While it may sound shiny and new, buying property off a plan can prove to be a legal minefield. You should do your research thoroughly before signing on the dotted lines.

These are some things to keep in mind if you are considering an off-the-plan purchase.

Research

Put on your detective hat and do your research.

Louise Hethorn is the principal solicitor at Your Property Lawyers and suggests doing extensive research on the developer’s history and their recent projects before you commit to an off-the-plan purchase.

It’s also worth checking the planning certificate to confirm the zoning and any restrictions that may impact the use of the property.

Also, make sure to check for proof of homeowner’s insurance coverage.

Get in touch with a lawyer or conveyancer.

Experts recommend that you hire a solicitor to review contracts before signing them.

“Off-the-plan contracts are complex, and buyers need to be aware of their rights and obligations,” Ms Hethorn stated.

Some many rules and clauses vary between states, so it is important to understand them all. In New South Wales, purchasers have the option to cancel the contract within the 10-day cooling-off period. They will also lose 0.2% of any deposit they pay.

Contract

The contract is the basis of any deal between buyer and developer/builder. It’s therefore important to ensure that it contains all relevant information.

Pay attention to the “sunset” date and other conditions. Sometimes, the contract can become conditional if the developer gets financing for construction.

You should carefully read all warranties and inclusions in your contract. It is important to do your research before you make a major financial decision about buying a property. Ensure the schedule of finishes you are considering includes all items and that you have made your choices.

Ms Hethorn stated that purchasers need to be aware of the defects period in their contract to give written notice of any defects in the property.

“Some purchasers have 90-days from settlement to give the developer a list of defects that need to be rectified.”

Deposit

The contract stipulates that the minimum deposit amount must equal 10% of the purchase price. Deposit funds must also be kept in trust accounts by the deposit holder during the contract period.

Ms Hethorn stated that the purchaser’s tax file number must be provided to the deposit holder to receive their share of any interest earned between the exchange of contracts and settlement.

Taxes

You should review the contract to determine if there is an obligation on the purchaser to pay residential withholding GST. Also, check if the contract has land tax marked as “adjustable”.

“If land taxes are adjustable under the contract, the purchaser must pay a portion for vendor’s land tax. Ms Hethorn stated that the vendor remains the primary payer of land tax.

Stamp duty also applies to off-the-plan purchases and will differ from state to state. In NSW, purchasers have 12 months from the date contracts exchanged to pay stamp duty if they intend to live in the property. Otherwise, stamp duty is due three months from the contract date for an investment purchase.

Concession schemes and grants to reduce stamp duty may be available for some buyers.

Late completion penalties

You should review the contract to see if penalties are in place for late settlement. If there is a high-interest rate, you can negotiate a reduction. The purchasers have 21 days from the date they receive notice of registration for the strata plan.

Draft strata plans

The location and size of an apartment and storage and car parking spaces are all important considerations.

Ms Hethorn stated that in most off-the-plan contracts, any variation resulting in the final lot sizes being reduced by more than 5% would give the buyer the right to cancel the contract.

It is also recommended to review the draft strata management statements and strata bylaws.

Onselling

Once contracts are exchanged, it can take up to three years for off-the-plan developments to complete. A buyer’s income and borrowing capacity could change during this period.

Ms Hethorn stated that “as the property market fluctuates bank lending policies, and the valuation of a completed unit may result in decreased borrowing capacity.”

To avoid forfeiting the deposit, a purchaser who is unable or unwilling to secure financing for settlement will have to sell the property. The contract may contain a clause that restricts or prohibits a buyer’s ability to sell the property.

Finance

Ms Hethorn advised that if a buyer needs loan funds to buy an off-the-plan property, they should be aware that lenders may reduce the loan-to-value ratio for developments with more than 30 apartments.

“The cooling-off period does not apply to certain high-density areas. Before the cooling-off period expires, make sure to discuss your finances with your broker.