In an ever-changing market, particularly with the drop in property prices, some buyers are now assessing their position with their settlement dates fast approaching for the property they signed up to buy 18 months ago off the plans.
It is important as a buyer, if you are looking to purchase a property off the plans, that you protect your position so you are fully informed of the risks before proceeding.
Here are some matters to consider and steps to be taken:
Solicitor advice
Have a solicitor review the contract before submitting your offer. Contracts to purchase a new property yet to be built are all different and there is no standard template used. It is important to have a solicitor review the contract before placing an offer so you are fully informed of the risks. You can then make any changes to the form of the agreement before submitting this to the developer for consideration.
If time is of the essence then you could include a solicitor approval clause in the agreement however you need to be aware that this may not necessarily allow you to make the changes you wish to make, for example changes to a standard form of agreement.
Finance
Making all enquiries at the outset and understanding what you can afford. The difficulty with a ‘turnkey’ is finance approvals expire after a certain period (often 60-90 days). If there is a change in your circumstances or the market and when settlement approaches you are not able to have your finance reapproved, then you may find yourself in default if you are unable to settle. It is often a bank requirement to arrange a valuation once title and code compliance issue to check the value of the property otherwise you may find yourself in a position of having to find the shortfall.
If this is a concern for you could enquire at the outset whether you could negotiate with the Vendor (for example a longer finance timeframe or if the purchase price could be renegotiated if the value of the property falls). Otherwise if this is not a risk you are willing to take, another option is to look at purchasing an property which is already built with a shorter settlement.
Deposit
Ensure the deposit is being held by a stakeholder until settlement. If title has not issued (especially if the Vendor does not own the section at the start of the process) it is imperative that a clause is negotiated where a stakeholder (such as the vendor’s solicitor) agrees to hold funds pending title. Otherwise the risk to you as a buyer is if the Vendor company cannot complete settlement for some reason (for example if they company goes into liquidation) you may have difficulty in recovering the deposit funds paid.
Kiwisaver
You may only withdraw your Kiwisaver once for a property purchase. This means if you are eligible to withdraw your Kiwisaver and use this for the deposit, you do not have the benefit of the contributions which accrue over the subsequent 1-2 years before settlement.
Sunset clauses
A sunset clause is where one or both parties can cancel the agreement if settlement has not occurred by a certain date (where the title and/or code compliance certificate have not issued). Typically, this varies anywhere between 1-3 years after the contract has been entered into. The wording of a sunset clause is crucial, and it is important to take advice from a solicitor. You do not want to be in a position where you have waited for a contract for 2 years, only to find the Vendor cancels the agreement with you and resells the property to someone else at a higher price!
Settlement timeframes
It is important to check at the outset how much time your bank may require to finalise your finance approval at the end once the title and code compliance certificate issue. It is important to keep your finance approval up to date and request regular updates so you have an indication of when settlement is likely to take place. Often the standard 5 working day timeframe (after the title and code compliance certificate issue) to settle is just not enough.
Unfortunately, there is no ‘one size fits all’ when it comes to reviewing and submitting an offer to purchase a property yet to be built. This article covers some of the risks and clauses to be look out for but is not an exhaustive list of everything you need to be aware of. As a buyer it is important to take your own legal advice before signing an offer.
