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  • Gabriella Ferraro

The Benefits & Risks when Purchasing Off-the-Plan & the Important Changes to the Sale of Land Act

Updated: Jun 19, 2019

Written by Omruye Koyu

There are pros and cons when purchasing off-the-plan properties. Generally, they can be risky. It involves buying a property purely based on plans and artistic images without the benefit of a physical inspection, unlike when purchasing an existing property.

What does it mean to purchase “off-the-plan”?

When you buy off-the-plan that means you are buying a lot on an unregistered plan of subdivision. For example, a vendor may own a large piece of land and intends to build a 9 storey building with multiple units in that building to be sold off, or a vendor may own a large paddock and intends to divide the land into smaller residential lots to be sold off. Rather than waiting until the 9 storey building is complete or the land is divided into smaller residential lots, the vendor instead enters into a contract with purchasers on the basis that the vendor will use its reasonable endeavours to sub-divide the land and if successful the sale will be completed.

What are the benefits of purchasing off-the-plan?

The benefits for purchasers include:

· Stamp duty savings

This is one of the most common reasons given for purchasing off-the-plan. The stamp duty is payable on the value of the land and building as at the date of sale. If construction is yet to be commenced, a reduced amount of stamp duty is payable as the works completed on the property as at the date of sale will be minimal. If the sale takes place after construction has commenced, the stamp duty will be assessed on the value of the land and building as at the date of sale. In the event, all works are completed prior to the signing of a contract, it is unlikely that there will be any stamp duty concession.

· Tax benefits

A significant reason for purchasing off-the-plan is to obtain possible tax benefits. Off-the-plan purchases can realise significant depreciation tax savings that are greater than those available on current existing properties. This is only if the property is purchased for investment purposes.

· Lower purchase price

Vendors usually tend to sell as many properties as early as possible in order to obtain the funding they require to commence the subdivision. Prices tend to be very competitive at the commence stage. However, as demand increase and the development takes its course, similar properties purchased closer to completion tend to be more expensive than those purchased early.

· Savings

Some of the plan developments allow you to pay a lesser deposit upfront, leaving you with a longer period of time to save the balance under the contract.

What are the risks of purchasing off-the-plan?

The risk for purchasers include:

· Delays in completion of construction

Generally, either party can terminate the contract in the event the plan of subdivision is not registered within the specified period, also referred to as a ‘sunset clause’. It is important to note that neither party can terminate until this period has expired. If there is no sunset clause the purchaser under the Sale of Land Act 1962 (Vic) may terminate the contract if the plan of subdivision is not registered within 18 months of entry into the contract.

· Changes to the plan or advertised features

Local council or other authorities may impose conditions on the granting of approval for a development. Most contracts for off-the-plan purchases contain a special condition which prevents the purchaser from ending the contract on the basis of minor adjustments to the dimensions or area of the lot purchased. However, where there are substantial amendments, then the vendor is required to notify the purchaser and the purchaser can either elect to terminate the contract or elect to accept the amendments.

Most contracts for off-the-plan purchases contain a special condition which prevents the purchaser from ending the contract because of changes to the fixtures and fittings. Most contracts will allow the vendor to amend or change fixtures and fittings without reference to the purchaser.

· The property losing its value after the contract is signed

This often results in the purchaser being unable to obtain finance.

· Insolvency of the developer during construction

In the case where the vendor cancels the contract of sale, the contract may be put in jeopardy if the vendor goes into liquidation. Although, each contract provides the purchaser different rights, there is a high risk that the property will remain incomplete and any deposit paid will not be refunded.

The Sale of Land Amendment Bill 2019 (”The Bill”)

Potentially, important changes will be made to the Sale of Land Act 1962 (Vic). The Bill, if passed, will affect vendors under existing and future off-the-plan contracts. The intent of the Bill is to limit vendors’ rights to use sunset clauses to terminate contracts of sale, which would then allow for the re-sale of land at a higher price.

The Bill provides that before terminating a residential off-the-plan contract under a sunset clause, the vendor must obtain the written consent of each purchaser to the rescission after giving each purchaser written notice setting out:

· The reason why the vendor is proposing to rescind the contract;

· The reason for the delay in the registration of the plan of subdivision or the issuing of the occupancy permit; and

· That the purchaser is not obliged to consent to the proposed rescission.

Written notice must be given at least 28 days before the proposed rescission.

If the vendor wishes to rescind a contract under a sunset clause without the purchaser’s consent, it must obtain an order of the Supreme Court, in which case the vendor will need to prove that the rescission is ‘just and equitable in all the circumstances’, having regard to circumstances including the following:

· The terms of the contract;

· Whether the vendor is acting in good faith;

· The reason for the delay in registering the relevant plan of subdivision or occupancy permit being issued;

· Whether the particular residential lot has increased in value; and

· The effect of rescission on the purchaser.

The Bill provides that the amendments apply to existing residential off-the-plan contracts signed prior to commencement of the Bill.


If you are considering to purchase off-the-plan, you should be aware of and carefully assess the benefits and risks prior to entering into a contract. Generally, off-the-plan purchases are higher risk than standard domestic purchases and require special treatment and focus when entering into such contracts. At Ferraro & Company, we have lawyers who can assist and provide you with advice prior to purchasing off-the-plan.

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