Buying and selling vacant land, apartments or units “off the plan” has always been a tricky process for both the purchaser and the developer.
Both parties have a vision or dream about the end product. Often when construction of the subdivision or buildings has taken place the parties are unhappy with each other because what the developer delivers does not match up with the purchasers’ dream. In reality the parties have had different visions and unrealistic expectations of each other.
The global financial crisis has made the process harder for the developer and the buyer. Construction financiers often will not release finance until well over 50% of lots, apartments or units have been pre sold. This means the developer must sell before breaking ground, so the buyer has nothing to look at and has to rely on the promises and brochures provided by the developer’s agent.
The time to sort out what the project is and match up the buyer’s dream with the seller’s vision is at the point of entering into the contract for sale and purchase - not when the project has been completed.
This can only be successfully done with a clear and unambiguous contract. The contract must clearly describe what the developer is selling, the easements and other restrictions which will impact on the buyer’s use of the land, and in the case of an apartment or unit describe the schedule of finishes, appliances, useable internal space and landscaping to be provided.
Life for the developer has been made still harder by the new Australian Consumer Law which came into operation on 1 January 2011 as part of the Competition and Consumer Act (the rebadged Trade Practices Act). The new law strikes down unfair terms in consumer contracts that are standard form contracts. An “off the plan” contract presented by a developer will be caught by these provisions.
Because of the Australian Consumer Law it is in the interests of the developer to make sure the contract is fair. The contract must not cause significant imbalance between the party’s rights and obligations. It should only contain terms which are reasonably necessary to protect the legitimate interests of the parties and will not cause a detriment to the other party if relied on.
It is now even more important for the contract to explain in plain language what the developer is going to deliver. Where the developer needs to retain flexibility because the contract is being entered into at an early stage and precision is not possible, flexibility must be built in by clauses which are fair to the purchaser as well as to the vendor developer. A developer risks finding the contract unenforceable, and therefore unacceptable to the construction financier, if it contains old fashioned terms allowing the developer absolute rights to make changes.
Both developer and the purchaser need to obtain good advice before entering into an “off the plan” contract.
(The content of this article is intended to provide a general guide to the subject matters. Specialist advice should be sought about your specific circumstances.)