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Buying off the plans - properties that don't yet exist

By Michael Bennett - 15 Jul 2019

When buying off the plans, there are a number of extra terms and conditions which need considering before signing an agreement. We discuss a few of these below.

Deposit

If the title to the property has not issued and the construction of the apartment or dwelling has not been completed, then it is important that your deposit is protected. If the deposit is paid to the developer, who then becomes insolvent, the funds may be impossible to recover. It is essential therefore that the deposit is held by a third party until all vendor and purchaser conditions are satisfied and ideally until the settlement date.

Sunset Date

Once the agreement has been signed by both parties and all purchaser conditions are confirmed, there are limited rights to cancel the agreement. A sunset date is a date on which you may cancel the agreement if the vendor has not satisfied all of their conditions and completed the development.

Although there are implied rights to cancel under the Resource Management Act 1991 in certain situations, without a sunset date, there is no obligation on the vendor to complete the subdivision within any set period of time. You may be bound indefinitely with limited or no right to cancel or receive a refund of your deposit.

Final Measurement and Specifications

The area of the section or body corporate unit provided on the agreement is only an indicative figure of what the final area will be. It is important that the agreement deals with the situation where the final measured area of the section or property does not match those of the agreement. This is often by way of a variation to purchase price, or the right to cancel the agreement.

Finance

On the settlement date, you will be required to pay the balance of the purchase price plus any apportionments made for rates or other outgoings. You will need to ensure that you have your finance organised well in advance of title issuing to ensure no delays on settlement. You should check how long the time period is for your bank's pre-approval and whether this aligns with when the vendor expects the development to be finished.

If you are intending to withdraw your KiwiSaver funds, or apply for a HomeStart Grant, it can take up to 20 working days for these funds to become available. Note that KiwiSaver and HomeStart Grants must be used to settle the purchase of the section and cannot be withdrawn at a later stage as a contribution towards any construction costs. If you are wishing to use KiwiSaver or HomeStart grant for your deposit, then there are further clauses which need to be added to an agreement in order to comply with the KiwiSaver or HomeStart provider's requirements.

Body Corporate / Home Owners Association

It is becoming common for developers to establish a body corporate or home owners association to manage private roads, easements and restrictive building covenants. You need to ensure that you have a clear indication of whether a management body will be in place, what the rules will be and how much you are going to be expected to pay by way of levies each year.

This is far from an exhaustive list of things to consider in an agreement. If you are planning to buy off the plans, come and see Michael Bennett or a member of our property team before signing up.

 

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