Buying off the plans: what should you consider?
Buying off the plans can be a great way to enter the property market or secure an investment. However, because you are committing to a property that does not yet exist, it is important to understand the process and what to look for before signing an agreement.
In this article, property lawyer Lucy outlines some key considerations and how buyers can protect themselves.
How does buying off the plans work?
An off the plans purchase involves a developer marketing a proposed townhouse, apartment, or residential development, often before construction is complete or even underway.
You agree to purchase at a fixed price based on plans and specifications, pay a deposit, and settle once the property is finished and titles have been issued.
These agreements are typically more detailed than a standard agreement for sale and purchase and often allow developers some flexibility to complete the development. With that in mind, it is important to understand how this may affect you and the key things to consider.
Deposit arrangements
A fixed price can work in your favour if the market increases. However, it is important to ensure your deposit is properly protected.
Deposits should be held by the developer’s solicitor as stakeholder, rather than paid directly to the developer. This helps ensure the funds are held safely until settlement or until the conditions of the agreement are met.
It is also worth noting that if a development does not proceed, there may be delays or challenges in recovering your deposit, so having the right structure in place is important.
Timeframes for completion
Construction timeframes can vary due to factors such as weather, material availability, and contractor scheduling. Off the plans agreements do not usually guarantee a fixed completion date, which can create some uncertainty around settlement.
A sunset clause allows you to cancel the agreement if the development is not completed by a specified date, usually when the new title and Code Compliance Certificate are issued.
Developers may propose longer timeframes, but a shorter period, such as around six months from the proposed completion date, together with a right to a full refund of your deposit and any interest earned, can provide greater certainty.
Changes to plans and specifications
These agreements often allow for changes to plans and specifications as the development progresses. While some flexibility is expected, it is important to understand how this may affect the final property.
You may wish to ensure the agreement includes provisions that:
- Allow for a price adjustment if the final floor area is reduced, for example by 5 percent or more.
- Provide a right to cancel if the reduction is more significant, such as 10 percent or more.
- Require any substituted materials to be of equal or better quality and not materially affect the value of the property.
Need help buying off the plans?
If you’re considering buying off the plans, it is important to have the agreement reviewed before you pay a deposit or commit to the purchase.
Our property team can guide you through the process and help ensure you are well informed and protected. Please get in touch on enquiries@armstrongmurray.co.nz or 09 489 9102.
This article is brief and general in nature. You should not treat it as legal advice and should seek professional advice before taking any action in relation to the matters dealt with in this post. Armstrong Murray accepts no liability for losses suffered by any person or organisation who may rely directly or indirectly on this post.
