Buying Off the Plan in Auckland: 5 Legal Red Flags to Watch Out For

There is something undeniably exciting about visiting a showroom, looking at a glossy 3D render, and picking out the tiles for a kitchen that doesn’t exist yet. For many of our clients, the decision to buy off the plan is the most practical way to secure a brand-new home. That’s especially true in a competitive market.

But what does buying off the plan mean? 

Essentially, you are signing a contract to purchase a property that is either under construction or still just in planning stages. You pay a deposit now, and you pay the balance when the building is finished and the title is issued. While this sounds straightforward, the gap between signing that contract and moving in can span years—and a lot can happen in that time.

If you’re asking yourself, “Is buying off the plan a good idea?”, the answer is often “yes,” but only if you have a legal team that knows how to spot a “lemon” before the first brick is laid. Here are five legal red flags every Auckland buyer should watch for.

1. The Sunset Clause 

Sunset Clauses allow either the Purchaser or Developer to cancel the Agreement if the Development hasn’t been completed by a certain date.  This can be an important protection for both parties, as economic circumstances can change even the most well-intentioned plans. 

It is important that the Sunset Clause is realistic—it’s not uncommon to see Sunset Clauses of up to 4 years, which we think is unreasonable.  Purchasers have the additional protection of Section 225 of the Resource Management Act, which provides a statutory right for buyers to cancel “off-the-plan” property purchases if the developer fails to obtain subdivision title within two years of the consent or one year of the agreement. Developers cannot contract out of this, so this is an important protection for Purchasers (that not many people seem to be aware of). 

2. Subject to Finance Hurdles

Most people understand that buying an off-the-plan property involves getting a mortgage, but there’s a catch. Banks usually only offer a pre-approval for three to six months. If your new terrace house in Glen Eden takes two years to build, your financial situation or the bank’s lending criteria might change significantly by the time you need to settle.

If the property’s value drops during construction, the bank might refuse to lend the full amount you originally planned for, but you will remain contractually obligated to settle at the full purchase price. This is one of the major risks of buying off the plan. 

3. Changes to the Floor Plan and Finishes

When you look at a brochure, you see a specific layout. However, most off-the-plan contracts include a variation clause. This gives the developer the right to make “minor” changes to the dimensions or materials if they run into supply chain issues or council requirements.

The red flag here is the definition of “minor.” There are instances where “minor” changes result in a bedroom shrinking by 10% or high-end appliances being swapped for budget alternatives. That’s why one of the best questions to ask when buying off the plan is: “What is the maximum percentage the floor area can change before I have the right to walk away?” You should ask for the brand of the appliances to be specified in the contract so that if a substitution is required, it will have to be with a comparable brand/model. 

4. Residents Societies 

Most new developments will have a commonly owned access lot (driveway) that will be managed by a Residents Society. It is really important that a lawyer who is familiar with the different structures reviews how this works, as there are many variations on the theme. Questions you need to ask include:

• Is there communal insurance (as some insurers may not issue individual policies on townhouses)?
• Who manages the carparking? What happens if my neighbour parks in my car park or blocks my drive?
• What are the annual levies? What do they include? 
• What happens if my neighbour doesn’t look after his property or has regular parties that become a problem? 

5. The Reputation of the Developer

In the Auckland building boom, everyone wants to be a developer. But not everyone has the balance sheet to survive a shift in the economy. If the developer goes bust halfway through the build, your deposit could be tied up in a liquidation process for years.

When considering purchasing off the plan, always ensure your deposit is held in a solicitor’s trust account, not handed directly to the developer for working capital. 

You should do your due diligence on the developer. Are they a professional developer with a proven track record? How long have they been in business? Were their projects of good quality and delivered on time? It’s not unreasonable to ask to speak to clients who have purchased through them on other developments to find out what their experience was like, including following through during the defect remedy period.  

Frequently Asked Questions (FAQs)

Can I sell my contract before the building is finished?

This is called nominating or assigning the contract. Some developers allow it, while others strictly forbid it. If you think your circumstances might change, we need to ensure this right is written into your agreement from day one.

What happens if the finished house isn’t what I expected? 

New Zealand law provides some protection under the Building Act, including a 12-month defect repair period. However, it is much easier to negotiate these repairs if you have a clear, detailed specification list attached to your original contract.

How much deposit do I usually need? 

Typically, it is 10% of the purchase price. At Shanahans Law, we ensure this deposit is safely held in a stakeholder trust account so that if the project fails, you get your money back with interest.

Why Legal Advice is Non-Negotiable

Buying a home that doesn’t exist yet requires a leap of faith, but it shouldn’t be a gamble. At Shanahans Law, we have decades of experience in West Auckland conveyancing. We don’t just check the boxes; we also hunt for the clauses that could cost you your future home.

So, before you pick up the pen, contact us today. We’ll help perform a thorough review of your off-the-plan agreement.

Disclaimer: The content of this blog is for general informational purposes only and does not constitute legal advice. While we aim to provide helpful information about legal processes, all legal situations are unique and fact-dependent. You should always seek specific legal advice from a qualified solicitor, whether at Shanahans Law or in another firm, regarding your individual circumstances before making any legal decisions. Reliance on the general information provided here is at your own risk.