Your Guide to Off-the-plan Contracts
Know what off-the-plan contracts are, what to look for in them and how to protect yourself in the case of an unforeseeable event.
Off-the-plan contracts are contracts that are signed for the purchase of a property before it is built. Although you are signing up for a brand-new home, there are nonetheless several risks that you need to consider. You may buy a property that differs from your initial expectations, fails to meet the safety standards and/or ends up being worth less once it is finished. It is therefore vital that you are equipped with the knowledge and skills to make the best decision. Here are 6 tips that will help you.
1. Do Your Research
One of the most important jobs that you have is researching the developer. You want to ensure that they are reputable and have a good record of building similar properties to what you intend on investing in.
2. Read the Contract Carefully
You need to make sure that you read all of the provisions of the contract carefully and that you understand all of your inclusions. As these contracts are prepared by the business’s solicitors, it is also suggested that you consult with your solicitor. You need to also be familiar with how you can get out of a contract if you change your mind.
3. Know the Sunset Clause
The sunset clause is a provision added to all off-the-plan contracts. It indicates the maximum time that the developer has to completely build the property. Developers generally give a 3.5 year time period for the project to be completed. This includes unforeseeable events, such as bad weather for prolonged periods. As a purchaser, if the building is not completed within the time frame then you are able to terminate the contract.
4. Be Familiar With Your Cooling Off Period
All off-the-plan contracts include a cooling off period clause. This time period enables you to walk away from the contract without incurring a large penalty. In most Australian states, this is between 3-5 days. However, you must remember that the developer can still charge you 0.25% of the purchase price if you choose to withdraw from the contract. It is therefore vital that you do your research before you put pen to paper. You may find our guide to cooling off periods helpful.
5. Check for Home Building Compensation Cover
Home building compensation cover, also known as home warranty insurance, is a must if you are signing an off-the-plan contract. This protects you in the instance where the builder disappears, dies or becomes insolvent. Make sure that your developer has this type of insurance.
You also need to be aware of the conditions of the home building compensation cover. For example, in several states this type of cover will not apply to a building higher than three storeys.
6. Consult a Lawyer
Signing an off-the-plan contract has many risks, and so it is important that you are completely protected before you sign the contract. While research can be helpful, it is strongly recommended that you seek legal advice for contract review and signing. Our lawyers can review key components of the contract including the building defects, inclusions, finance and deposit amounts, and give you advice that can save you thousands of dollars.
Youstina is an intern at Lawpath as part of the Content Team. She is a final year Law and Social Science student (majoring in development and culture) at Macquarie University. She is interested in legal technology and policy development.