Property Law

By Erin Taylor


Off the plan, or on the nose?

Many Ken Behrens or soon to be Ken Behrens probably have experience buying a unit off the plan. Buying a unit will become a much more common occurrence in Canberra as we start running out of greenfield land in the next 10-15 years. Once that happens, the reality will be urban in-fill like re-development of old office buildings or squeezing mixed used buildings on blocks no one ever thought would be built on.

Buying off the plan always comes with some inherent risk. If you think about it, you’re buying a property site unseen, based on some clever graphic modelling of what the units will look like and the architect’s plans. While most of the time this works out fine, there’s a lot of variables. Sometimes the developer won’t yet have development approval, or some other chain of events needs to happen before they can get out of the ground (or probably more likely, get into the ground to build the underground car parks before they get out).

Lately we have noticed a few practices creeping in that have caused our conveyancing team some concern. One of those surrounds the clauses regularly seen in off the plan contracts that provides for what I have outlined above. Often, there will be a clause notifying buyers that the commencement and completion of the development is subject to the developer undertaking all of the “arrangements”. Generally that is things like getting development approval, consolidating and getting new Crown Leases, arranging a builder and the like. Sometimes the arrangements is also extended to obtaining finance to complete the development. Some developers will require a certain number of “pre-sales” that is, exchanged sales before they get formal finance approval, in order to be able to get finance from the bank to get going.

We’ve noticed lately that some developers have been using this clause to rescind or terminate contracts. They have been telling buyers that they haven’t been able to get finance and will not be proceeding with the development, only to then proceed to miraculously obtain finance and sell the units to new buyers at a much higher price. There has been significant capital growth in Canberra of late and so seemingly some developers are taking advantage of the “arrangements clause” to rescind with buyers they might have sold to a year or so ago and make the best of the capital growth themselves. This leaves buyers left without a home to be built and with the prospect of searching again for a new home and usually much higher prices.

Another practice we have noticed is developers with in-house sales teams pressuring buyers to exchange contracts on a $1,000 deposit on the weekend if they happened to have strolled into the sales office or display. These buyers are usually young or possibly new to Canberra or Australia and not experienced in property or contracts. They sign and exchange the contract and are then given a very gentle suggestion to obtain legal advice. Usually, once they do get advice, the 5-day cooling off period in all contracts for sale of residential property has expired and they are locked in to buy a unit they have really done no due diligence on in terms of assessing their ability to finance the purchase. We have a number of clients who are now being mercilessly chased by debt collectors to pay the 10% deposit they agreed to pay under a contract they received no advice on. Some of them are being chased for up to $60,000.

In both scenarios, had those buyers come to our conveyancing team, we could have talked them through the risks and how to mitigate them. Our team have been ensuring that contracts are altered for our buyers to ensure scenario 1 cannot occur. It goes without saying scenario 2 would never occur had the buyers come and chatted to us before being pressured to sign a contract they didn’t understand.

Buying a property for the first time, or upgrading to something shiny and new should be an exciting and stress free time. It can only be that way if you have a legal team there that manages these risk for you. If you need one, or want to discuss anything property related, give our conveyancing team a call on (02) 6279 4222.