When ‘off the plan’ doesn’t go to plan

When ‘off the plan’ doesn’t go to plan

The appeal of buying off the plan

Buying off the plan is a great plan – right? There are plenty of advantages – a lower deposit, a brand spanking new property with your choice of fixtures and fittings, a guaranteed price, to name a few. But if you are in the market for an off the plan purchase, it’s wise to go in with your eyes wide open and some expert help, particularly around contracts, which tend to favour the developer over the buyer. Whilst the benefits of off the plan are undoubtedly real, so are the risks, as our client Valerie found out.

Valerie’s off the plan South Yarra apartment

Valerie was looking for an investment and decided on a two bedroom, two bathroom apartment in South Yarra. In a beautifully appointed development, close to transport, cafes and shops and the city, she knew it would be the perfect rental property and a good source of ongoing income. She paid her deposit of $80k and sat back whilst the developers got on with the build.

Seven days before the final settlement, Valerie was invited to make the final inspection of the property. Imagine her shock and horror to find that her ‘two bed, two bath’ was now a ‘two bed, ONE bath’! The developer had decided that the second bathroom was ‘overkill’ and changed the plans, removing one of the bathrooms. Valerie had paid a non-refundable deposit and was contractually committed to a property that was now worth less and would be harder to rent out than the one she thought she was buying.

Developers’ rights to make changes

What many off the plan purchasers don’t know is that a developer is within their contractual right to make changes to the floorplan or the subdivision if they are required to progress the development  – for example because of engineering requirements, or council regulations.  The only obligation on the developer is to notify the purchaser of the change and give them the opportunity to object. The purchaser’s conveyancer would review the changes and provide advice on whether they constitute material changes, which would justify an objection. It’s essential therefore to have a conveyancer engaged from the moment you decide to purchase off the plan.

When Valerie approached us, it became clear that in her case this notification had never been made, giving her no chance to object earlier in the process. Her only recourse was to seek to be released from the contract and/or compensation.

We were able to support Valerie by showing that:

  1. The change to the plan was significant and to her detriment;
  2. The developer had not followed the required process and was therefore in breach of contract.

The developer did not agree, and the case went to litigation. The case that took a year to settle, ending in a Supreme Court ‘mini hearing’. But the court agreed with Valerie, and the eventual outcome was in her favour. The contract was set aside, with each party paying their own costs. Valerie had to pay $20k in costs, but had her $80k deposit returned and was released from the contract.

What can we learn from Valerie’s story?

  • Go in with your eyes open. Buying off the plan can be a great plan, but it’s important to understand that changes in a development may be inevitable – it’s the extent and impact of them that is crucial. We’ve seen developers removing a room, downgrade fittings and replace a car parking space with a car stacker, attracting additional service fees.
  • Appoint a conveyancer as soon as you decide to purchase off the plan – all too often, purchasers only appoint a conveyancer just before settlement, at which point it is too late to act if issues have been missed earlier in the construction.
  • Get a contract review before you sign it – ask your conveyancer to review the terms, and advise you on what they say about defects and changes. Off the plan contracts are usually heavily weighted in favour of the developer – but your conveyancer will be able to explain any risks and advise on whether you could ask for any changes to the contract to level the playing field.
  • Notify your conveyancer immediately if the developer informs you directly of any changes. They will provide advice and help you to determine whether they are ‘material changes’ to which you need to object.
  • Ensure you use the constant contractual support of your conveyancer during the build.

Valeries’s story ended better than it might have done without full conveyancing support – yes, she was $20k out of pocket, but it could so easily have been $80k, or she could have been saddled with an apartment that didn’t meet her investment needs. As always with contracts, the devil is in the detail, so it’s wise to get professional contractual advice and support right from the start.