The Importance of Understanding Off-the-Plan Contracts and Disclosure Statements
For most people, buying a property involves the investment of a considerable proportion of their life savings. It is often the most important and valuable asset that a person owns. When purchasing off-the-plan strata property, it is inevitable for purchasers to receive a large amount of paperwork which, although cumbersome, is very important. While we strongly recommend that a lawyer is engaged before these documents are signed, we appreciate that this may not always be possible. Below is a checklist of some of the key terms and conditions of the contract and disclosure statement to be aware of when an off-the-plan contract for strata property must be signed urgently and before a lawyer has been engaged to provide a thorough review.
- Sunset date (Contract)
This is the date by which the developer must complete building the project.
- Interest on deposit (Contract)
Because of the lengthy nature of off-the-plan contracts, deposits paid by the purchaser are nearly always invested in term deposit accounts. This clause will specify who is entitled to the interest on the deposit in different circumstances.
- Terms of default (Contract)
It is important to understand the parties’ obligations and entitlements when one party is in default. The purchaser should carefully read any provisions relating to the rights of the developer if the purchaser defaults.
- Outgoings (Contract)
There will be a provision with respect to monetary adjustment for outgoings. The developer is usually responsible for outgoings until the date of settlement; however, in some instances the contract might provide for an adjustment to be made as at the date of registration of title.
- Pre-settlement inspection opportunity (Contract)
This clause in the contract will specify whether the purchaser is entitled to a pre-settlement inspection and when the inspection can be carried out. This is the only chance the purchaser has before settlement to inspect the property. If no such clause exists in the body of the contract, it should be inserted as a special condition.
- Defects (Contract)
It is important to understand what constitutes a defect, and the relevant defects periods. It is common for off-the-plan strata property contracts to provide a period of between 3 and 12 months following settlement during which the developer must rectify minor defects in the property, and a period of 6 years following settlement during which it must rectify major or structural defects. It should be noted that the limitation periods for bringing an action in respect of breaches of statutory warranties relating to non-structural and structural defects are 1 year and 6 years, respectively.
- Lot Disclosure plan (Disclosure Statement)
This is the plan for the lot that is being purchased. The purchaser should ensure they are satisfied with the layout, size and number of all the rooms.
- Lot size (Disclosure Statement)
It is important to note that total lot size/area is different to (internal) floor size. Total lot size includes the garage, the balcony and sometimes all storage areas depending on where they are situated. The purchaser should ensure that this figure is as advised by the agent and that the agent did not misrepresent the total lot size as the internal floor area.
- Scheme disclosure plan (Disclosure Statement)
This will indicate where the lot is situated within the whole development. The purchaser should examine the common areas (if any) and confirm whether they are consistent with the Purchaser’s understanding of all features promised by the agent.
- Exclusive use areas (Disclosure Statement)
If the purchaser is entitled to any exclusive use areas, such as car park, storage area or courtyard, this should be reflected in the disclosure statement.
- Proposed body corporate budget (Disclosure Statement)
The proposed budget is a good indication of the ongoing body corporate fees payable following settlement. Particularly where the property is being purchased as an investment, it is important to appreciate the impact that such fees will have on net income, so the proposed budget should be reviewed carefully.
The above represents only certain of the key terms and conditions of the contract and disclosure statement. Care should be taken to examine both documents in detail and, as mentioned, every effort should be made to ensure a lawyer is engaged to provide a thorough review prior to documents being signed.