A Sales & Purchase Agreement (SnP) can often be long and complex, so for first-time investors, it's worth knowing what to look for when you engage in a contract. There has been a big shift into buying off the plan properties because of the tax benefits and other incentives so it is worth focussing our attention on these types of contracts.
SnP's are comprised of 'General Terms of Sale' and 'Further Terms of Sale'. When looking at off-the-plan contracts, our focus is always on the Further Terms because this is where the key clauses are located.
Here are some of the key clauses:
Deposit
Vendor Conditions
Sunset Clause
Variations
On-Sell
Due Diligence
We will break down each of these in more detail below.
Deposit
This clause outlines how much of a deposit is required to secure the property and when it is required to be paid. But perhaps more importantly, the clause outlines how the deposit is held. In most cases, the deposit is held in the vendor's solicitors trust account and is held there until the settlement date. Often the deposit is held in an interest-bearing trust account and if this is the case, it will be outlined in this section of the agreement.
Vendor Conditions
The vendor conditions outline how the vendor can exit the contract based on a number of common causes. These conditions give the vendor the right to cancel the contract if they don't obtain all the necessary requirements for the development. In most cases, the conditions include (but are not limited to):
Obtaining all relevant consents
Obtaining sufficient pre-sales
The vendor obtaining their funding
Having Title issued
Having CCC issued
Sunset Clause
One of the most commonly talked about clauses in any off-the-plan contract, the sunset clause is a clause intended to draw the contract to a close in the event progress is not being made as anticipated on the construction of the property. See more on this in the explainer titled 'Understanding Sunset Clauses'.
Variations
The developer can make small variations to the property throughout the build, and these are outlined in this clause. Generally speaking, the developer can make small changes (up to 5% of the value of the property) and this comes in the form of substitute materials or similar. The most common cause of this happening would be when a certain building material isn't available so the developer substitutes it for a similar product of equal or better value.
This isn't all bad for the purchaser though because if the developer makes any variation that the purchaser deems to reduce the value of the property by more than 5%, then dispute the change.
This clause is added to make the construction & consenting process smoother - developers are not incentivized to make changes, rather, this clause is there as a backup so they can make small changes as required to not halt progress.
On-Sell
Although property is generally regarded as a long-term investment, some investors like to speculate, meaning they buy now & sell before settlement. If this is the case, it is important to note the On-Sell clause within the contract. In a lot of instances, this clause restricts purchasers from selling the property until 3 months after settlement. This is different for every developer/development so carefully check the wording of the clause if you are looking to speculatively buy & sell.
Due Diligence
Commonly referred to as the DD clause, this is inserted for the benefit of the purchaser and is essentially a 'get out of jail free card' for purchasers who want to do in-depth research on a particular property. The due diligence clause comes into effect once the SnP has been signed by both parties and is often used to get a property 'off-market' and allow purchasers time to conduct more research to see if the property stacks up. See a detailed rundown of the DD clause in another explainer titled 'Benefits of a Due Diligence Clause'.
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