Buying off the plan:
Know what you are signing
Background
• James – property valuer and property
consultant
• Mark – building inspector and building
consultant
Buying off the plan – What’s the
difference?
• When you enter into a contract to buy off the
plan, it is very different to buying an existing
property
• The contract, not only conveys the land, but
also sets out performance in terms of
construction timing, what will be built, etc.
Buying off the plan – What’s the
difference?
• There are a number of key areas you should
specifically ask your solicitor about:
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Sunset clauses
What happens in relation to delays
Defects, faults and building warranties
How flexible is the schedule of finishes
Buying off the plan – What’s the
difference?
• There are also various considerations for
finance that need to be made when buying off
the plan:
– Does your lender know exactly what the finished product will be like?
– Unit areas – they aren’t as fixed as you’d think
– Vendor finance and associated issues
Building Defects
What protection do you have ?
• If your building is 3 storeys or less then you
are covered by Home Warranty Insurance.
• If your building is 4 storeys or more then you
are not covered by Home Warranty Insurance.
What Cover does Home Warranty
give you ?
• 2 years warranty for “Non-Structural” defects
• 6 years warranty for a “Structural” defects
• 6 year statutory warranties change from “Structural Defect”
to a 2 Element Test “Major Defect” in a “Major Element”
• Note: NCAT is mandated to offer the builder the opportunity
to rectify & all sides must have their expert witness
information before they commence.
• Must sue builder first … only ever of value if the builder goes
bust or disappears
Proposed Changes from July
The Strata Scheme Management Bill
and Strata Scheme Development Bill
• All 4 storey+ buildings :
Developers will have to lodge a bond of 2% of
the contracted price of the building to cover
defects
• Developers will be required to engage an independent
building inspector to carry out a defect interim report
between 15 to 18 months after completion of the building.
• If defects are found, a final report will be required between 21
to 24 months after completion of the building.
• In the event that defects are not rectified by the developer,
the building bond will be utilised.
• If defects are rectified or there are no defects found, the
building bond will be returned.
• … So wait until you can buy a unit in a building that has a 2%
fund in place.
Common Building Defects
Extracted from Easthope, H., Randolph, B., & Judd, S. (2012) Governing the Compact City:
The role and effectiveness of strata management . Sydney: City Futures Research Centre”
The first AGM… Go to it!
• This often sets the tone for the building. Key
decisions are made here:
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Amounts of contributions (admin and sinking funds)
Appointment of strata managing agent
Forming of executive committee
Determine arrangements for 3rd party agreements (cleaning, gardens, etc.)
What by laws are to be made, amended or revoked
What accounting records should be kept
What insurance should be carried
The first AGM… Go to it!
• Developers will be represented at the first
AGM if they have retained a number of units.
Their influence is reduced by the relevant
strata laws.
• They will likely have a divergent view from
new home buyers / investors
• Understand unit entitlements
Finance and borrowing
• Borrowing against an off the plan purchase is
very different to borrowing for an existing
property
• Many assumptions are made and may prove
incorrect:
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Building areas
Finishes
Market movement
What do you actually own (exclusive use by-laws, strata lots, etc.)
Vendor Finance
• If you are going to use vendor finance, get
your own advice
• There is a myriad of potential issues
Example of a contract
• In groups, read through this contract and
identify:
– Any issues within the contract that you should
seek legal advice about before signing
– Group discussion
Questions
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