Buying “off the plan” (OTP) refers to buying a property that hasn’t yet been built. It differs greatly to buying an established property because buyers need to rely on advertising and marketing material to determine the final appearance of the property. Buying OTP will leave the buyer wondering about the quality of the work that can be expected from the builder, the consistency of the builder and what happens if after settlement the buyer discovers there are issues with the building works.
Generally, OTP Contracts entitle buyers to a 3 month ‘defect liability period’ which starts from the date the individual becomes the owner of the property. During this period, buyers are entitled to serve a notice on the developer of any building defects apparent in the unit, and the developer will be required to fix those issues within a reasonable time.
Unfortunately, defective building works and the use of faulty materials may not become apparent for months or even years after your purchase has settled, leaving buyers with no contractual rights to force the developer or the builder to fix the issues, as the ‘defects liability period’ will have lapsed.
Often this means that the buyer will have to pay for rectification works and/or pay for the costs of litigation against the builder.
Usually, a better approach is to undertake your due diligence to reduce the likelihood of experiencing these issues after settlement. Some things buyers can do include the following:
- Undertake research on the builder or developer prior to purchasing. Buyers should ask themselves: What is the builder’s work like? Have they been involved in any past or recent litigation? Are they a newly established company or do they have a lot of experience? Have they completed any other developments in the area that can be inspected?
- Ensure a solicitor reviews the contract terms so that advice on the risks involved in this type of transaction is provided and protection from the risks is available.
- Organise a reputable and qualified builder to inspect the property before you take possession and obtain a defects report. A defects report can then be served on the developer within the defects liability period, requiring the developer to repair any defects outlined in the report.
Since 2016, more than half of apartment buildings registered in NSW have had at least one serious defect. The Building Commission NSW in partnership with Strata Community Association NSW conducted a survey in 2023 to examine the experience of NSW strata communities in dealing with serious building defects. The survey found that 53% of buildings in the survey had serious defects. Waterproofing and fire safety systems were the most prevalent defects reported. An estimated $79million has been spent by owners corporations to rectify building defects in units.
Because buying OTP 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 a property lawyer is engaged, but these costs are much smaller than dealing with legal battles later if appropriate due diligence was not carried out. It is important 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. Our property lawyers at Caldwell Martin Cox Solicitors can help ensure that comprehensive preparation is conducted before entering such a significant arrangement with a developer, whether a buyer is purchasing a unit off the plan or a house. We ensure our client’s best interests are protected and that they can make an informed decision when investing in property.