Buying off the plan

If you are thinking of entering into a contract to buy premises not yet built, please take the following steps:

• exercise caution and obtain appropriate legal and/or other advice before signing any documents or paying any money
• look out for clauses that allow the developer to rescind the contract after you have exchanged
• know what you are signing. Before signing a contract, ask the following questions:
  • Are there separate contracts for purchase of the land and construction of the house?
  • How do those two contracts interact?
  • Will there be additional costs or penalties if there are delays to building start dates?
• remember, there are no price guarantees until you have exchanged contracts.

For more information contact Fair Trading on 13 32 20, or make a complaint online.

Properties can be advertised for sale before the building has been constructed. Buying this type of property is known as 'buying off the plan'.

When you buy off the plan, you are paying for a property where the end product may not only differ from your expectations, but be worth less than you have paid by the time it is finished. If you want to buy off the plan, NSW Fair Trading will equip you with the tools to make a decision.

Protections when buying property off the plan

New protections and statutory remedies apply to contracts exchanged from 1 December 2019. Key safeguards include:

Increased disclosure

Vendors who sell property off the plan need to give purchasers more information than when selling an already constructed home. Vendors need to attach a disclosure statement to the contract that outlines key information, like sunset dates and other conditional events, and provide draft documents like a plan, proposed schedule of finishes, and draft by-laws.

Notification of changes and statutory remedies

Changes often occur during a development, and the final property can be different to what the purchaser was originally promised. For contracts entered into from 1 December 2019, vendors must notify purchasers of changes that make what was disclosed inaccurate in a ‘material particular’. Material particulars are changes that will adversely affect the use or enjoyment of the lot being purchased.

In some cases, where purchasers are materially prejudiced by a change to a material particular, they can pull out of the contract and get the deposit back. As an alternative, they may choose to settle the purchase but claim compensation for the change.

Purchasers also need to be given a copy of the registered plan at least 21 days before settlement.

Cooling off period

Off the plan buyers have a 10 business day cooling off period, which is longer than when buying an already constructed home (usually 5 business days). Purchasers can decide to pull out of the contract during the cooling off period and will forfeit 0.25 per cent of the purchase price for doing so.

The cooling off period can be waived or shortened, but only if the purchaser’s lawyer or conveyancer provides a certificate required by legislation, and has explained the contract and the consequences of varying the cooling off period.

Deposits

From 1 December 2019, deposit monies and any instalments paid under an off the plan contract must be held by the stakeholder (usually the real estate agent) in a trust or controlled money account during the contract period. This money cannot be released to the vendor before settlement, meaning that deposit and instalment monies are protected in the event of the developer’s insolvency.

Restrictions on how deposit/instalment monies are held do not prevent purchasers using a bank guarantee or deposit bond in lieu of a cash deposit.

Sunset clauses

Developers will need a buyer’s consent before they end a contract using a sunset clause, otherwise the developer will need to apply to the NSW Supreme Court to justify termination.

See the Office of the Registrar General’s website for more information about these new requirements and key protections.

The contract

Potential buyers must review the contract carefully to understand exactly what they are buying. Generally, the buyer pays a deposit to secure the property with the balance payable upon settlement. The date for completing the contract is usually not until the building is finished.

Carefully check the conditions of the contract, and obtain legal advice on the terms of the contract and the benefits and restrictions they contain. Understand what you become liable for if you withdraw from the contract.

Other questions to consider:

• can I make changes to the finishes (eg. in the kitchen and bathroom)?
• can I select appliances, such as stoves and dishwashers, and items such as floor and wall tiles?
• can I visit the site during construction?
• if the building is finished earlier or later than expected, can I still arrange finance?
• what are my rights if construction is delayed or the design is altered?
• can I on-sell the property to someone else during the construction period?
• can the developer make changes to the design of my property and is my consent required?

Always read your contract and get advice from a property lawyer or licensed conveyancer.

Making an offer or an expression of interest

You can buy a property off the plan at an auction or for a fixed price. Developers can also contract several real estate agencies to sell their properties. Agents may be marketing and selling properties at the same time as the developer’s own marketing and sales activities are happening. Each agent may offer the property on slightly different terms and conditions.

An expression of interest payment will not secure the property for you. It signals your ‘interest’ only. When you make an expression of interest payment, the agent must give you a receipt and confirm in writing that:

• there is no obligation to sell the property to you
• you have no obligation to buy the property
• they will refund your deposit if you don't end up entering in a contract to buy the property.

Agents can take several deposits for the same property from other prospective buyers. However, agents must tell you if other offers are later made on the property, or if it is sold to someone else.

Prohibited marketing tactics

Agents must not mislead or deceive any parties during a negotiation or transaction. When selling properties off the plan, sales agents are not allowed to:

• advertise a property for a lesser price than other similar properties, if the advertised property is no longer available
• indicate a price range for a property, where the lower end of the range is less than the agent's estimated selling price for the property
• hold on to your expression of interest payment or use high pressure tactics to get you to buy another property at a higher price if the property you made a payment for ends up being sold to someone else.

What to consider before you buy

Where there is high demand for housing in popular areas of NSW, it can be easy for developers to market off the plan properties months before building work is complete. Consider the following before buying:

Concessions for buying off the plan

Revenue NSW provides certain concessions to people buying property off the plan. These include stamp duty exemption and grants. Check whether or not you are eligible at the Revenue NSW or call 1300 130 624.

Home Building Compensation Scheme

Builders carrying out residential building work (including the construction of strata units) valued over $20,000 including GST must obtain cover under the Home Building Compensation (HBC) Scheme (formerly known as home warranty insurance).

The HBC Scheme may help compensate you for some losses if there is defective or incomplete work in the building, and the builder or developer has become insolvent, dies, disappears, or the builder's licence is suspended for failing to comply with certain court or Tribunal orders.

The HBC Scheme covers new houses and multi-unit residential buildings up to 3 storeys high. There is no cover for multi-unit buildings that are more than 3 storeys high. Exemptions also apply to certain types of retirement villages.

Attaching proof of HBC cover to the contract of sale

If building work on the property has started, a copy of the builder’s proof of HBC cover must be attached to the contract of sale.

Insurance is required to protect the buyer against:

• the risk of non-completion of the work
• breach of statutory warranties relating to the work.

You can find out more about the HBC Scheme and check if you’re covered at www.sira.nsw.gov.au.

Exemptions for attaching proof of HBC cover to the contract of sale

Sometimes builders only take out cover shortly before building commences. If the building work has not yet started, the developer is not required to provide the certificate of cover. In this situation:

• the HBC cover must be in place before any construction starts.
• the developer must give the buyer proof of cover within 14 days. The buyer can cancel the contract if cover is not provided within this time.
• all these conditions must be included in the contract.

Cancellations

The legal right to cancel the contract under the Home Building Act 1989 is limited to situations without cover under the HBC Scheme at the arranged time. In this circumstance, the prospective buyer can only cancel before the contract has been completed (settlement).

Be warned: where a contract of sale is completed and settled, the legal right to cancel the contract no longer applies. This is the case even if the builder has broken the law and not provided the necessary insurance.

Warning to buyers

When you buy off the plan, you are paying for a property where the end product may not only differ from your expectations, but be worth less than you have paid by the time it is finished.

If you are thinking of entering into a contract to buy premises not yet built, exercise caution and obtain appropriate legal and other advice before signing any documents or paying any money.

Class 2 building defects

Regulatory oversight of building and construction in NSW is a partnership approach between the NSW Building Commissioner and NSW Fair Trading.

The Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (RAB Act) grants powers to the NSW Building Commissioner and NSW Fair Trading to investigate serious defects in multi-storey residential apartment buildings (class 2). It allows developers to be issued with various orders if serious defects are discovered.

The compliance powers can be used for up to 10 years after the building is completed.

Resolving class 2 building defects

How you resolve a residential building defect issue depends on the size and age of the building and the type of defect.

Where you can’t resolve a serious building defect with the builder or developer, notify NSW Fair Trading. We’ll assess the complaint to determine if the issue can be resolved through statutory warranties or other assurance schemes, or if it needs further investigation.

For advice on what to do when an Occupation Certificate is delayed by NSW Fair Trading orders, refer to Building dispute intervention.