To purchase a property “off the plan” is to purchase that property before construction has commenced. Off the plan purchases have numerous advantages and disadvantages. It is important to understand these differences when deciding whether or not to purchase off the plan.
What are the benefits of buying off-the-plan?
- By purchasing off the plan you secure and determine the value of the property at its current market price. Should the property increase in value when completed, the purchase price remains the relevant figure for the calculation of Stamp Duty.
- The time period between the date the deposit is paid, and the final payment due, when the Property has been completed, provides the purchaser with additional time to arrange their finance application or perhaps sell other assets to fund the purchase. However, be aware that most finance institutions will not provide unconditional finance approval of an off the plan purchase until the property has been completed.
- A purchaser may also be eligible for an off the plan duty concession however, this will be dependent on the date that the Contract of Sale is signed. In order to obtain the off the plan concession, you will also need to be eligible for the principal place of residence concession and/or the first homebuyer duty exemption. To determine eligibility for either of these concessions visit the State Revenue Office for a relevant checklist.
What are the risks of buying off-the-plan?
- Purchasing a property before construction has commenced or prior to completion involves greater risk when compared to buying an existing property. Importantly, a purchaser is not able to see or inspect exactly what is being purchased until after the commitment to purchase the property has been made.
- It is the Vendor’s responsibility to not only complete construction of the property but also to ensure the proposed plan of subdivision is certified by the relevant local shire council and lodged with the Victorian Land Titles Office . This process can be lengthy, and must be completed in accordance with any sunset clause in the contract. If the proposed plan of subdivision is not registered by the sunset date, then the purchaser has the right to end the contract, though without any right to compensation for lost opportunity.
- There is always a risk that the purchase price of the property exceeds its value by the time settlement occurs. If this is the case, it’s important to ensure the necessary finance is available to complete the settlement in accordance with the terms of the contract.
- There is always the possibility the vendor or developer is unable to complete the development due to financial difficulty, including bankruptcy. It will be important to consider your options if this scenario was to occur during the development. Coulter Legal can provide legal advice on this scenario to assist you.
What is a “sunset clause”?
A sunset clause included in a residential off the plan contract of sale is usually a special condition that allows the vendor or developer, or the purchaser to terminate the contract if certain events have not occurred by the time stipulated. These events include (for example) where the proposed plan of subdivision has not been registered with the Victorian Land Titles Office or the Certificate of Occupancy for the property has not been issued.
On 28 May 2019, the Victorian Parliament passed the Sale of Land Amendment Bill (2019) resulting in retrospective changes to residential off the plan sunset clauses, effective from 23 August 2018. The Bill was given Royal Assent and became law on 4 June 2019.
This significant change will impact vendors and developers who are selling residential off the plan properties. Developers will now be required to obtain the consent of the purchaser in order to terminate a residential off the plan contract where a sunset clause has expired. From 23 August 2018, a vendor or developer must have provided the purchaser with at least 28 days’ prior written notice setting out the following:
- The reason why the vendor intends to terminate the contract;
- The reason for the delay in the registration of the proposed plan of subdivision or the issuing of the certificate of occupancy; and
- An explanation that the purchaser is not obliged to consent to the vendor’s proposed termination of the contract.
This amendment provides purchasers improved security and confidence in the vendors or developers intention to complete the planned construction by placing greater accountability on the vendor or developer.
Alternatively, a vendor will be required to seek an order from the Supreme Court permitting the termination of a contract based on the expiration of the sunset clause.
Importantly, the parties cannot agree to waive the vendor or developer’s notice requirement and the resulting purchaser’s consent.