First home buyers and investors often see buying a strata unit off-the-plan as a good way to break into the property market, particularly in the boom times. In an off-the-plan transaction, the strata unit does not exist at the time contracts are entered. It is important would-be buyers are aware of the risks associated with off-the-plan purchases.
Typically, the time between exchange of contracts and settlement for off-the-plan transactions can be anywhere from several months to years. A buyer may purchase a property off-the-plan at one point of the property cycle in the knowledge that settlement will not take place for some time. Movements in the property market between exchange and settlement can have a significant impact upon the purchaser’s capacity to complete the transaction. Timing is critical.
If the property market has risen between the date of exchange and the date of settlement, then sale price of the strata lot may be lower than its market value at the date of settlement. But if the property market has fallen, the sale price of the strata lot may be less than its market value at settlement and this may create difficulties for a buyer needing to borrow the necessary funds to complete the transaction, particularly if lending requirements have tightened. If a buyer cannot complete the purchase transaction, then the deposit, paid on exchange, may be forfeited and if the vendor’s losses are greater than the deposit then the buyer may also be sued for damages.
A would-be buyer does not have an opportunity to inspect the strata unit before making an offer or signing the contract. The description of the subject property will be set out in terms of the proposed address, plan details and title references for the parent lot and the proposed strata lot in the strata plan. The proposed layout and fit-out of the strata lot will be disclosed by attaching to the contract a draft strata plan, floor plan, schedule of finishes with a list of the inclusions and often a colour scheme with a proviso that the actual layout or fit-out of the strata lot may differ. Buyers need to be mindful of what they envisage the completed strata lot will look or feel like, may not be the reality. Disappointment may follow.
Disappointment aside, defective building work and faulty materials used in the construction of the strata building are potentially a far more serious issue. A buyer will have the benefit of a 90-day defects liability period to report to the vendor defects found in the strata lot for repair at the expense of the vendor. A defects liability period applies only to defects found within a particular lot, it does not extend to defects in the common property. Working out what is part of a strata lot and what is common property can be a complex and requires specific legal advice for an answer. Herein lies the risk.
The boundaries of a strata lot and common property will be noted on the particular strata plan. In most strata schemes, the boundaries of a strata lot are the interior surfaces of walls or ceilings. The structural elements of a building are common property. Generally, common property will include all external walls, doors and windows, originally installed flooring such as ceramic tiles, parquetry or floor boards (excluding carpet), pipes or electric wiring running through the building cavities to service each lot, common staircases or walkways, and roof.
Water or wind penetration found in a strata lot may not necessarily be a defect within the strata lot. Where the damage caused by the defect may appear is not always the location of the cause. For example, a soggy carpet will be evidence of water penetration, but the source of the water may be from a leaking pipe elsewhere in the building. Often, the cause of water or wind penetration is found to be a defect in the common property and therefore, the responsibility of the Owners Corporation. Defects in the structural elements of the buildings are also likely to be defects in the common property. Remedial work for defects of these types can be prolonged causing inconvenience to residents and potentially impact the resale value of the strata lot.
Anyone considering buying a strata lot off-the-plan should not fall into the trap of getting into the property market at all costs. Purchasing property is a major decision and should not be taken hastily. Would-be buyers should seek legal advice before signing a contract and seek financial advice in appropriate cases. Contact us at Middleton Gardiner & Associates on telephone 02 8005 4057 or by email firstname.lastname@example.org if you require advice or assistance on any conveyancing transactions.
This article contains general information which may not correct, complete or current at the time of reading. It is not intended that this article is to be used or relied upon as specific legal advice. A reader should seek legal advice from a legal practitioner in relation to any particular or proposed transactions. Middleton Gardiner & Associates expressly disclaim all liability relating to any actions taken or alleged to be taken based on the content of this article.
© February 2019