Buying off-the-plan requires you to put trust in a developer that they're going to build the product that you signed a contract to receive. But what happens if the property doesn't get built?
First off, it is quite rare for a build not to go ahead if you're working with a reputable developer. But, on the off chance it does occur, purchasers should know that they have protection within their Sales & Purchase Agreement.
Refer to the article titled: "Common Clauses in a Sales And Purchase Agreement" for more information.
The biggest fear most people have is losing their deposit. First home buyers especially have the fear that if they lock themselves into a development and it doesn't go ahead, their hard-earned deposit will be gone forever.
However, if the development didn't proceed for one reason or another, you will still be entitled to get your deposit back so even as a first home buyer, you should have confidence that you won't lose it all.
A SnP Agreement doesn't automatically expire so even if the development doesn't proceed, it won't mean your contract will terminate unless you have a clause in there to allow for this.
Generally, the best clause to use in this situation is a sunset clause which acts as a date on which you (and/or the vendor) can cancel the agreement if the development runs past an agreed-upon date. Without a sunset clause, the contract stays in perpetuity if the build isn't completed.
Another factor that you often hear concerns over is price escalations within a contract. This is more uncommon than most people think but it can happen.
Even if a property were to have prices put up, the purchaser is not obliged to pay the higher amount and they can cancel the contract at that point in time if the price escalation is too much for them to stomach so rest assured if the developer puts their hand out for more money, you can walk away from the deal.
A lot of developers recognise this fear and put price guarantees into their contracts to avoid the fear and promote people to purchase their products.
For example, large group home builders often advertise the guarantees on their website to give purchaser comfort around what they can offer. Price guarantees, completion guarantees, 10-year structural guarantees, and more are often part of this package and can be very comprehensive.
For first-time investors who are nervous about non-completion, these guarantees can often seal the deal because it is comforting to know these large development companies/group home builders do provide safety nets in some sense.
It is important that with any property you're looking to purchase to seek legal advice. Specialist off-the-plan lawyers will give you a full rundown on what clauses to be aware of and also what guarantees you have on your side.
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