Risks of Purchasing Apartments Off Plans
There has been significant publicity surrounding over 30 Auckland apartment developments where, despite having been sold to purchasers prior to construction, the development is now not proceeding.
This has been as a result of the inability of some developers to obtain project funding and/or the increased costs experienced in completing the development. This situation leaves purchasers in a significantly compromised position and having very few options for redress. They will have lost their position in the market place in that the costs of an alternative property will have, over the period of 18 months, increased by between 10 and 20 per cent. When considering committing to purchase a property "off the plans" (and especially in the case of apartments) careful consideration must be given to the form of agreement for sale and purchase being entered into. While it is never possible to cover every inherent risk in a property transaction there are some fundamental issues which should be included in the relevant contract.
By way of example:
- It is essential that any deposit paid pursuant to an agreement for sale and purchase is held in an interest bearing trust account pending settlement being completed. Should the development not proceed for any reason, the deposit should be returned together with interest to the purchaser.
- The inclusion of a "sunset clause", whereby, in the event of the development not being completed by a specified date, the purchaser becomes free to withdraw from the contract. It may also be advisable to include in the contract a number of milestone dates whereby, if the developer has not progressed the development to a certain stage by the specified date, the purchaser can cancel the contract and receive the return of their deposit along with interest.
- That any apartment accessory units such as storage, garage and common areas, are adequately defined in the plan.
- A copy of the relevant body corporate rules which may impose restrictions for use of the apartment (for example, the owner's right to have pets reside there) are included.
We believe that careful consideration should also be given to the reputation and experience of the particular developer involved. In our experience, most difficulties concerning apartments occur as a result of either under-capitalisation of the developer or a lack of industry experience. We highly recommend that prior to entering into any contract to purchase a property "off the plans", legal advice be obtained.
“Joy, we cannot thank you enough for your help with our purchase! You have been wonderful to deal with and so proactive (and patient with my numerous emails). We will be visiting NZ in April so will make sure we drop in to thank you in person.”
“I can't speak highly enough of Jenny. She got everything done in a timely manner and when my ex-husband threw a spanner in the works at the eleventh hour she got the required documentation to his lawyers and settlement back on track.”
“I have used Turner Hopkins for my legal services for over eight years. I have always found their level of service excellent and their work to a very high standard. I have used various lawyers at their firm for various businesses I have been involved with and have always had very positive experiences. I would highly recommend them.”
“To Michael Robinson – I wanted to thank you and your colleagues for many years of excellent service to the Bank. You have an outstanding business that has proved to be one of the most reliable and ethical businesses that Collections have dealt with in the almost 9 years I was with the Bank.”
“John is very easy to talk to, he never makes you feel dumb, and never makes you feel like you are wasting his time for asking questions. He explains everything very clearly, every time. John's support staff are also very efficient and so easy to deal with. No detail is missed when dealing with them. My husband and I are fans of them all :)”