Careful consideration needed for off-the-plan and on-sale purchases

Written by: Jason Hendriks
Nov 02 2022

What to look out for when purchasing or selling a new development 

With the increase in new builds and continued growth in the property development sector, off-the-plan purchases are becoming increasingly more frequent.

An off-the-plan purchase is when a buyer agrees to buy a property from a developer which is still in the process of development and construction.

When buying off-the-plans it is common for the timeframe between signing the agreement and settlement to stretch over several years. Due to this extended time-period, a purchaser can consider on-selling their agreement to a new purchaser which is known as an on-sale agreement.

This happens for a variety of reasons, including changes in personal circumstances, like the arrival of a new baby, financial reasons, or a relationship breakdown.

This transaction can be complicated and outlined below are important factors to consider.

How it works

On settlement day, the original person who entered into the Agreement with the developer sells the property to someone at the same time they buy it from the developer. Two settlements then occur on the same day and instead of being a clearcut transaction, the original purchaser becomes a middleman.

Consent to on-sell

Sometimes the original agreement includes terms which require the purchaser to obtain consent from the developer if they want to on-sell the property.

It’s important to check the original agreement thoroughly (and with a lawyer) before jumping into another agreement. If you are the on-sale purchaser, ask to see the original agreement to ensure the person who is selling to you, is legally allowed.

Terms of prior agreement

The terms of an agreement (especially the fine print) are extremely important in an on-sale. They need to reflect the same terms as the original agreement otherwise there is potential for costly disagreements in the future.  

For example, if the dates of both agreements do not match, one party would not be able to meet their obligations and will be liable for penalties.

Important clauses for the on-sale purchaser

Any significant purchase carries its own risk but with property that is higher. If the deposit clauses in the agreements don’t match, the on-sale deposit can be paid out to the original seller, but if the agreement is then cancelled, that deposit can be lost.

Another important clause to look out for are sunset clauses (read more on sunset clauses here) which allows the agreement to be cancelled if certain conditions have not been met by a certain date. This makes it crucial to specify the on-sale purchaser should have their deposit returned.

Tax Implications

With any significant purchase, there are tax implications to be aware of. For an on-sale of residential land, the purchaser will be required to pay capital gains tax if the property is sold within the bright-line period. Before entering into any transaction, purchasers should obtain accounting advice.

Vendor Warranties

Check for any warranties in the on-sale agreement which require knowledge or relate to matters such as chattels, notice or outstanding requirements. Warranties are guarantees by the seller meaning if they are not met, the purchaser can be liable for a significant amount of money.

If you are looking at entering into an on-sale agreement either as an on-seller or purchaser, Haigh Lyon can assist to ensure you and your assets are protected. Contact Jason Hendriks on @email or 09 09 306 0603 or Kate von Biel on @email or 09 306 0625.