Risks of Purchasing Properties Off the Plan

Date: April 19, 2016
Author: admin
Posted in: News


Buying properties off the plan (i.e. before the property is built) is regarded as a popular option for a number of reasons. For instance:

  • The property can usually be bought at a lower price than an established property;
  • Purchasers may be eligible to pay reduced stamp duty; and

Purchasers are able to rely on the defects liability period in order to have any construction defect in the property rectified by the builder.
However, purchasing a property off the plan also includes many risks and disadvantages, which are usually overlooked by purchasers. We will briefly look into some of these risks below.


Off the plan contracts are often very large documents since they-

  • incorporate numerous additional provisions to the standard contract and detailed disclosures regarding different matters; and
  • include numerous documents that are extensive and complicated (often related to the subdivision of the land).

The additional conditions of the contract will invariably seek to give the vendor as much flexibility as possible, severely restricting the purchaser’s rights. Further, the vendor will be more likely to reject amendments to the contract in order to maintain consistency between contracts.


Final Product
It is often complicated for purchasers to actually understand what they are buying since the contract in practice allows the vendor to deliver a property that is different from what was initially envisage in the contract. Although the purchaser will usually have a limited right to rescind the contract if there are major alterations to the property, the purchaser will have little or no recourse in relation to “minor alterations” to the property (e.g. reduction of 5% of the property area).

Further, it is not uncommon for the property to be delivered to purchasers with different or improper finishes and items. In this respect, it is important for purchasers to ensure that items can only be replaced by brands of similar or higher quality.

Completion Date
Off the plan contracts do not have a certain completion date and the property may only be completed years after the estimated settlement date or not be completed at all (e.g. because the project cannot proceed). This can be particularly problematic for purchasers who are expecting to live in the property after completion.

The unspecified completion date will also make it more difficult for purchasers to secure and maintain finance. Completion usually takes place within 14 to 21 days after registration. If the purchaser fails to complete the contract on the completion date, the vendor will have a right to send a notice requiring the purchaser to complete the contract within 14 days. If the purchaser fails to do so, the vendor will have a right to terminate the contract and claim damages (usually the deposit paid by the purchaser).

So that the contract does not continue indefinitely, the contract will contain a sunset date, which may be extended by the vendor in certain circumstances identified in the contract. If the contract is not completed by the sunset date the purchaser can rescind the contract.
Due to the fact that dodgy vendors previously used the sunset date as a mechanism to rescind the contract and sell the property for a higher price, the Conveyancing Act 1999 was amended last year so that vendors can only rescind the contract if either-

  1. The vendor obtain the purchaser’s consent first; or
  2. The makes an application to the Supreme Court to rescind the contract and the application is successful.


Other issues

There are of course many other issues related to purchasing a property off the plan and potential purchasers must ensure that they properly understand the provisions of the contract before agreeing to buy a property.

We have a lot of experience acting on off the plan purchases and are equipped to review and advise you in relation to an off the plan contract. Please do not hesitate to contact us if you require any assistance.


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