Off The Plan Conveyancing Tips
Off The Plan Conveyancing Tips will help you avoid the many pitfalls associated with buying off the plan Property
Off The Plan Conveyancing
Off the plan conveyancing requires a specialist property lawyer or conveyancer that has plenty of experience with conveyancing for off the plan properties.
Property conveyancing sounds like a simple process, yet there are plenty of things that can cause problems, some of which will be very expensive issues.
Points to consider when buying Off The Plan property:
1. Contract Of Sale
The contract of sale is a critical document for buying off the plan property as what you are buying has not actually been built yet and you need to ensure you are going to get what you think you are going to get.
It is important to review the contract of sale carefully to ensure that it properly reflects, in writing, what you have been promised by the developer. Your contract of sale needs to include a detailed schedule of all fixtures, fittings and finishes.
You need to make sure that you are satisfied with the level of detail in the contract.
What is described in the contract needs to line up with what you think you are going to be getting in your new property once it has been constructed.
The developer will usually reserve the right to change the plans or specifications if he thinks it is necessary and you need to ensure that you will not be impacted in a negative way.
Make sure you read the contract and supporting documents from the developer and real estate agent carefully to ensure everything is well detailed prior to signing your contracts.
These will usually be described briefly in the contract outlining what is included but you will almost always find a clause allowing the developer the right to substitute inclusions of a similar quality if the nominated products are not available.
With some projects the contracts will allow you to customise the design (within the structural constraints of the building) to suit your personal requirements. You may also be given a range of various fixtures, fittings, appliances, internal colour schemes and latest designer finishes to choose from.
Make sure you carefully check the contract for inclusions and warranties to ensure you are protected from unjust changes and also to to see if making your own customised changes is permitted.
3. Contract Variations
Developers will have plenty of flexibility in completing the off the plan development.
For example, the developer may need to make minor changes to the plans as a result of a council planning requirement. If the variation significantly affects the property to the detriment of the purchaser there will often be a provision in the contract to allow the purchaser to not proceed with the purchase.
It is critical to ensure the contract provides you with adequate protection for such instances even though they may never eventuate.
4. Research the Builder/Developer
As you are not able to see the finished product for your Off The Plan purchase it is important to research the Developer. You can start with looking online to see what sort of industry reputation they have. Ask for a list of past projects to check that they have been successfully completed.
In most cases the Developer will engage a separate builder so it is also important to check out the reputation of the builder and look at the build quality of past constructions.
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5. Your legal rights
Make sure you understand what your legal rights are in relation to your off the plan purchase.
For example, What are your legal rights should construction be met with excessive delays? Are you able to withdraw from the contract and if yes, are there any special conditions or costs.
In a worst case scenario, if the construction does not proceed and the developer rescinds the contract what happens to your deposit?
The contract will provide the developer with some flexibility as to when the project is to be finished. Obviously delays can occur for various reasons, such as striking rock or water when excavation commences and this is not the fault of anyone in particular.
Usually, the contract provides that the developer must complete the development as quickly as possible, but if he is unable to complete within a certain period of time then either party will have the legal right to cancel the contract.
You need to ensure the contract has a realistic sunset date for completion of your new property. The contract should also contain a clearly defined mechanism for the developer to extend it (within reason). This is nothing to be alarmed about, you just need to be sure you understand how delays will be handled from a legal perspective.
Your contract of sale is a legally binding contract and you need to understand you can’t just change your mind on a whim and get out of your off the plan purchase. Having said that, the developer is under certain conditions able to rescind the contract, for example, construction is not able to proceed due to insufficient sales. In this situation your deposit should be returned to you in full (released from the Trust Account).
This doesn’t seem like such a big deal as you haven’t lost your deposit, however you may have lost opportunity, particularly if it has been 2 or 3 years since you paid your 10% deposit. This is why you need to engage professionals to assist you in identifying good projects and quality developers that will complete the project in a timely manner.
7. Your Options for Deposit
In most cases you will be required to pay a 10% deposit, by all means have a go at negotiating a lower deposit but don’t be offended if you don’t succeed. The industry standard is for a 10% deposit which is largely caused by the Banks requiring developers to pre-sell some of the project and to collect a 10% deposit prior to commercial funding being released. In Australia it is a legal requirement that your deposit be held in a legislated Trust account and that it be invested until settlement.
Not everyone is aware that you may have more than one option when it comes to paying your deposit. Some developers don’t require a cash deposit and will accept a bank guarantee instead (ie you put your 10% cash into your own bank account and your bank then provides a certificate of guarantee to the developer. You are not able to access your 10% deposit funds but you receive interest on it.
A few developers will also consider a Deposit Bond which you obtain from a Deposit Bond lending provider. You are charged a fee for the deposit bond which is calculated based on how much you need and for how long you need it. The deposit bond provider gives the developer a guarantee certificate instead of cash. Many developers don’t like deposit bonds and will not accept them, whereas they will be happy to accept a Bank Guarantee or cash.
8. Owners’ Corporation
As the developer may need to undertake extra work on the common property areas or on the actual development after settlement, they will usually have provisions in the contracts to give the developer control of the Owners’ Corporation for a reasonable time after completion of your purchase.
It is important to make sure that your contract provides that the developer agrees to remedy any defects identified by you the buyer, prior to you settling on your new purchase. You will be given the right and it is highly recommended that you inspect the property prior to settlement to identify any defects and bring to the developer’s attention for remedy prior to settlement.
With off the plan there is always several months and sometimes years between when the contract of sale is signed and when the project completes. Lenders will be happy to provide a finance pre-approval for you at the time of purchase, however, this will usually only last a few months. With this in mind, you need to be comfortable in your own mind that you will be able to secure finance a couple of months prior to when the completion date arrives.
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11. Stamp Duty
You need to check your Stamp Duty obligations with your legal professional, particularly if you are eligible for any special concessions or government grants (eg First Home Buyers)
There are significant stamp duty savings in some Australian States (eg Victoria) for off the plan purchases where construction has not commenced. As construction proceeds the stamp duty payable increases dependant on how close to complete the property is. The greatest stamp duty savings are made prior to construction starting or in the very early stage of construction.
12. Cooling off period:
In most Australian States you will have a cooling off period of between two and five working days (three days in Victoria) on your contract.
This allows you to change your mind about purchasing the property during this cooling off period and is an excellent time for you and your legal professional to thoroughly check out the contract (assuming you failed to have the contract checked over prior to signing).
However, be aware that pulling out of the contract during this time may lead to a termination penalty from the developer (0.25% of purchase price). Once your cooling off period ends, you are legally bound to proceed with the purchase of the property.
13. Proposed Plans & Floor Plans:
Within your off the plan contract of sale you will be provided with specifications of what the developer proposes to build and provide as a finished product. This will include floor plans for your purchase and a schedule of finishes for the property, such as floor coverings, appliances, bathroom fittings etc.
As mentioned previously, developers will almost always retain the right to alter these plans if required to complete the project and this will be noted in the contract of sale.
It is important to read and understand these plans to ensure you are satisfied with the detail and standard of the finishes, as well as the level of disclosure the developer has provided to you, prior to you signing the contract of sale.
14. Ownership - Purchasing entity:
You may decide to add an “and/or nominees” clause to your purchase contract of sale to give you time and flexibility around what the actual ownership structure will be. Having this clause in your contract will give you extra time to consult with your Accountant, Lawyer and other professionals to ascertain which ownership structure will best suit your current and future needs.
In Australia, failure to use the “and/or nominees” clause in your purchase contract can lead to you being charged Government Stamp Duty more than once if you decide to change the ownership structure prior to settlement (ie, you will be treated as having purchased the property twice!).
15. Property Ownership: For property purchases that are made with someone else (eg your husband/wife/friend/brother/sister/work colleague), it is important to consider whether you should purchase as Tenants-in-Common or as Joint Proprietors.
The importance of this step cannot be stressed enough as it determines what happens to your share of the property when you die. (for example, if you own the property as Joint Proprietors, a common structure for married couples, when you die your share of the property will automatically go to your partner, rather than who you have nominated in your Last Will and Testament. This can be a major problem particularly where you may have had children from a previous marriage that you want to benefit from your property assets)
To ensure you select the ownership structure that will best suit your personal situation you should speak to as many of the following specialists as you feel necessary:
Accountant (preferably one that has a property focus)
Property Lawyer / Conveyancer
In some of the more complex situations you may find you need more than one discussion with some of the above specialists, based on the outcomes of initial discussions with each.
Remember, you can always sign your Contract of Sale using the “and/or Nominees” clause which will allow you to proceed with the property purchase and you can then decide what ownership structure is best at a later date (before settlement).
Buying a home or investment property is one of the biggest financial decisions you will make in your lifetime.
Buying off the plan offers many benefits provided you surround yourself with experienced professionals to help you avoid the many pitfalls.
With many years’ experience in property it is my opinion you should have a highly experienced solicitor handling your property transaction rather than a Property Conveyancer.
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