Buying off the plan: Why you need to watch out for the sunset

Buying off the plans can be a smart way to get a new house – but you need to read the contract carefully.

Let’s start with the pros.

These types of developments are done in batches, so you automatically get the savings that come with doing something on a bigger scale.

The house is built to modern expectations of heating and insulation, and a new build should need less maintenance once you’re in it.

Then there’s the factor that’s both pro and con.

Because you’re buying before it’s built and locking in the price, there’s the possibility your house will be worth more than you paid by the time you move in.

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But the housing market can also go down, so there’s also the possibility that you’ll be locked in at a price that’s too much by the time you get the keys. That’s a roll of the dice that nobody can predict.

But let’s be honest, most of us want to know where things can go wrong, so let’s get down to it. The trick here is the fine print in the contracts, and so your best friend will be a good property lawyer who’s familiar with housing developments.

The biggest catch has to be sunset clauses.

I’ve lost count of the number of news stories I’ve seen where some poor first home buyer has been caught out by a sunset clause.

It means that, after a specified amount of time, the developer can rip up your contract and sell the house to someone else instead.

Now, it’s not all bad. The sunset clause originally helps if a build runs into unexpected problems, dragging on for years. It can be good for both buyer and developer to have a way to pull the plug then.

But the problem is when some shady developers see the housing market go up in value, and decide to turf you out so they can sell the property to someone else for more money.

I talked to Joanna Pidgeon from Pidgeon Law, and she recommends that you check how long it is before the sunset clause can be triggered.

If it’s a reasonable length of time for the type of build you’re doing, then it might be fine. But if it’s quite short, falling within the expected build timeframe, then maybe you can negotiate to push that date further out.

Pidgeon recommends that you look into the developer themselves, making sure that they have experience in successfully completing these types of projects.

Don’t forget to also check what guarantees you have on how the finished build will turn out.

Things happen during the building process, so there might be good reasons for your home to look slightly different from the original “artist’s impression” in your welcome pack.

But Pidgeon warns you should be guaranteed that the square footage remains the same, and you can ask for a clause that guarantees any change in materials will be replaced by something of equal quality.

As it turns out, the trickiest thing with buying off the plans is making sure you truly understand what the plan is.

- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial adviser, and all information is general in nature. For individual advice, see a financial adviser.

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