An Off the Plan contract typically refers to transactions where a vendor (who acts as a developer) sells a house and land package, prior to construction commencement. Off the Plan contracts are mostly common in high rise developments.
Buying house and land off the plan is a popular investment option for many people, due to the savings in stamp duty. However, it can be common for buyers — for a variety of reasons — to wish to terminate the contract before settlement. It is important to note there is consumer protection legislation in place which potentially allows the buyer rights to terminate the contract and recover the deposit (if the seller does not strictly comply with the relevant provisions).
Change in circumstances
Where a buyer enters into an Off the Plan contract to purchase a house and land package, they may wait a long period of time before the development is complete, and title is created and transferred into the buyer’s name. Circumstances can change meaning the buyer can no longer afford the purchase.
Current construction building site restrictions along with delays caused by the COVID-19 pandemic has resulted in an increased number of construction contracts moving to termination. Further, banks have tightened the purse strings meaning loans for Off the Plan contracts may be refused.
The legally binding conditions of an Off the Plan contract can make it very difficult for buyers who wish to terminate.
It is crucial that parties understand and appreciate their rights, risks and obligations prior to commencing contractual relations.
Are there grounds to terminate?
There are limited grounds upon which a buyer may be able to terminate an off-the-plan contract such as:
- Failure to comply with Sale of Land Act 1962 and Domestic Building Contract Act 1995;
- Misleading and deceptive conduct in the sales process;
- Changes/Variations to the building/plans; and
- Developers failing to complete construction before the sunset date.
It is imperative that purchasers check their contract to ensure their contract complies with the relevant laws and contains these details:
- The building contract under the Domestic Building Contract Act 1995 including any plans and specifications;
- The plan of subdivision for lot details and common property; AND
- The sunset date.
A failure in any one of these can give rise to rights to termination.
The sunset date within an Off the Plan contract refers to a future date (usually between 12 and 36 months from the date of contract) whereby the developer must have completed construction of the property. Upon expiration of this date, the purchaser will be within their rights under contract to terminate if non-completion has occurred.
It has been determined by the Court of Appeal in Victoria that the sunset date cannot be extended by the Vendor – and purchasers are entitled to terminate after its expiry.
It is a common fear amongst those considering entry into an Off the Plan contract that completed developments will not meet expectations. However, if the final product is materially different, the purchaser may have a right to withdraw.
In a recent decision in the County Court of Victoria, the court allowed termination of a contract. In that case the apartment was advertised as 40.5m2. However, when the apartment was measured from the internal walls, it was found to only 32m2. The difference in size was found to be sufficiently substantial to allow the purchaser to rescind the contract.
The court found the following factors important in its judgment in favour of the purchaser:
- A variation in area of more than 5% was a significant difference;
- The apartment was already relatively small; and
- The purchaser was unable to visually inspect the apartment before purchasing.
Purchaser will be able to rely on the Australian Consumer Law which prevents misleading conduct as well as the Sale of Land Act 1962 which requires the plan not be materially altered before settlement.
The issue of whether a plan has been material altered is a difficult one to determine and expert legal advice.
Off the Plan contract purchases certainly can involve attractive features, meaning they are often a great means of acquiring property for many. This can, however, make it easy to overlook the risks associated with such a purchase, and the importance of having a lawyer review the contract for sale.
Should you find yourself unable to complete the purchase or require advice on a contract, it is important to seek legal advice to ensure your rights and entitlements are best protected.
For all Off the Plan contracts queries please call our Director, Daniel Oldham on (03) 9640 0002, or via email firstname.lastname@example.org.