price will attract additional duty.

LEGAL ADVICE

There are many other things to consider and if you are considering an off the plan purchase, we strongly recommend that you contact one of our solicitors on (02) 8076 4539.

 

This publication is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. The publication reflects the law at the date the publication was written, which may differ at the date the publication is being read. No reader should act on the basis of any matter contained in this publication without first obtaining specific professional advice.

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