Buying “off the plans”: the legal lay of the land

After 25-odd years, I’ve lost count of the cases I’ve seen where people would wager a vital organ they haven’t put a single legal foot wrong. In reality, they’re marinating in wrongdoing, risk and liability.

Conversely, there are the folk who – often not unreasonably – smell a big, hairy rat, and assume dodgy dealings … when, actually, everything’s totally legit and above board.   

Ah yes, the law can be a funny old thing, and doesn’t always neatly reconcile everyone’s individual take on fairness and logic. And that can spark a whole load of conjecture and misinformation.

Case in point, a current local hot potato: a developer’s proposed hotel developments, one in Wanaka, and the other in Queenstown. I’m not here to debate the wider, philosophical merits of these proposals, and the benefits, or otherwise, to our local communities. From some of the commentary I’ve been hearing and reading, though, the record most definitely does need to be set straight on the legal lie of the land surrounding some aspects of these particular projects, and developments in general, be they subdivisions or bricks-and-mortar propositions.

It’s fair to say, both proposals have been met with notable public resistance. The planned Queenstown-based hotel has recently been granted resource consent, albeit with significant restrictions. At the time of writing, the community and developer still await the decision on whether the Wanaka complex will also be given the green light, and, if so, with what conditions. What seems to have left many particularly aghast is that both properties have gone on the market before the resource consents have been finalised, fuelling speculation there’s something shonky going on.  

They can’t do that … can they?

The answer is a resounding “yes”, and, what’s more, it actually happens all the time. Moreover, not only is it standard practice for developers to sell “off the plans” ahead of resource consent being granted, developments are frequently put on the market before the application’s even been lodged. So, again, by way of reassurance: the fact the developer has pushed ahead with marketing these projects, and is trying to get advance sales, is a legal non-issue. Part of what’s worrying me about the focus on, and commentary around, that, however, is it deflects from the legal considerations and realities that actually are highly relevant and extremely important for potential buyers in making wise, and informed, choices.

Buying in a project’s infancy requires a leap of faith of varying length, depending on the development – but that shouldn’t be a blind jump into the great unknown. Work with your legal adviser to background check your developer and conduct a risk assessment. Your investment – and, likely, your peace of mind – is relying on the developer delivering. Ultimately, though, one downside of getting in early is you might very well sign up for a dream that never materialises beyond some hip, on-trend artist’s impression. Is that a risk you could swallow? Conversely, though, I’ve seen plenty of situations where there’s been fabulous collaboration, with delighted buyers, who got on board at inception, helping customise the project to their tastes and needs, adding impressive value along the way. A bonus cherry on top around getting in early is sometimes – I stress, sometimes – you can bag a pretty darned sweet deal.

Reality check the risks

A common source of grief for buyers are contracts that allow the developer to make changes to the plans – without any consultation. Understanding this in theory at signing can be quite, quite different from accepting the reality, should it comes to pass. If you’re serious about proceeding, you need to confirm whether the developer is seeking this right in your case. They are? Then, think very long and hard whether you really (truly, seriously) would be able to stomach having to proceed with buying a property that differs – possibly markedly – from that for which you signed up.  

If property development was a walk-in-the-park, dead-cert gold mine, everyone would be doing it. Bad things can beset even the most savvy, seasoned and responsible developer. Despite best efforts, they can get into financial strife, and the fallout’s often devastating and widespread. What you need to be doing as a potential buyer is shoring up as much certainty and as many robust protections as possible, at the get-go.

For example, if you proceed, make sure your deposit is safeguarded in a stakeholder account. The contract terms should also make it crystal clear, if things turn to custard, who receives the deposit, and under what circumstances it would be refunded. While part of the reality of buying off the plans typically means a relatively lengthy wait, you should have contractual stipulations around timeframes, lest the delay becomes untenable. Be sure any agreement you sign has a “sunset date” or finite timeline for completion, both of which put an agreed limit on how long you and the developer can be locked in. The Resource Management Act offers some minor protections for those buying properties in a land development that’s yet to be subdivided, including a 14-day cooling off period, during which the buyer can cancel after signing up. Secondly, if the developer doesn’t get the appropriate plans to the territorial authority in a timely manner post-resource consent, a buyer might also have grounds to terminate.

Never assume

One of my greatest professional frustrations is the number of people who come through my door upset and unsettled – their situation sometimes beyond the point of no return – because they’ve based their decision-making on assumptions, someone else’s experiences or whispers in the wind.

If you’re buying from a developer, remember every development is different, some of the terms can be onerous, and often come with little-to-no right to appeal or seek redress. Vigilance and due diligence are key, including taking thorough, timely advice and fully appreciating the terms to which you’re signing up. Committing early in a development really does come with its own set of very unique considerations, risks … and, with a good measure of homework and a little luck, potential rewards.

Please remember: the information in this column is designed as a general guide only and should not replace specific legal advice on a particular issue.


There are no comments on this article.

Leave a Comment

You must be logged in to make a comment. Login Now