Expect surprises when you buy off the plan

Expect surprises when you buy off the plan…. Lessons from a Green Square development

Eamon Duff at the Sydney Morning Herald in an article on 5 May 2013 has exposed an interesting situation where buyers of off-the plan luxury apartments in a proposed strata scheme in Waterloo are up in arms the proposed use of the ground floor component of the apartment block they are buying into at Green Square. You can read the full article here.
In short, Duff’s article indicates that 75% of the residential units in a development named VikingbyCrown were sold off the plan. The marketing material associated with the development suggested a luxury apartment block and artists drawings (including those still shown on the promotional website at vikingbycrown.com.au) show a car show room on the ground floor. An application has now been lodged with the council (which is currently being assessed by City of Sydney Council) to use the ground floor of the building for a multi purpose function centre and place of public worship. Duff’s article indicates some buyers are upset as this is not the use they envisaged as part of the luxury apartment scheme they were buying into.

This is a timely reminder of the potential pitfalls and risks you must be aware of when buying apartments off the plan. Standard off-the-plan contracts generally provide rights for purchasers to rescind if the apartment they are buying is materially different once constructed to that which was contemplated in the plans attached to the contract. However, these rights are usually limited to matters like a significant change in size or lay out. They do not generally cover a change in the overall scheme or use of another lot.

The matter of the proposed use of a commercial part of the apartment block you are buying into would not generally be something for which purchasers could exercise a right to rescind. In fact most off the plan contracts for larger strata and community title developments include special conditions disclosing that the developer will continue to develop the balance of the land and that the purchaser cannot object to or terminate the contract because of its activities and development on the balance of the land.
In addition, often the building is structured so the retail and commercial part is a separate strata scheme to the residential part. So the two strata schemes operate separately except for certain aspects which are governed by a Building Management Statement.

Some of the lessons for potential purchasers are:

  • Do your homework and understand the risks:
    – buying off the plan is tricky because you can’t see, touch or feel what you are buying.
    – understand that changes to the development of the balance of the scheme or land may occur and your contractual remedies if you don’t like these may be limited.
    – understand the timing and the developer’s rights to extend the time for completion – usually there is a sunset date by which the development must be completed and your purchase must be finalised but there are also usually rights for the vendor to extend that date in certain circumstances – make sure you understand these and they fit with your plans.
    – discuss with your lawyer the circumstances where you would not want to go through with the purchase and either make sure they are covered in your rescission rights in the contract or don’t proceed – each buyer will have different ‘deal breakers’.
  • Understand the structure of the scheme:
    – How is the strata building structured?
    – Is there one strata scheme for the whole building or is it a stratum subdivision?
    – Often where there will be residential apartments in the upper levels and commercial or retail space in the lower and ground floor levels a separate strata scheme is established for the residential part and for the commercial and retail part.
    – this sort of ‘mixed structure’ impacts on your ability as an owner of a residential apartment to control what happens in the commercial/retail part.
    – If it is a mixed structure there should be a Building Management Statement in place which sets out how the two strata schemes co-exist.
  • Have a look at other developments the developer has completed. Do you like them? Do the finishes look of good quality?
  • Get a copy of the full development consent for the scheme you are buying into and read it and have your lawyer read it.