Building your dream home can be one of the most exciting times in your life but securing the perfect location can be difficult in some circumstances, especially in the current market.

One of the ways to secure your dream block that is becoming increasingly popular is purchasing property ‘off the plan’. This simply means that the 'Lot’ (or block) you are purchasing has not yet been ‘created’ by the developer at the time of signing your land Purchase Contract. While purchasing off the plan can seem like a great way to secure your dream block, it is important to understand some potential issues you may face with this strategy.

Sunset Date

A Sunset Date is a date inserted in your Purchase Contract to say that the Seller must ensure the Lot has been created with the Titles Office by this date. By law, a Seller can take up to 18 months to do this. It is important to look at this date before you sign your Contract to make sure it fits in with your plans for the property, especially if you are planning on building straight away.

There are two approaches that a Seller may have in relation to a Sunset Date. Under the first approach, they may have a shorter timeframe, knowing that the subdivision is only a few months away from being completed and having a shorter timeframe is obviously more attractive to potential buyers. However, whilst you may think that the land will be subdivided by the date specified in the Contract, some key steps (i.e Ergon connection, council sealing) may take longer than expected and push dates out, meaning the Seller will need to ask for an extension of the Sunset Date to accommodate these delays. In these circumstances, you can agree or otherwise terminate the Contract, missing out on your ‘dream block’.

Alternatively, a Seller may include the full 18 months in the Contract as the Sunset Date even though they are expecting the works to be completed in 6 months (for example). The reason why sellers do this is to leave extra time ‘up their sleeve’ legally under the Contract, should progress be pushed back.

As a Buyer, it is extremely important that you understand that even though you may have been told by the Seller or real estate agent that the subdivision will be completed by a certain date, you will not really have the ability to rely on these representations, if they don’t match the timeframes and dates specified in the Contract. The takeaway here is to prepare for the ‘worst case scenario’ timeframe (eg. 18 months) and don’t get sucked in if the Seller or the agent make you promises to the contrary!

Build Contracts

As a Buyer, arguably the exciting part of this process is the actual building of your new home. Unfortunately, a lot of people rush into signing a build contract without fully understanding what some ramifications may be should there be a delay in the purchase of your block of land settling (refer to our comments above).

With the current state of the market and the construction industry, price increases are common. This is due to a range of factors, including an increase in the price of materials, supply chain issues and shortage of labour. If you sign your Build Contract around the same time as your land Purchase Contract, there is real potential for these costs to increase significantly over a potential 18 month period.

Even if you have a ‘fixed price’ Build Contract in place, it is important to check that there are still not any clauses in the Contract that allow for a price increase in certain circumstances. During these times, builders are relying heavily on these clauses to increase the contract price. Most standard contracts allow for the builder to increase a fixed price if there are material increases that ‘were outside of the builder’s control’.

Secondly, delays with your land Purchase Contract settling may cause issues with your Build Contract, depending on the anticipated start date included in your Build Contract. Should the builder not be at fault for the delay under you Build Contract (for example, if settlement of the land has been pushed back), you may need to pay the builder delay damages for each day that they are unable to commence the build. This is why it is so important to consider the Sunset Date in your land Purchase Contract and how this will affect your anticipated start date under your Build Contract, despite what you may have been verbally told by the seller or agent.

Given the potential severity of the above issues, we highly recommend that any Buyer who plans to build obtains legal advice on both your land Purchase Contract and your Build Contract, to ensure that both contracts work together to protect you from incurring unintended costs. . Unfortunately, at Enterprise Legal, we have seen dozens of times where this has occurred during the last two years, where clients should have had their Contracts reviewed.

If you would like to know more or for assistance with obtaining legal advice when purchasing vacant land ‘off the plan’ to build your dream home, please get in touch with EL's expert Property and Construction team:

☎️ | (07) 4646 2621
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🌐 | Property Conveyancing Services

Purchasing a unit that is still getting built at the time of signing the contract seems hassle free, and a weight off your shoulders with not having to think about costing, delays, daily discussion with builders and to be presented with a brand-new beautiful unit at the end!

In some sense, purchasing off-the-plan can be great, but because of the lack of control during the build process, there can be pitfalls too! Ensuring that you obtain the benefit of enforcing the warranties with the builder is one of the most important things to do when you are purchasing to ensure you can continue on hassle free once settlement has occurred. 

What Are Warranties And Why Are They Important?

A warranty in a construction contract is written guarantee given by the builder to the owner that they will fulfil their obligations under the contract. Some of the most important warranties that are commonly in construction contracts are:

1. that the materials used will be of good and merchantable quality;
2. that the work will be carried out in a good and workmanlike manner;
3. that the work and materials used to complete the works will be fit for purpose; and
4. that the materials used and the completed works themselves will be reasonably fit for the purpose for which they are required.

It is obvious to see why every owner would want to see these warranties in their construction contract. These warranties set a standard for the industry and will ensure that your home is built correctly and safely by qualified people.

Another imperative contract term that is common to explicitly see in a construction contract is a defects liability period. This is usually one year from the date of completion. This allows the owner to call upon the builder for any defects that has occurred in the building and the Builder must come and rectify that defect within a reasonable time period.

Minor defects are common in the first 12 months post construction, this is why the defects liability period and warranties are so important. 

If a warranty is not fulfilled by a Builder or the defects liability period not complied with, the Builder  would be in breach of the construction contract and the other party to the contract typically has a  claim against the builder to force them to comply. 

Who Would The Warranties Be Given To In The First Instance?

Just like any construction contract, the Builder would be providing warranties to the person that has engaged them to build the unit. In this case it would be the person/developer that is selling you the finished unit. 

In some instances, the Developer can be the Builder, and, in that instance, there would most likely not be a construction contract in place. 

What About Home Warranty Insurance?

Whilst the Home Warranty Insurance (that is required to be undertaken before any works is commenced) stays with the property, which means an incoming purchasers may be able to rely on it , there are other things to consider that may not be included under that scheme. For example, any manufacturer warranties in respect to any of the work under the construction contract or goods and equipment like appliances, washing machines and/or garage roller doors that also form part of the work under the construction contract. Equally, there are a number of pre-set criteria that must be met prior to being eligible for the Home Warranty Insurance, and home owners are often left out of pocket because the scheme doesn’t apply to them and their circumstances on the basis of specific criteria not being met and/or exclusions. 

It is also important that you do a search of insurance when purchasing the property to ensure that the Builder has actually taken out that insurance that they are required to on the property.

What Does That Mean For You As The Purchaser?

Unfortunately, what we see at Enterprise Legal, is people who find themselves with defects in the property or with the equipment provided, and very little to no control in being able to get this fixed. Due to the lack of assignment of the warranties under the Property Contract, the Seller ‘wipes their hands clean’ once settlement has taken place and the have received their funds from the sale. Without the correct documents and special conditions in place in your Property Contract, you would have no right to ensure the builder replace the defects (e.g. roller door, air conditioning unit, defective roofing system etc.).

How Can You Ensure You Can Enforce Those Warranties Once You Have Purchased The Unit And A Defect Occurs?

To ensure that you have the benefit to enforce the warranties with the Builder once settlement has taken place, you should make sure the warranties under the construction contract between the Builder and Seller are assigned to you. It is important to cover off on the assignment of warranties prior to signing the Property Contract. As such, at Enterprise Legal, we recommend a Deed of Assignment of Warranties is put into place between yourself, the Seller and the Builder. This Deed will ensure that any warranties provided to the Seller by the Builder under the Construction Contract is assigned to you so you may rely on them should a defect occur in your unit once settlement has taken place. Typically, Builders also have a 12 month defect liability period post construction, during which period they have an obligation to rectify defects promptly and effectively. The Deed can also assign this defects liability to you, as the incoming Purchaser. 

At Enterprise Legal we recommend to all clients that the engage us to review their draft Property Contract, not only from a property perspective, but from a construction perspective to ensure that things like warranties are considered as it can be something easily missed and unfortunately could cost a Buyer a lot of time and money down the track should it not be address at the beginning of the process. 

If you are looking to purchase an off -the-plan unit and need assistance, please reach out Enterprise Legal's expert property conveyancing team:

☎️ | (07) 4646 2621
✉️ |