Buying a Unit Off the Plan –the Contract – Part 1
In previous articles from the writer we uncovered the intricacies of buying a unit off the plan by delving into the Disclosure Statement and what this document entails. This week, we explore the document you sign after the Disclosure Statement – the Contract of Sale. This agreement is usually prepared by the developer’s (Seller’s) lawyer. The clauses contained within this document are therefore weighed heavily in favour of the developer as their solicitor’s objective is to prepare a contract which is in favour of their client. As noted in our previous article, you will often enter into this contract before the building is built or the title created. Andrew Pine lawyer is an experienced solicitor who has assisted numerous buyers and developers when purchasing units off the plan.
While it is always necessary to obtain advice on an off the plan contract from a lawyer, this series of articles from Andrew Pine lawyer serve as a set of signposts to familiarise you with the salient points of this document. It is important to note that not all off the plan contracts will have each item listed in this series of articles. You should therefore bring up these points to your lawyer when requesting advice. Andrew Pine solicitor can be contacted to provide you with advice when buying off the plan.
Deposit and Interest on the Deposit
A Seller will usually require a deposit of up to 20% of the price to be paid within the first few weeks of the contract being signed. You may however be able to negotiate this point and reduce this percentage down to a smaller amount. It is worth noting though that given the Seller may not have even received funding from its bank to commence constructing the property, you are handing over a significant sum of money with no fixed date as to when you will be the owner of the completed product. It is therefore recommended that you hand over as little deposit as possible and that you ask your solicitor to confirm with the Seller as to when construction will commence and be completed. Andrew Pine lawyer can assist you with advice on this matter.
It is also usual for the deposit you hand over to be invested and earn interest. Some contracts may however be written so in favour of the developer they receive this interest, not you. Given you are handing over a significant sum of money and are not able to use these funds for a significant period of time, it should be you that receives interest at Settlement for this inconvenience. Andrew Pine lawyer can review your contract and advise you on whether you are entitled to interest on the deposit.
Unless you are made of money, it is likely you may need to borrow funds from a bank or other financier. It is common in an off the plan contract to either not have the contract conditional on finance, or alternatively, to have a finance date which only stretches a few weeks after the contract date.
This timeline does not work for banks. Banks cannot finalise their lending processes based on a property which is not yet in existence. An integral part of the lending process is being able to take security (a mortgage) over tangible property (your unit). Banks are therefore unable give you a final confirmation that you have received final finance approval until the building is built, which is usually only a couple of weeks before settlement.
Banks may give you what is called an ‘indicative approval’. This is a confirmation that the bank has perused the disclosure statement and contract in conjunction with your financial circumstances and their lending criteria. On the basis of all of these factors it makes a determination of whether it will be willing to lend you the required money at Settlement. This decision is based on a number of assumptions. The building must be built to the standard indicated in the disclosure statement. The market must either stay the same or get better in between the date of your finance application and settlement. Your financial circumstances must also either stay the same or get better. The government regulator which sets the rules on whether banks can lend to you must also not restrict their policies.
As you can see from the above, there are a number of assumptions which are made. Like a card pyramid, it only takes one to fall over for the entire structure to come crashing down. Andrew Pine solicitor can advise you on how to best manage your Contract of Sale to protect you from adverse changes which could result in a seller forcing you to settle where your bank is refusing to lend you the money required to buy. The ramifications of this situation can be dire.
In our next article, we will delve further into the realms of buying off the plan. However, as noted in this article, it is essential that you obtain legal advice that is related to your personal situation. Andrew Pine lawyer is experienced in this area of the law and can answer any queries you may have.
Disclaimer: Andrew Pine solicitor is a property lawyer practising in Queensland. Andrew is not qualified to give accounting or financial advice. This article is written solely as an opinion of the writer. This article should not be relied upon for legal, accounting or financial advice. You should always seek advice which is tailored to your individual circumstances.