A recent NSW Supreme Court decision highlights the risks of buying off the plan

A recent NSW Supreme Court matter in which I was engaged to provide independent valuation evidence has been determined in favour of the purchasers.

For confidentiality reasons I won’t identify the parties or property, but the dispute is a useful reminder of the risks that can arise when buying residential property off the plan.

When an off-the-plan contract is signed, the purchaser is committing to a property that does not yet physically exist in its final form. The contract may contain draft strata plans, proposed areas, carspaces, layouts, finishes and other details which can change as construction progresses.

Some changes are minor. Others can affect the way the property is used — and what a purchaser would be prepared to pay for it.

In the recent matter, one of the valuation issues concerned the market impact of a change to the property and its car parking arrangements. My role as an independent valuer was not to determine the legal rights of either party, but to consider a simpler market question: what would the property be worth with the originally contemplated amenity, and what would it be worth without it?

That distinction is important. A lost carspace, reduced usable area, altered courtyard, changed storage area or different strata configuration cannot always be valued simply by applying a dollar rate per square metre. The real question is how the change affects utility, buyer appeal, marketability and resale value.

Sunset clauses deserve particular attention

Sunset clauses are another area buyers should understand before signing. They usually provide a deadline by which an event such as registration of the strata plan or issue of an occupation certificate must occur.

In NSW, developers cannot generally use a sunset clause simply because the nominated date has passed. A vendor ordinarily needs the purchaser's written consent or an order from the Supreme Court permitting rescission. The legislation also requires advance notice setting out the reasons for the proposed rescission.

The broader lesson is simple: the detail in an off-the-plan contract matters.

Before exchanging, buyers should pay close attention to:

• draft strata and floor plans, stated areas and carspaces;

• clauses allowing the developer to alter the design or lot configuration;

• sunset dates and extension provisions;

• proposed by-laws, easements and restrictions;

• schedules of finishes and inclusions; and

• what rights exist if the completed property materially differs from what was originally disclosed.

NSW also requires additional disclosure for off-the-plan sales and provides remedies in some circumstances where a purchaser is materially prejudiced by changes to disclosed particulars.

At Valstar Valuations, I undertake independent pre-purchase due diligence and valuation work, including off-the-plan and completed residential property. Where a dispute has already arisen, valuation evidence can also help quantify the market effect of a change rather than leaving the parties to argue over an arbitrary figure.

Considering an off-the-plan purchase or concerned that the completed property differs from what you contracted to buy? Contact Valstar Valuations for independent valuation and pre-purchase due diligence advice.

This article provides general property valuation information only and is not legal advice. Purchasers should obtain independent legal advice before entering into or taking action under an off-the-plan contract.