There’s a lot to think about when you take the plunge and invest in a house and land package.
It’s easy to get caught up in the excitement of the moment, pretty pictures, design plans and envisaging what your new home will look like.
But you still need to be alert to potential legal curveballs during the purchasing process to ensure your transaction happens as smoothly as possible.
Here are some legal tips that will help you navigate buying a house and land.
1. Land assessment
Before you even consider signing up to buy a house and land package, it’s important to conduct due diligence.
“Buyers need to carry out their own inquiries to carefully consider the land size, drainage and position before committing to any land purchase,” said Louise Hethorn, principal solicitor at Your Property Lawyers.
“Buyers should conduct their due diligence, including physically attending the land site, contacting council to understand the development application process and any restrictions imposed on development of the land.”
Ms Hethorn said consideration should also be given to any restrictions on the percentage of the land that can be occupied by a building as this could alter any ideas you might have about the dream home you want to construct.
In some areas there was a maximum of 50% of the land allowed to be occupied by a house, she said.
“This will impact on the design and style of your home or whether you proceed with the purchase of land,” she said. “It is important to have a solicitor or conveyancer review the contract of sale including any additional clauses, title search, plans, dealings, sewer diagrams and council planning certificate to ensure you understand the vendor’s contract.”
A formal valuation is an important part of the house and land buying process.
“When borrowing funds for a house and land package your bank will carry out a valuation of the land prior to exchange of contracts or during the five business day cooling off period,” Ms Hethorn said.
“This will ensure if the purchase price is higher than the value of the land, you may exercise the right to rescind the contract and forfeit only 0.25% of the purchase price during the cooling off period.
“Ideally, your broker or banker will provide the valuation prior to exchange of contracts to avoid any potential loss if the value does not equal the purchase price.”
When buying house and land, there will be two contracts. One for the sale of the land, and another for the construction.
“The contracts are separate and not dependent on each other, therefore any delay caused in the settlement of the land may have an impact on the building contract entered into for the construction,” Ms Hethorn said.
The sales process differs state-to-state, so you should do your research about what needs to be included in your contracts.
Off-the-plan contracts for the sale of land
It’s important to remember that buying land that is being subdivided off-the-plan is conditional upon the registration of the plan.
Ms Hethorn said if the construction start date is delayed because of the subdivision process, penalties may apply daily under the building contract. Delays in the commencement of construction may also result in increased material costs.
“When buying land off-the-plan you may be given a guide on the likely time the subdivision of land will be complete. This is a guide only as the process of subdivision is subject to many council requirements being met to allow registration of the land on a separate title,” she said.
The registration process is dependent upon the developer passing through all requirements of various authorities to provide water, electricity, drainage and sewage to the land.
“The council may also require the developer to set up a Neighbourhood Plan or Community Title for owners in the community to pay levies towards expenses such as security, gardening or water where it is not individually metered to each property,” Ms Hethorn said.
“It is important that your representative checks whether the council is responsible for the upkeep of roads within the community or whether owners are required to contribute to cover road expenses.
“Before or during a cooling off period or during a building/pest condition period, an inspection of owners corporation records for Neighbourhood Plan or Community Plan properties can be ordered to check any outstanding expenses, special levies due or likely to be raised in the near future.”
Settlement depends on the registration of the land. Purchasers have 21 days from the date of notice of registration to complete settlement.
Standard land contracts
Ms Hethorn said standard land contracts were more straight-forward.
“Contracts for the sale of registered land can be completed in standard time periods according to the terms of the contract and therefore removes the risk of entering into a building contract prematurely when buying land off the plan,” she said.
First and foremost, it is important to engage a reputable builder.
Most states have online licence searches available so you can check the contractor licence details.
In NSW, the home building contract must include a statement that the contract includes a five business day cooling-off period (if the value is over $20,000) and an insurance certificate under the Home Building Compensation (HBC) Scheme. You should contact the insurer to check the certificate is valid.
Purchasers wanting to buy land and enter a contract to erect a building on their land are subject to the clauses within the building contract. Your solicitor or conveyancer can assist by reviewing the building contract and help you to understand your rights and obligations.
The buyer should also be aware of certain clauses in the contract. For example, there is often a clause in the building contract that any excess building materials that are onsite after ‘cutting the block’ are the buyer’s responsibility.
“In the event 200 tonnes excess materials are left on the land after ‘cutting the block’ and builders quoting $1,000.00 per load to remove the material this would add an additional cost of approximately $16,000.00 to the project,” Ms Hethorn warned.
“You may be able to negotiate with the builders prior to signing the building contract, to agree to remove the excess materials at a reduced fee to ensure no surprise expenses or potential delays in the project.”
She said the building contract may also require the owner to be responsible for payment of any retaining wall required as part of the building project.
“It is important that owners understand their responsibilities under the contract and schedule completion of parts of the project at suitable times, to avoid delays in the construction.
“The contract needs to include a description of the proposed works, plans and specifications of the build. The deposit amount must not exceed 10% of the contract price.”
“Post-contract variations attract a builder’s margin increase.
“The building contract will include the minimum features and it is important to plan ahead to ensure common necessities such as adequate power points and any other desired features are included, to avoid post contract variations.
“Your solicitor or conveyancer will check the ‘builder’s margin’ in the contract, the contract price and whether the price is subject to change and the payment schedule. The standard builder’s margin is 20%.”
3. Conveyancing and expert advice
Along with the sales process, conveyancing in Australia varies in different states and territories.
Some states, like Western Australia, do not have a cooling-off period. You should check the regulations in the state where you intend to make your house and land package purchase before you sign on the dotted line.
Ms Hethorn said a trusted solicitor or conveyancer should review the building contract to ensure it all the necessary details, including:
- The correct contractor licence details. In NSW, Fair Trading NSW has an online licence check.
- A description of the proposed works
- Plans and specifications of the build
- Relevant warranties, which in NSW is required by the Home Building Act 1989
- The contract price and whether it is subject to change
- A payment schedule
- A clause that agrees to variations to the plan, which should be signed by you and the contractor
- A termination clause; and
- A liquidated damages clause for delayed construction
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