What is an Off The Plan Property?
In New South Wales, it is common practice that properties are advertised and sold before the building has been constructed. This is known as purchasing a property ‘Off The Plan’.
Purchasing a property ‘Off The Plan’ means the Purchaser is purchasing the property based on the drawing and blueprints of the property, without the property actually existing yet.
How does it work?
A Purchaser will enter the contract on the basis that the property will be built and the Council will provide an Occupation Certificate deeming the property to be fit for occupation, within a certain time period. This period is known as a ‘Sunset Period’.
In the event that the property is not built within the ‘Sunset Period’, the Vendor may extend that period for an additional reasonable period in order to complete the construction of the property and obtaining all the consents necessary.
However, if the property is not built during this time period, and the Sunset Period cannot be extended, either party may cancel (that is, rescind) the contract.
Nonetheless, in New South Wales, the law requires the Developer to obtain the consent of the Supreme Court prior to cancelling (that is, rescinding) a contract pursuant to an expiry of a Sunset Period.
Most contracts must have provisions which address the Sunset Period, extension of the Sunset Period, and the Developer doing all reasonable things to complete the development work in good faith and without delay.
What to Look Out For?
In some instances, a Developer will include provisions in the contract which allows the Developer to reduce the size of the property, contrary to the plan or blueprint.
Further, in other instances, a Developer will include provisions which allows the Developer to extend the Sunset Period at his or her discretion to any further period.
The purchase price under a contract normally includes a sum, being one/eleventh of the purchase price, for Goods and Services Tax (GST). This amount is payable, normally, to the owner of the property on the making of the contract and/or on the completion and settlement of the contract.
However, the law now requires the purchaser to make a declaration and an application with the Australian Taxation Office (ATO) both reporting the transaction as well as the amount of GST payable.
If a Purchaser contravenes this requirement, the Purchaser may be obligated to pay the GST requirement in addition to the contract. This means that the Purchaser may be required to pay GST twice.
What to consider before buying a property Off The Plan?
Prior to entering into a contract for the purchaser of an Off The Plan property, we recommend that the following terms of the contract are thoroughly considered:
- Whether there are provisions allowing the Developer to change the plan of the property;
- Whether the contract includes oppressive or unreasonable by-laws;
- Whether there is a specified Sunset Period, and whether this can be extended beyond the reasonable extent; and
- Whether the builder has the appropriate insurances.
If you require any assistance with respect to the content of this article or with the purchase of an Off The Plan property, contact our office for a consultation.