Read before you sign

Off-the-plan sales contracts are not the same as standard sale and purchase agreements. PHOTO/GETTY

When it comes to "off the plan" developments that are sold before building work starts a different set of sale and purchase rules often come in to play -- as some buyers have found when the developer asks to change the contract.

Unbeknown to many buyers, clauses in pre-sales contracts for new apartments and subdivisions provide developers with an option to vary the contract, and that includes the price.

One reason for this is that years can go by between a sales contract being signed and construction work starting. Inbetween time, the cost of labour and materials can rise (as they have done in recent years).

In November an Auckland apartment buyer told the New Zealand Herald that the developers for his apartment at St James Suites had raised the price from $775,000 to $999,000. And in September buyers of 201 apartments at the Rose Gardens in Albany were told they'd need to pay 15 per cent more than they thought.

In this instance buyers are given the option of paying more or getting their deposit returned plus interest. Would-be buyers of the Springpark development in Mt Wellington had their contracts cancelled three years after they paid the deposit, with the market having skyrocketed in the meantime.

The issue with off the plan property is that pre-sale contracts aren't standard sale and purchase agreements.

There are a number of ways contracts can be cancelled and buyers asked to pay more. The most common, says lawyer Tony Steindle, of Steindle Williams is what's known as a "vendor condition" in the contract.

Vendor condition clauses require that: there are sufficient pre-sales; the developer can get finance; and that all the consents come through. If not, the developer can ask buyers to choose between cancelling their contract, or paying more.

"Unfortunately for purchasers, off the plan contracts, are not unconditional contracts," says Steindle. "They are always contingent on the developer getting pre-sales, finance, and consents."

Steindle says most of the recent cases of buyers being asked to pay more involved the vendor clause.

A second method developers can use to ask for more money is in the case of the "sunset" clause or condition in the sale and purchase agreement.

For example, if the building isn't finished by the sunset date then the agreement becomes void and the deposit given back to the buyer.

This can be good because it means a developer can't hold your deposit money forever.

The third way in which off the plan contracts are cancelled is if the development company goes under.

That's what happened to the Springpark buyers. In the case of the Silvermoon Park development in Albany, the lender seized the apartments as a mortgagee.

Steindle says that in his experience, about 50 per cent of buyers will agree to pay the higher price because they have their heart set on that development. The other half will either pull out voluntarily or not be able to raise the finances and so cancel the contract.

Finally it's a really good idea to research the developer and company marketing the development to see if they have a track record of raising prices post contract, says Andrew Bruce, president of the Auckland Property Investors' Association.

"You can also ask to speak to buyers from previous developments and ask them how it went for them."

Seeking trusted legal advice before signing a contract is always worthwhile, so that clauses such as those covered here can be explained -- and unwelcome surprises avoided.