16 May Information for prospective purchasers of off the plan properties
Purchasing a property off the plan can be confusing. The experienced team at Chase Legal can help simplify the process and ensure a smooth transaction.
In the unlikely event that something does go wrong, you can rest assured that our lawyers are familiar with the contract and will be looking after your interests.
Below are some items for you to consider:
- Property: Which apartment or unit are you buying? Does the purchase price include any car park(s) and/or storage lot(s)?
- Purchaser: Who is purchasing the property (individual, more than one purchaser, corporate purchaser, trust)? If more than one purchaser, as joint tenants or tenants in common, and in what percentage ownership? If corporate purchaser, the vendor will usually require personal guarantees from the directors.
- Foreign purchaser: If you are a foreign purchaser, you must obtain FIRB approval before signing the contract. There is an associated application fee (currently $5,000.00 for residential properties up to $1 million and $10,000.00 per million for residential properties over $1 million). For off the plan properties, approvals are usually granted without conditions. Foreign purchasers are also liable for an additional 3% stamp duty.
- Stamp duty savings & FHOG: There are stamp duty savings for purchasing a property off the plan prior (if after construction has commenced, the stamp duty savings will reduce as the building nears completion). Depending on the purchase price and your individual circumstances, you may also be eligible for stamp duty savings and/or the first home owner grant if you are a first home owner and/or if the property will be your principal place of residence.
- Nomination: You may nominate an additional or substitute purchaser after signing the contract, however the contract may impose restrictions on resale of the property before and/or after settlement.
- Deposit: The deposit payable is usually 10% of the purchase price but for an off the plan property you may be able to negotiate a lesser amount with the vendor.
- Purchase price: The balance of the purchase price (plus any adjustment of outgoings, such as council rates, water charges and land tax) is payable at settlement, upon payment of which you will receive title to and vacant possession of the property.
- Finance: If you are getting a loan for the purchase, ensure that you have prepared sufficient equity funds (including an additional “buffer” in case the bank valuation for the property comes in lower than expected). It is also a good idea to apply for the loan at least 2 months before the anticipated settlement date otherwise your lender may not be ready for settlement.
- Settlement date: The settlement date for an off the plan property is uncertain because it depends on when the plan of subdivision is registered and when the occupancy permit is issued, however the vendor/agent should be able to give you updates on the progress of construction and the expected settlement date. A substantial period of time may elapse between the date you sign the contract and the date of settlement, and the value of the property may change during that time.
- Incentives: Does the vendor offer any incentives (eg. rental guarantee)? Ensure that these are included in the contract and also familiarise yourself with any conditions that may be attached (eg. you must use the vendor’s nominated managing agent).
- Plan of subdivision: If the plan of subdivision is not registered within the timeframe set out in the contract (usually 36 to 48 months from the contract date), you can cancel the contract and your deposit plus interest will be refunded to you. Note that off the plan contracts usually give scope for the vendor to make amendments to the plan of subdivision, including changes to the size of lots (by up to 5%) and the location of accessory units (car parks and storage lots), prior to registration of the plan.
- Owners corporation: Is the property affected by one or more owners corporations? In addition to the annual owners corporation fee payable (which includes building insurance), the owners corporation rules may impose restrictions on how you use the property (eg. noise, pets).
- Colour scheme & optional upgrades: Do you have the option to choose a colour scheme and/or optional upgrades? Are there any additional costs?
- Specifications: The fixtures and fittings included with the sale are set out in the contract. Check whether anything is missing. The specified fixtures and fittings may be substituted for fixtures or fittings of a similar quality and style.
- Building defects: During the defects liability period as set out in the contract (which can range from 3 to 6 months from settlement date), the vendor must use reasonable endeavours to ensure that the builder rectifies any building defects. You need to provide a comprehensive list of such defects to the vendor and also give the builder access to your property.
- Default: If you default in payment of the balance of the purchase price at settlement, the vendor may have a number of remedies, which generally can include:
• charge penalty interest for the delay in settlement;
• serve a notice of default, and if the default is not rectified within 14 days of the notice, terminate the contract, retain the deposit and recover from you any loss on re-sale (taking into account the deposit);
• ask the court to compel settlement; or
• require you to pay any costs and expenses incurred by the vendor as a consequence of the default.
If the vendor delays settlement, you can generally:
• serve a notice of default, and if the default is not rectified within 14 days of the notice, terminate them contract and recover your deposit;
• or ask the court to compel settlement.
Any questions? Call Chase Legal today on (03) 9039 5632 for an obligation free chat. We look forward to looking after you.