Richard and Sally are a couple looking to buy their first property in Auckland. The only problem is that house prices are reaching record highs and many houses are way beyond their budget. But all is not lost. Areas of land in the outskirts of Auckland are being “unlocked” and subdivided into sections to enable the likes of Richard and Sally to purchase their land and build their home. Richard and Sally are excited about this prospect but they don’t know much about “buying off the plans”.

What is “buying off the plans”?

Buying off the plans in this situation means that Richard and Sally are purchasing a section for which title (ownership papers) has not issued yet. They are entering into a contract with the land subdivider (developer), which will usually be in a unique form as it will contain comprehensive terms and conditions.

What can go wrong?

The main issue is that invariably you are buying something which may currently be a paddock with some sheep grazing in it. You don’t know what the end result will be like, when it will be completed and what your total costs will be to buy the land and build your home.

What you need to know

1. Ensure that you do your homework (due diligence) so that you will have a clear idea as to what you will ultimately own. Further, you will need to ascertain exactly what you can build on the land and how much this will cost you so that you can budget for it accordingly.

2. What stage is the developer at in creating the sections? Do they have resource consent and do you know what the terms of the consent are that will affect your land and what restrictions will be placed on your land by council? For example, will there be any drainage easements running through your section and are there specific engineering requirements you will need to comply with.

3. Will the developer be imposing land covenants on the section? This will restrict what you can and can’t do with the land, what you can and can’t build on the land and so forth.

4. How much deposit will you be required to pay and when will you require it to be paid? Obviously, this is money out of your pocket and you might not receive any interest on your deposit. Further, ensure that the deposit is held by a stakeholder until your title issues to ensure that your deposit will not be lost if something happens with the developer.

5. How long will title take to issue? Sometimes land developers encounter delays whether they be financial or something out of their control (weather). Accordingly you may wish to have the opportunity to exit from the agreement in the event that a title has not issued by a certain date (known as a sunset date).

How we can help you

At Smith and Partners we have the experience to be able to give you an overview of your proposed purchase and assisting you with any negotiations with the vendor. You may also be interested in a similar article from our website in relation to building contracts.