Off the plan purchase and rescission by vendor
An off the plan purchase is a purchase where a residence is not yet ready to be sold to a willing purchaser. There may be a number of reasons why the residence is not ready to be sold but the big 2 are that the building has not yet been constructed and secondly that the subdivision has not yet been registered creating the title on which the residence sits.
There are a number of advantages to a purchaser when buying off the plan. These include:
- A longer period of time between entering into the contract and securing the finance needed to complete the purchaser.
- Having a brand new home on completion.
- Potentially having the security of home warranty insurance depending on the size of the development.
- Potentially having the benefit of a defects liability period on completion of the residence.
- Securing a property at contemporary prices where settlement is to occur some months (if not years down the track) when property prices can be expected to be significantly higher in today’s hot market.
However some current articles are now suggesting that the benefits of buying off the plan may be illusory particularly in respect of “securing” the property. The articles suggest that developers are giving their purchasers an option (perhaps ultimatum is a better word) to either:
- Pay more money for the residence;
- Accept a smaller residence;
- Rescind the contract.
There is a link to one such article below.
So why are developers doing this? Although one can only speculate, the reason seems self evident. In today’s heated property market, the cost of housing is increasing at a quick pace. By forcing a rescission of the contract, the developer knows that there is a plethora of willing new buyers at (much) higher prices.
Typically such contracts have obligations on the vendor to complete the residence. Conversely there is also an obligation on the purchaser to settle the purchase on completion of the residence. However legal advice should be sought about the nature of the obligations the vendor has to ensure that there is little wriggle room for the vendor to rescind a contract. In today’s market and in a world of pro forma contracts, however that is easier said than done.
It may be (dare I say likely) that any amendment sought to a contract to reduce the vendor’s wriggle room will be met with a curt no. Again the commercial reality of a heated property market and the unequal bargaining position allows for this arrogance.
At the very least your legal adviser should be able to advise on the relevant clauses allowing the vendor to rescind the contract and in this way an informed decision can be made.