When you buy a house, unit or apartment before construction on the property has finished, you are buying off-the-plan and entering a residential off-the-plan contract.
In legal terms, buying off-the-plan means the property is contained in an unregistered plan of subdivision. This means you agree to pay a set price for the property before it is fully built.
The buyer will only complete the purchase of the property once the subdivision plan is registered and the property has been issued a title.
Buyers will often base their decision to purchase off-the-plan properties on artistic drawings, sketches and detailed plans of how the property will look once completed.
Because of this, there are special laws that apply to buyers and sellers of off-the-plan properties which differ from the laws regulating buying and selling existing properties.
Why do people buy properties off-the-plan?
Because you agree to a purchase price before the property is completed, the advantage is that once you move into the property, it could be worth a lot more than what you paid for it due to a rising property market.
Additionally, often only a small deposit is required when the contract is signed. The outstanding balance on the property is generally due when settlement occurs, which allows buyers a longer time to get their finances together.
Finally, buying off-the-plan usually means purchasers pay less stamp duty because the stamp duty will only be charged on the current value of the land, not the finished building.
Potential risks buying off-the-plan
There are downsides of buying off-the-plan.
Because there is often a long time between the buyer signing a contract and moving into the property, the value of the property can often change significantly. Potentially, in a slowing property market, the property’s value may have decreased.
Alternatively, the property’s value may have also appreciated significantly. While this should be positive for buyers, developers may seek to end the contract and resell the property for a much higher value.
Why has the Sale of Land Act been amended?
Developers acting in bad faith, as outlined above, is the reasoning behind the changes to the Sale of Land Act introduced in late 2018 and coming into full effect in June 2019.
Previously, both buyers and sellers could end the off-the-plan contract under a sunset clause. A sunset clause provides the latest date by which the subdivision plan must be registered, after which settlement can occur and the buyer will own the property.
However, there have been accusations of developers deliberately delaying registration in order to end off-the-plan contracts to resell properties for higher prices.
The amendments to the law are aimed at protecting purchasers from such a situation.
What are the new changes to the Sale of Land Act (Vic)?
New requirements for vendors seeking to rescind off-the-plan contracts
Vendors now need the purchaser’s written consent to end of the contract. Additionally, vendors must notify purchasers at least 28 days in advance of their intention to end the contract, and set out:
- The reason why they are proposing to end the contract;
- The reason why registering the subdivision plan or issuing the occupancy permit has been delayed; and
- That the purchaser does not have to consent to the proposed ending of the contract.
Vendors can apply for Supreme Court orders to end the contract
If the vendor makes an application, the Supreme Court can make an order allowing the vendor to end the contract under the sunset clause if the purchaser’s consent is not obtained.
The Court will only permit the vendor to end the contract when it is fair and reasonable in the circumstances. Therefore, the Court will consider whether the vendor acted reasonably, the reason for the delay in registering the plan and the likely date the plan will be registered and other factors.
Furthermore, unless the vendor can prove the purchaser unreasonably withheld consent, they must pay the purchaser’s costs for court proceedings. This is even when an order is granted.
Information to be included in sunset clauses
Sunset clauses must now contain a statement that sets out:
- The vendor must notify the purchaser of a plan to end the contract;
- The purchaser can consent to the proposed ending of contract but does not have to;
- The vendor can apply to the Supreme Court for an order allowing them to end the contract; and
- The Supreme Court can decide to make an order allowing the contract to end.
What do these changes mean for vendors in off-the-plan contracts?
If you are a vendor who wants to end an off-the-plan contract:
- You must obtain the buyers’ written consent after notifying them of such intention at least 28 days beforehand;
- If the buyer does not consent to ending the contract, apply to the Supreme Court for an order permitting the contract coming to an end;
- You must prove to the Supreme Court that you were not acting unreasonably or in bad faith when seeking to end the contract; and
- Include in the contract with the purchaser a statement outlining the above.
If you have any questions or concerns regarding sunset clauses or off the plan contracts, do not hesitate to contact our friendly team on 03 8849 9307 or info@j2legal.com.au.
DISCLAIMER
The information contained in this article is general in nature and does not constitute formal legal advice. Proper advice should always be sought for your individual needs and circumstances and J2 Legal disclaims all responsibility for the result of any reliance on the information herein.