Protecting Yourself When Purchasing ‘Off the Plans’

Buying property ‘off the plans’ offers a unique opportunity to secure a brand-new home or investment in a developing area. This type of purchase involves buying a property that is under construction or yet to be built. It can include land-only options or complete house-and-land packages, commonly seen in apartment complexes and large-scale developments.

While purchasing ‘off the plans’ can be appealing, offering benefits such as extended time to save and the prospect of a new home, it also comes with inherent risks. Uncertain timelines and the significant risk of delays are common concerns. As settlement nears, you may face a tight window to finalize everything, including securing your finances. Bank finance offers typically remain valid for less than 12 months, whereas ‘off the plans’ agreements usually span about two years. This disparity can result in your finance offer expiring before settlement, requiring you to reapply. Given stricter lending laws, rising interest rates, and market fluctuations, banks are increasingly likely to decline previously approved applications.

Steps to Protect Yourself When Buying ‘Off the Plans’

1. Seek Legal Advice Early

Before signing any agreements, it’s crucial to consult with an independent solicitor who is not affiliated with the developer. Developers often use their own agreements, which may heavily favor their interests. Your solicitor will review the agreement and associated plans, identify concerning clauses, and propose additional conditions to protect your interests. A due diligence condition is essential to allow your lawyer to investigate resource consents and land covenants that could impact your plans or property enjoyment. Researching the developer’s reputation and track record is also advisable to ensure they are reliable and deliver projects as promised.

2. Protect Your Deposit

Ensure that your deposit is held by an independent stakeholder, such as an agent or a solicitor’s trust account. This prevents the developer from prematurely accessing the funds, especially if they lack the necessary consents or financing. Ideally, any interest earned on the deposit should be credited toward the purchase price, though you may need to negotiate this into your agreement.

3. Include a Protective Sunset Clause

A sunset clause sets a deadline by which the developer must fulfill their obligations. If the deadline is not met, either party can cancel the contract. Not all ‘off the plans’ agreements include a sunset clause, and if they do, it may only provide a right of cancellation for the vendor. Ensure your agreement includes a sunset clause that allows you to cancel the contract if there are significant delays.

4. Understand Your Finance Approval

Before going unconditional, have your lawyer review the written finance offer from your bank. Many finance approvals come with expiry dates and conditions that must be met before they become unconditional or before funds can be drawn down. If your finance falls through after going unconditional, you could face serious consequences, including losing your deposit and being sued by the vendor for specific performance or damages. If you find yourself in this situation, consult with your lawyer to explore options such as discussions with your bank, finding another lender, assigning or on-selling your interest under the agreement, or negotiating with the vendor for contract release.

How We Can Help

Buying ‘off the plans’ can be a rewarding experience, but it requires careful consideration and proactive measures to protect your investment. If you are considering an ‘off the plans’ purchase or need assistance with an existing one, our experienced property team is here to help. Contact our friendly team of local property lawyers for expert advice and support.