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Crackdown on proposed developments: do your due diligence when buying off-the-plan

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Attwood Marshall Lawyers Property and Commercial Lawyer Aimee Turner discusses the implications faced by buyers when developers sell off-the-plan properties prior to obtaining council approval and the necessity for buyers to conduct their due diligence.

Background

Over the past year, more than $70 million worth of units in four high-profile developments were sold to proposed buyers, and were then subsequently rejected by City Hall.

Council is now demanding that the Office of Fair Trading (OFT) reform the rules so that developers are forced to disclose whether a project has received council approval when advertised, which will ultimately provide a little bit more protection to proposed buyers.

There have been cases where people have been left without a roof over their heads after selling their properties to buy off-the-plan units in projects that have failed.

On the Gold Coast, various high profile developments have been denied development approval by the Gold Coast City Council, including the controversial $100 million 29-story La Mer Tower proposed for Main Beach, which saw buyers cough up more than $65 million anticipating its completion.

Overlooking Broadbeach State School was the proposed $73 million Broadbeach Tower Aperture, which was also unsuccessful in obtaining council’s approval. The Broadbeach Tower Aperture had units that were already advertised on the market, with prices ranging from $2 million to more than $7.7 million prior to council rejecting the development.

The developers of both these projects have appealed the Planning and Environment decisions.

Despite council’s push for tighter regulations on developers, property industry figures have warned that there is no guarantee the move would provide any more effective protection for buyers than what is currently in place.

Robina Councillor, Hermann Vorster, who spearheaded the push for these changes, has said closing a loophole that allowed projects to be marketed without revealing their approval status was critical.

Buying off-the-plan before council approval

Fierce competition in some sectors of Australia’s property market has driven buyers to purchase off-the-plan apartments before local council approval has been granted for such developments.

The trend has initiated warnings from lawyers and property advisors who say homebuyers and investors should be aware of associated risks.

Some developers sell off-the-plan apartments in developments without council approval to induce creditors to fund the construction. There can also be the lure of early-bird discounts offered by some developers, saving buyers as much as $10,000 if they wish to take the chance.

If development approval of a project is rejected by the local council, buyers will receive their deposit back but this may be of little comfort if they have already sold their existing home.

It is paramount to ask questions when buying and selling a property off-the-plan. Obtaining legal assistance before any contracts are entered is best practise in protecting all parties’ interests.

Buying off-the-plan is different from buying an established property because buyers will rely on advertising and marketing material in determining the final appearance of the property and what is included. It is crucial to ensure that the Contract of Sale adequately reflects the pre-contractual representations that have been made by the agent and that there is no ambiguity in relation to this. For example, the brand or model of the fixtures and finishings in the property must be clearly stipulated in a contract. It is also common for off-the-plan contracts to include provisions that allow the developer to vary the original disclosure plans provided were deemed desirable. It is essential that buyers are aware of such provisions and understand the implications involved with this.   

The 2 biggest concerns with buying Off the Plan are you don’t really know how the end product will look or what the value of the completed house/unit will be.

Because buying off-the-plan is different from buying an established property, ensuring a professional independently reviews the Contract of Sale is imperative to ensure buyers understand the fine print and clauses that may not always be in their favour. Of course, there are costs involved when you engage a property lawyer to provide their advice and insights, but these costs are much smaller than dealing with legal battles later if you haven’t done your due diligence and issues arise.

A property lawyer may conduct a background check on developers to ensure they are reputable and have a high-quality performance history. A property lawyer can also determine whether developers have approval for specific projects, which can assist in managing a buyer’s expectation in regard to whether the development will successfully proceed. However, it must be kept in mind an approval from council is not a guarantee the development will proceed. There are usually a number of clauses allowing a Developer to terminate the Contract and this is another reason why buyers should obtain competent legal advise. Additionally, researching a developer’s past performance and visiting finished projects they’ve worked on will assist buyers in making informed decisions.

When preparing the Contract of Sale, a property lawyer can negotiate and draft special conditions to ensure a buyer’s best interests are considered. For example, a special condition may instruct that all interest accrued on the buyer’s deposit be paid back in full if the development does not proceed. A property lawyer can also assist in negotiating special conditions regarding the sunset clause, which is the specific date that a property is required to be completed by.

When developers sell off-the-plan apartments, they are required to provide buyers with a document known as a Disclosure Statement. A Disclosure Statement clearly identifies the proposed unit being purchased and discloses any claims or promises made by the developer in relation to the development. Pursuant to the Land Sales Act 1984, there are certain items that must be disclosed in the Disclosure Statement and failure to do so may result in termination rights. Accordingly, it is crucial to engage a professional to review the Disclosure Statement and confirm all requirements have been met. Developers may issue an Amended Disclosure Statement during construction however if there are major changes it will allow the buyer the opportunity to terminate the contract.

Attwood Marshall Lawyers – leading property law firm

If you are buying or selling property off-the-plan, it is imperative to take the time required to consider the potential risks.

Buyers should seek professional advice from a property lawyer at the beginning of the transaction process.  A property lawyer can help ensure that comprehensive preparation is conducted before entering such a significant arrangement with a developer.

Attwood Marshall Lawyers has a leading property law department that has helped thousands of clients achieve successful property transactions for over 75 years. It is our intent to ensure our client’s best interests are protected and that they can make an informed decision when investing in property.

For legal assistance with a conveyance or general property law advice, contact Property and Commercial Department Manager Jessica Kimpton on 07 5506 8214 or email jkimpton@attwoodmarshall.com.au or call our 24/7 phone line 1800 621 071 today.

Additionally, we have a dedicated commercial litigation team that handles property, building and construction disputes. Our commercial litigation lawyers are experienced in dispute resolution strategies to help people involved in building disputes resolve their matters efficiently and cost-effectively.

If you need advice about a building or construction dispute, please don’t hesitate to contact our Litigation Department Manager, Amanda Heather, on direct line: 07 5506 8245,  email aheather@attwoodmarshall.com.au or free call: 1800 621 071 to find out where you stand.

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