24 Jun How do “off the plan” apartment contracts work?
As discussed previously the current market is causing some planned apartment projects to be postponed or cancelled. It is therefore timely to review exactly how an “off the plan” apartment contract works and understand some inherent risks.
When a purchaser enters in to an “off the plan” contract of sale they are buying something that doesn’t yet exist so there is are lot of conditions in the contract about the rights and obligations of the buyer and developer. In its simplest form, the developer agrees to build the apartment and the purchaser agrees to pay the purchase price including a 10% deposit when they sign the contract. Usually this works perfectly well, but what happens if construction is delayed or (in the worst case) doesn’t happen at all?
“Off the plan” contracts of sale have a “sun set clause” meaning the contract is binding on both parties (by law and the conditions of the contract) up to a certain date, which is typically around 4-6 years after the contract date. After this time if the development is not completed, the contract lapses and the deposit is refunded. Usually the development is completed well within this time but there are a few occurrences where the developer cannot build the apartments within that time or at all. This means the purchaser remains bound by the contract for the entire time right up to the sunset date with the 10% deposit held in trust.
Even in those unusual circumstances where it becomes clear the development is not going to proceed, the purchaser can not cancel the contract and get their deposit back to go and buy a different property. They need to wait for the contract to expire at the end of the “sun set” clause or hope the developer agrees to cancel it. By this time the market may have changed and the buying process has to start over again. If you have planned your life around moving into the apartment this situation can be very disruptive.
These situations are rare but it is important to understand how the contract works and please get professional legal advise when entering into a contract of sale.
This issue places a huge importance on understanding the credibility of the developer and their track record in delivering quality projects on time. If you are looking to buy an “off the plan” apartment, ask a lot of questions about the developer and inspect previous projects they have completed.