Knowledge: Apartment

The demand for homes, especially in the inner-city, has resulted in apartment buildings sprawling across Melbourne (and other major cities). In your search for a home, chances are that you’ve considered buying one – most home buyers have. If you are going to, then you need to keep some important things in mind, some of which you wouldn’t if you were buying a single home on a piece of land. Read on to see what we’re talking about.

Existing

When a development is finished, the plan will be registered and your apartment will be transferred to you. In many cases, an owners corporation will also have been created and you’ll automatically become a member of it.

The owners corporation will usually appoint a manager of the development’s common property. Common property includes amenities for the enjoyment and benefit of all residents, such as:

  • driveways
  • car parks
  • lifts
  • gardens
  • gyms
  • swimming pools
  • rooftop communal areas

Rules

The owners corporation will have rules and you may find a copy of them attached to the Vendor's Statement. You will be required to follow these rules (and can be forced to follow them by tribunal order if you don’t!), so you should read them carefully before signing a contract. Who needs rules that would make living somewhere difficult?

Fees

As an apartment owner you will also have to pay owners corporation fees, which is to be expected, because you want your common areas to be maintained nicely. You should ask the selling agent how much the fees will be, how they’ve been calculated and how they will be managed. Bear in mind that as buildings age, maintenance fees are likely to increase. The fees should also be set out in the 0wners corporation certificate which you should find in the Vendor Statement

Special Levies

Special fees, or levies as they’re also known, are raised for specific additional expenses, such as urgent repairs or replacing non-compliant cladding. If any special levies exist when you’re buying your apartment, they’ll be recorded in an owners corporation certificate, which is attached to the Vendor Statement.

But, if a special levy is only being considered (for example, if quotes for costs are being obtained, the final amount will not have been decided), then it won’t appear in the owners corporation certificate. You should always ask for and read the minutes of the most recent owners corporation meeting, as any potential special levies which have been raised and discussed at a meeting would usually be recorded there. This will give you the chance to budget for extra fees, or, if you think the fees might be too much for you handle, you might reconsider buying the property.

If you have any concerns about your potential purchase and the application of the owners corporation, upload your contract and Vendor Statement through our Advice Centre.

Pets

If you have pets, you should ask the selling agent for a copy of the proposed owners corporation rules. These will tell you whether or not you’ll be allowed to keep pets in the building. Proposed changes to the law in Victoria will make it a lot harder for rules to prevent people keeping pets from 2019. We will keep you updated on the progress of these changes.

The vendor must deliver the property to the purchaser at settlement in the same condition that it was in on the day of sale, except for fair wear and tear.

You might be familiar with the concept of fair wear and tear if you’ve been renting. In this context, it means that when you go to the property for the final inspection before settlement, you should assess any goods that form part of the sale to check whether they’re working or not.

Goods include lights, stove and oven, dishwasher, air-conditioning, curtains and so on.

If they’re not working perfectly, but that’s due to fair wear and tear (not damage or destruction) then you have to go ahead with settlement and take the goods as they are. We’re pretty sure you’ll be able to take care of a leaky tap or loose door handle!

If it’s essential to you that certain goods are working when you settle and take possession of the property, then you should specify your requirement as a special condition in the contract. For example, if settlement is taking place in the middle of winter, you could require that the heating is in working order at the time.

Caveat

A caveat is a precautionary measure that puts a notice on the title for everybody to see that you have entered into a contract to buy that property. When a vendor and a purchaser have exchanged a signed contract, the purchaser can then lodge a caveat against the vendor’s title, which would alert any other parties that could come along that the property has been sold and that a prior existing interest exists.

Circumstances in which you would rely on a caveat are rare, but they still happen. In essence, a caveat operates as a form of insurance against situations that could involve you in court action, which could be costly.

For example, say the vendor wants to borrow some more money from its bank using an existing or new mortgage after the property is sold to you. If this happens after you’ve signed the contract and lodged a caveat, the bank will be aware that the property has been sold, and that it’s been sold to you in particular.

This means that the vendor’s bank should ask for details of the sale and the sale price. Then, the bank should make sure that any further amount it lends to the vendor under their mortgage isn’t going to be higher than what is being paid by you to complete your settlement. Another key benefit of the caveat is that there can’t be any dealings on the certificate of title for that property unless you allow it.

Unfortunately, like all insurance, you have to pay for lodging a caveat. If you would like more information about a caveat specific to your own situation, head to the Advice Centre, upload your contract or, if you’ve already signed your contract, then upload it to the Transfer Centre, and we’ll get in touch to discuss it.

Insurance

We all know that it’s sensible to insure our property and you probably have it on your to-do list (which can be pretty long when you’re buying, packing and moving).

The key thing to consider is when to take out insurance. You actually have an insurable interest in the property from the day that you sign the contract – way before settlement and taking possession. Start looking into insurance policies and quotes as soon as you know you’re going to make an offer, so that you’re prepared from day one.

Although you can expect a contract of sale to say that the vendor carries the risk of loss or damage to the property until settlement, it’s not uncommon to find special conditions in contracts that change this position. The effect is that the risk of damage to the property passes to the purchaser from the day of sale. This is one reason why we recommend taking out insurance for the property from the day you sign the contract.

Another reason is that your bank (or other lender) will usually require that you provide a certificate of insurance for the property, as part of your finance approval conditions.

Adjustments

With the ownership of property comes responsibility for certain costs and expenses after the actual purchase.

The vendor pays for all property outgoings until the day of settlement. These can include council and water rates, possibly land tax and owners corporation fees. You will pay your portion of these outgoings from the settlement date onward.

For example, council rates are payable for the period of 1 July to 30 June each year. If your settlement takes place right in the middle on January 1st, then the statement of adjustments will show that the vendor pays for half the year and you pay for the other half.

Another example is if the Vendor has a mortgage registered on the certificate of title. Their mortgage must be discharged when you are registered on the certificate of title, and there is a fee payable to the land titles office to do so. The vendor pays this fee and it will be noted on the statement of adjustments.

So, who’s responsible for working out adjustments? We are - it’s part of the transfer (a.k.a. conveyancing) process. If you’ve already signed up with Clarity, you might be familiar with our Transfer Portal. This is where we upload your Statement of Adjustments for you to view before settlement.

If you haven’t signed up yet, it’s free to do so, and you can save and share the relevant information that you find in our Knowledge Centre and in our Articles.

Off-the-plan

An off-the-plan contract simply means that the apartment you’re buying hasn’t been built yet and forms part of a plan of subdivision, which isn’t registered yet. The land that the plan relates to will initially be owned by a developer, who is the vendor. When construction of the building and the apartments is complete, the vendor will register the plan of subdivision with the titles office. Once the plan is registered, settlement and transfer of your apartment will take place within the time agreed to in the contract of sale. It’s usually 14 days.

When a development is finished, the plan will be registered and your apartment will be transferred to you. In many cases, an owners corporation will also have been created and you’ll automatically become a member of it.

The owners corporation will usually appoint a manager of the development’s common property. Common property includes amenities for the enjoyment and benefit of all residents, such as:

  • driveways
  • car parks
  • lifts
  • gardens
  • gyms
  • swimming pools
  • rooftop communal areas

Rules

The owners corporation will have rules and you may find a copy of them attached to the Vendor's Statement. You will be required to follow these rules (and can be forced to follow them by tribunal order if you don’t!), so you should read them carefully before signing a contract. Who needs rules that would make living somewhere difficult?

Fees

As an apartment owner you will also have to pay owners corporation fees, which is to be expected, because you want your common areas to be maintained nicely. You should ask the selling agent how much the fees will be, how they’ve been calculated and how they will be managed. Bear in mind that as buildings age, maintenance fees are likely to increase. The fees should also be set out in the 0wners corporation certificate which you should find in the Vendor Statement

Special Levies

Special fees, or levies as they’re also known, are raised for specific additional expenses, such as urgent repairs or replacing non-compliant cladding. If any special levies exist when you’re buying your apartment, they’ll be recorded in an owners corporation certificate, which is attached to the Vendor Statement.

But, if a special levy is only being considered (for example, if quotes for costs are being obtained, the final amount will not have been decided), then it won’t appear in the owners corporation certificate. You should always ask for and read the minutes of the most recent owners corporation meeting, as any potential special levies which have been raised and discussed at a meeting would usually be recorded there. This will give you the chance to budget for extra fees, or, if you think the fees might be too much for you handle, you might reconsider buying the property.

If you have any concerns about your potential purchase and the application of the owners corporation, upload your contract and Vendor Statement through our Advice Centre.

Because settlement of off-the-plan contracts may be many months or years away, it is not usual to make those contracts subject to finance, and Vendor’s are unlikely to agree to such a condition.

The deposit payable is usually 10% of the purchase price, which is the maximum possible deposit for off-the-plan properties according to the Sale of Land Act. You might be able to negotiate a lower deposit, such as 5% or even less, but it just means that you’ll have to come up with a higher balance at settlement.

At settlement, you’ll pay the balance of the purchase price, plus or minus adjustment of rates, owners corporation fees and any other necessary adjustments.

Some contracts may allow you to pay the deposit by way of bank guarantee. This is something you should discuss with the selling agent, if you think it suits you.

If you have any questions about paying the deposit, let us know when you upload your contract through the Advice Centre.

Because the apartment you’re buying is in a building that doesn’t exist yet, you can take the opportunity to address some practical matters that might affect your quality of living. These include:

  • Noise suppression – particularly important in high-density developments.
  • Ceiling heights – do you have a minimum requirement?
  • Power points – how many do you require in each room, and where do you want them placed?
  • TV aerial and internet connection – where do you want cabling and access points?
  • Telephone connection – where in each room do you want this?

If any of the points above are important to you, just note them down in the Specific Questions or Additional Notes section when you upload your contract through the Advice Centre and we’ll help to make sure that you get what you are after. One simple way is to print a plan of the apartment and specify locations on the plan, which can be attached to the contract with an appropriate special condition.

If car parking spaces and storage cages are offered with the apartment that you’re buying, they must be specifically included in the particulars of sale in the contract.

A contract will usually provide that if a car park and storage cage is not listed in the particulars pages, then they do not form part of the sale.

So, don’t take for granted that you’re getting these things – make sure to check they’re in the contract! If you want to be doubly sure, don't forget to make a note in the Additional Notes section when you upload your contract through the Advice Centre.

Contracts for off-the-plan apartments may contain details of the fixtures and fittings that your apartment will be delivered with. These include:

  • a colour scheme
  • cabinetry
  • carpet or other floor coverings
  • joinery
  • appliances
  • window furnishings

You might be shown samples of finishes and be told or given the impression that your apartment will be fitted with them. If you like them and want these specific finishes, you could consider including a special condition in the contract that requires your consent to any changes to the fixtures and fittings.

When you buy an off-the-plan apartment, the contract should provide that the vendor (the developer) must rectify any defects in the apartment within an agreed amount of time after settlement. You will have to notify the vendor of the defects, which you found either in the pre-settlement inspection, or once you’ve moved in and had time to discover them. Even if you identify defects in the pre-settlement inspection, generally you’ll still have to complete settlement.

Most off-the-plan contracts will give you the opportunity to go through the property before settlement. You’ll be given an appointed inspection time by the agent.

We hope that your apartment will be built to your standards and expectations, however, unfortunately every so often that’s not the case. You may notice some minor issues (defects), such as wobbly cupboards and leaking taps. If you do, then make a list of all of your concerns. The vendor will usually be required to fix these before or after settlement, during the defects liability period.

It’s not uncommon for properties to be developed in stages. Think of a collection of apartment buildings being constructed in a new suburban precinct. It can be impractical, for a variety of reasons, for developers to build and complete every building at the same time.

If you’re thinking of buying an apartment that’s offered as part of a staged development, be aware that when your property is finished, you may be required to settle, even though the development will continue.

This means that ongoing building works and/or marketing and advertising could be happening in the vicinity of your apartment. Consider the construction noise, machinery, display suites and whatnot, when you’re thinking about which stage to buy into.

Most off-the-plan contracts allow the vendor (the developer) to make minor variations

  • to the size of apartments within a development, and/or
  • to the number or location of apartments within a development.

They may also create additional apartments within the development.

If the vendor makes any of these changes, they must tell you about them. Unless those changes materially affect the apartment that you’re buying, you can’t do anything about it (like terminating your contract).

The change may materially affect your apartment if the alteration to its size is significant. Many contracts will contain conditions that say changes in size of up to 5 percent are not material. Other changes that may be material are the removal of balconies, storage cages and car parking spaces. You may be able to terminate your contract and get your deposit back if you act within fourteen days of receiving the vendor’s notice of the change.

Measurements
The size of the apartment should be set out in the contract of sale, which will generally show the proposed plans in metres squared (m2).

This is important: Off-the-plan contracts may specify that a particular method of measurement is being used to give you the size of your apartment, which may include areas you might not think of, like walls (internal and external), columns or void areas in those measurements. These aren’t really ‘useable’, so the actual useable living area of your apartment will be smaller than the total size of the apartment specified in the contract or the Vendor Statement

If size is important to you, you can ask the selling agent to give you the measurements of the useable living area, plus any balcony. You can then try to negotiate a special condition in the contract that requires your apartment to have a specific minimum size of useable living area – or simply buy a bigger apartment knowing that the useable living area will be a little less than the actual size of the apartment.

If you think this might apply to your circumstances and want to ensure that you’re getting the size apartment you want, upload your contract and Vendor Statement through the Advice Centre.

Off-the-plan contracts allow the developer (the vendor) a certain period of time to finish the development and complete the transaction. The transaction is completed by settlement and transfer of the title to you. The contract of sale will specify that time as the registration period.

The registration period will vary between developments. It may be 12 months or even 60 months. Generally, there’s no way that you can require the vendor to transfer the land to you any sooner than specified by the registration period in the contract.

But! There are scenarios in which registration can happen sooner than anticipated in the original contract.

  1. Sometimes developments are completed ahead of schedule (a developer’s dream!) and in these cases, the vendor will require you to settle and take the transfer of your apartment earlier than you may have planned for.
  2. If a development is already underway when you buy off the plan, then the contract (which would have been drawn up at the start of the development) may have allowed a certain registration period, for example, 36 months. If you signed up 24 months into the development, then settlement may take place in 12 months’ time, even though your contract allows for the original period of 36 months.

Remember, the registration period doesn’t specify when you settle, it only specifies how long the vendor has to complete the development. If the development is completed earlier, the vendor will require you to settle earlier.

In Victoria, if you are buying your home off the plan, and what you are buying will be your principle place of residence, then you may be entitled to a concession on duty. But, there are strict requirements that must be satisfied for eligibility. For example, in some circumstances, the value of the property you are buying would need to be below $550,000. Don’t assume that you are eligible for an off the plan concession to duty – it can be hard to get! Also, keep in mind the concession will not apply if you’re buying an investment property.

If you think you might eligible, make a note in the Specific Questions or Additional Notes section when you upload your contract through the Advice Centre and we’ll have a look at it for you. This concession will vary between jurisdictions in Australia.

Pets

If you have pets, you should ask the selling agent for a copy of the proposed owners corporation rules. These will tell you whether or not you’ll be allowed to keep pets in the building. Proposed changes to the law in Victoria will make it a lot harder for rules to prevent people keeping pets from 2019. We will keep you updated on the progress of these changes.

Caveat

When you buy a property off the plan, because the plan of subdivision hasn't been registered yet, a certificate of title still hasn't been created for the particular lot you are buying. When the plan of subdivision is registered, a volume and folio number will be created for each lot on the plan of subdivision, including the lot you are buying. As you can see, registration of the plan of subdivision is very important.

Because a caveat will prevent dealings on a certificate of title, such as registration of a plan of subdivision, you can expect an off the plan contract of sale to have a condition in it which prevents a purchaser from lodging a caveat on the certificate of title before the plan of subdivision is registered. However, once the plan is registered and your particular lot has its own title details, in most cases you can lodge a caveat at that stage, if you wish.

Adjustments

With the ownership of property comes responsibility for certain costs and expenses after the actual purchase.

The vendor pays for all property outgoings until the day of settlement. These can include council and water rates, possibly land tax and owners corporation fees. You will pay your portion of these outgoings from the settlement date onward.

For example, council rates are payable for the period of 1 July to 30 June each year. If your settlement takes place right in the middle on January 1st, then the statement of adjustments will show that the vendor pays for half the year and you pay for the other half.

Another example is if the Vendor has a mortgage registered on the certificate of title. Their mortgage must be discharged when you are registered on the certificate of title, and there is a fee payable to the land titles office to do so. The vendor pays this fee and it will be noted on the statement of adjustments.

So, who’s responsible for working out adjustments? We are - it’s part of the transfer (a.k.a. conveyancing) process. If you’ve already signed up with Clarity, you might be familiar with our Transfer Portal. This is where we upload your Statement of Adjustments for you to view before settlement.

If you haven’t signed up yet, it’s free to do so, and you can save and share the relevant information that you find in our Knowledge Centre and in our Articles.

It’s not unusual for off-the-plan contracts to prohibit you from selling your apartment until after settlement or until all the apartments in the development have been sold.

So, if you’re planning to buy an off-the-plan apartment as an investment and sell it before settlement, make sure you check the contract to know whether you’ll be able to.

Also keep it in mind if you have any doubt about your ability to actually get finance to complete settlement, which could be years after you sign the contract. Personal circumstances and finances can change in the time that it takes developments to be completed, so you should go into the purchase knowing what you’re locked into, i.e. you may not be able to simply on-sell the property, if you realise that you can’t get finance when you need it.

If you have a contract and want advice on its terms, you can upload it to our Advice Centre and we can take a look.