Buying off the plan means paying a deposit of 10% of the price to buy a home unit, townhouse or block of land and then waiting until the building is built or the land is subdivided. The wait can be anywhere from a few months to 2 or 3 years.
During that time, the off the plan purchaser has the peace of mind of a fixed price and the opportunity to save up a little more or the price before they need to settle the purchase contract.
But life does not always go smoothly. Divorce, ill health and unemployment are the three most common disruptions. It's not only life, it could be that property values fall below the contract price.
What then are the consequences of walking away from an off the plan contract? Is your deposit all you lose? Or are you exposed to more losses?
The answer is that you are exposed if the vendor's loss on resale exceeds the amount of the deposit. For instance, if the purchase price is $500,000 and the deposit is $50,000, if the vendor resells for $425,000, then the loss on resale is $25,000. The vendor is also entitled to recover the costs of the default and the costs of the resale.
And don't think that you are protected if you buy in the name of a company! There will be a personal guarantee clause in the contract which makes the company director personally liable for the loss.
This result was illustrated in a recent decision of Justice Darke in the NSW Supreme Court, in which he ordered that a purchaser who walked away from a contract to purchase a property in which the value had fallen 20% to pay $458,500 to the vendor as compensation for the breach of contract.
For more click on my case note