Buying a lot “off-the-plan”, in essence, means the precise piece of land does not, as at the date of the contract, have its own individual legal identity and will not do so unless and until Land Titles Office registers the proposed plan of subdivision.
Naturally, settlement cannot take place before an individual title has been created and issued by Titles Office for your particular lot. Before a new title can be issued, the plan of subdivision must be certified by council and a Statement of Compliance issued by council. This will only be done after the developer has satisfied all requirements of the planning permit, of council and of the various service providers and paid all fees and contributions due to all of these authorities. Titles Office must then satisfy itself in regard to ownership issues and technical surveying matters.
Accordingly, because of the complex nature of this process, delays can occur in the issuing of titles which may delay settlement. This should be borne in mind at all times and a degree of flexibility needs to be retained in regard to the proposed settlement date.
What are the risks?
Off the Plan purchases carry intrinsic risks for purchasers including:
Delays in completion;
Insolvency of the developer or builder during construction/development;
Changes occurring from what was advertised or included in the contract;
A reduction in value of the property after contract date; and
Refusal of the bank to provide finance at settlement because of a reduction in value or change in the purchaser’s circumstances.
What is a sunset clause?
Typically, for a transaction of this type, the contract will provide that, in the event the proposed plan of subdivision is not registered by a particular date, 18 months is the statutory implied fall back time limit if not otherwise stipulated (“sunset date”), either party may, at any time after than particular date and until the plan of subdivision is in fact registered, withdraw from the contract by giving notice in writing to the other. If a purchaser client wishes to avail itself of this option the client must provide us with specific instructions, failing which we will assume that you are happy to wait for the plan of subdivision to be registered and to proceed to settlement.
Where the contract provides that the vendor, too, has the right to terminate the contract should the plan not be registered by the sunset date it should be noted that the law does impose certain ‘good faith’ obligations on the vendor to use reasonable endeavours to ensure that the plan of subdivision is registered by the due date before allowing the vendor to rely on such a clause.
Further, contracts entered in force after 23 August 2018 must either contain or will have implied into them the following conditions (but only where the property sold is residential):
the Vendor is required to provide the Purchaser 28 days ’notice of its intention to so rescind the contract;
the Purchaser may consent to such purported rescission of the contract by the vendor but is not obliged to;
should the Purchaser not consent to the Vendor’s purported rescission of the contract, the Vendor has the right to apply to the Supreme Court of Victoria for an order permitting the Vendor to so rescind the contract; and
the Supreme Court of Victoria may make an order permitting the Vendor’s purported rescission of the contract if satisfied that making such order is just and equitable in all the circumstances.
What are the benefits?
When entering into an off-the-plan contract, you may be eligible for stamp duty concessions, reducing the amount of stamp duty that you are required to pay under the Contract.
The SRO notes that “when the off-the-plan concession applies, the dutiable value is the contract price minus the construction or refurbishment costs incurred on or after the contract date. As this reduces the dutiable value of your property, it also reduces the amount of duty you pay”.
Typically, to be eligible for the concession, you must meet the following:
You must be eligible for either the principal place of residence concession or the first home buyer duty exemption or concession.
At least one purchaser must use the property as their home for a continuous period of 12 months, starting within 12 months of possession of the property, which is normally settlement.
***TEMPORARY CHANGES TO THE CONCESSION FROM 21 OCTOBER 2024***
As of 21 October 2024, for a period of 12 months, the concession will be available to all purchasers, including investors, companies and trusts, meaning there would be no requirement to be eligible for either the principal place of residence duty concession or the first home buyer duty exemption or concession.
Eligibility is based on the date the contract of sale is entered into, irrespective of whether settlement occurs before or after the end of the 12-month window in which the concession applies.
Contracts signed before the commencement date of this concession, but settled during the 12-month window, are ineligible.
Conclusion
Before entering such a contract, it is imperative that a purchaser understands the essential nature of such a transaction and not enter such a contract in reliance on representations as to when the plan will be registered.
At Andrews Crosthwaite, we can provide you with advice on the contract that you are looking to enter. Please contact our office on 03 9450 9400 to discuss your matter further.
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