A Guide to Navigating Off-the-Plan Property Purchases in Australia

At a Glance

Buying off-the-plan means entering a contract for a property that is not yet built or is under construction
Contracts are usually weighted in favour of the developer and require careful legal review
The "sunset period" is a critical timeframe for the completion of the project
Buyers may be eligible for stamp duty concessions depending on their state or territory
Financing carries unique risks as valuations may change between the deposit and completion

The Nature of Off-the-Plan Contracts

When you purchase a property off-the-plan, you are essentially buying a promise. You are committing to a future title based on architectural plans and schedules of finishes rather than a physical structure you can walk through.

Under Australian law, these contracts are often voluminous and include "disclosure statements" which outline the proposed plan of subdivision, the specifications of the building, and the projected completion dates. Because the property does not yet exist, buyer protections vary by jurisdiction and may include statutory cooling-off periods (for example, under the Conveyancing Act 1919 (NSW)) and requirements for deposits to be held in regulated trust accounts.

Understanding the Sunset Clause

One of the most vital components of an off-the-plan contract is the "sunset clause". This clause sets a deadline by which the developer must register the plan of subdivision and complete the project.

In New South Wales, in the past, some developers used sunset clauses to deliberately delay projects, terminate contracts, and then resell the properties at higher market prices. However, New South Wales and Victoria have introduced specific legislative controls on the use of sunset clauses to prevent this practice. In those jurisdictions, developers are generally required to obtain the purchaser’s consent or an order of the Supreme Court before rescinding a contract under a sunset clause, providing greater security to purchasers.

The Risk of Variations and Defects

A common point of friction in off-the-plan purchases is the difference between the glossy marketing brochure and the final product. Most contracts allow developers to make "minor" changes to the plans or materials without the buyer's consent.

If the changes are materially prejudicial to the buyer (for example, a significant reduction in the area of the apartment), statutory or contractual rights of rescission may arise, depending on the jurisdiction and the terms of the contract. Following settlement, any contractual “defects liability period” (often three to six months) operates in addition to statutory warranty regimes, such as those under the Home Building Act 1989 (NSW), which provide longer protection for both major and non-major defects.

Practical Case Example: The Importance of Specificity

In Jobema Developments Pty Limited case, the Supreme Court considered the operation of sunset clauses and the limits on a developer’s ability to rescind off-the-plan contracts.

Consider a buyer who signs a contract for a penthouse with a "clear harbour view". If the developer later installs a structural pillar that obstructs that view, the buyer’s ability to claim compensation or rescind depends entirely on how the "view" and "variations" were defined in the contract. This highlights why having a lawyer negotiate specific warranties regarding finishes and views before signing is essential.

Financing and Market Valuation Risks

A significant hurdle for off-the-plan buyers is the "valuation gap". Banks typically only issue formal loan approvals closer to completion. If the property market dips during the two years it takes to build the project, the bank's valuation might come in lower than the purchase price.

For example, if you bought a unit for $800,000 but the bank values it at $720,000 upon completion, you must bridge the $80,000 gap yourself. Failure to do so may constitute a breach of contract, entitling the developer to forfeit the deposit and potentially claim damages, subject to the contract terms and general principles of contract law.

Key Takeaways

Thoroughly review the disclosure statement and floor plans
Monitor sunset dates and understand your rights regarding cancellations
Ensure your deposit is held in a solicitor's or real estate agent's trust account
Be prepared for potential valuation gaps at the time of settlement
Conduct a rigorous pre-settlement inspection to identify defects

Frequently Asked Questions

Can I back out of the contract if I change my mind?

Most states provide a statutory cooling-off period (for example, five business days in New South Wales), but the length and availability of that period vary by jurisdiction, and once it expires, you are legally bound.

What happens if the developer goes insolvent?

If a developer enters liquidation, your deposit should be protected if it was held in a trust account. However, the project may be cancelled or delayed indefinitely, and you may lose the opportunity for capital growth.

Can the developer change the floor plan?

Yes, most contracts allow for minor variations. However, if the change is "materially prejudicial" to the buyer, you may have a legal right to rescind the contract.

Is the deposit paid directly to the developer?

No. In Australia, the deposit is generally required to be held in a trust account by a solicitor or licensed real estate agent and may only be released in accordance with the contract and applicable legislation.

Do I have to pay stamp duty immediately?

This varies by state. Some jurisdictions allow for the deferral of stamp duty for off-the-plan purchases for up to 12 months or until settlement, which can be a significant cash flow advantage.