Understanding Buying Off the Plan Property

Buying a property off the plan can be an exciting new chapter in your journey towards home ownership or your investment portfolio. Typically, the process involves purchasing a property that is not yet completed. It is either under construction or in the pre-construction phase, which means buyers can only visualise the property based on building plans and designs rather than the finished product.

However, this method comes with certain risks and uncertainties, making it crucial to have a conveyancing lawyer at your side. Experienced property lawyers, like those at Franklin Law, can ensure your purchase agreement provides the necessary protections to safeguard your investment.

Some Key Considerations For Off the Plan Property Agreements

Deposit safety – Ensure that your deposit is not released to the developer until the property is completed and handed over to you. The agreement should include a clause that secures your deposit until this point.

Securing finance – Due to potential long waiting periods before the property is ready, it’s vital to confirm that you can secure financing for the purchase even after several years. Failing to do so might result in having to secure a high-interest loan from a second-tier lender or risk defaulting on the purchase agreement, leading to the loss of your deposit.

Limiting the tolerance for construction delays – Construction delays are common. Your agreement should include a sunset clause allowing you to cancel the agreement if the settlement isn't completed by a specified date, accommodating for possible life changes that might occur during prolonged delays.

Understanding what you are buying – It's essential to comprehend the specifics of the property, such as floor or land area, number of bedrooms, materials used, location and natural light. Be aware that developers often retain the right to make changes, such as altering building materials, reducing floor or land area, or modifying proposed garden spaces. Understand the extent of these possible alterations to gauge the risk involved.

Understanding your property title – Understand the title type (e.g. fee simple or unit title) of the property and be aware of any associated rules or levies if it is a unit title. Investigate potential interests to be registered on your title by:

  • Reviewing the parent title for existing interests that might be dropped down to the separate title of the property.
  • Checking the resource consent for any easements, consent notices, or other interests required by the territorial authority.
  • Understanding any residents’ society rules recorded in the land covenant instrument, if any.

Force majeure clause – Be cautious of the broadly defined force majeure clauses that allow developers to terminate the contract due to unforeseen events like epidemics or natural disasters. Ensure the clause is carefully worded to prevent developers from using it to cancel agreements and resell at higher prices.

Completion of resource consent conditions – While developers are generally obligated to meet all resource consent conditions, in reality some land use conditions may remain outstanding at settlement. As the new landowner, you will be responsible for these conditions. To avoid this, it is recommended that the purchaser orders a Land Information Memorandum (LIM) report once the property title is issued to identify any outstanding conditions. Your lawyer can then address these before settlement.

Franklin Law can help you with legal advice when considering purchasing a property off the plan.

The above key considerations do not form an exhaustive list. Purchasing an off the plan property requires careful consideration of numerous factors to safeguard your investment. By thoroughly understanding and negotiating the contract terms, you can mitigate risks and ensure a smoother path to owning your new property. A purchaser is encouraged to always consult with a legal professional to navigate these complexities effectively.

At Franklin Law, our team of property and conveyancing lawyers in Papakura and Pukekohe are committed to providing accessible, affordable legal services to help you navigate the complexities of purchasing property off the plan.

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The information contained in this article is necessarily of a generalised nature and is correct as at July 2023. Specific advice should be sought in relation to any particular situation.

Article written by Ariel (Shuyin) Ma