Building Contract vs Off-the-Plan Contract: Understanding the Risks Before You Sign
Buying a new home is exciting. Whether you're purchasing an apartment off the plan or engaging a builder to construct your dream home, you may be committing hundreds of thousands — or millions — of dollars to a transaction that will take months or even years to complete.
But not all property contracts carry the same risks.
At Renee Roumanos Legal, one of our biggest messages to purchasers is simple:
Understand what you're signing before you sign it.
The legal and financial risks associated with a residential building contract can be very different from those involved in an off-the-plan contract.
Building a home: how does a residential building contract work?
If you own land and engage a builder to construct a residential dwelling, you will generally enter into a residential building contract governed by the Home Building Act 1989 (NSW).
Unlike purchasing a completed property, you are paying for construction as the building progresses.
Typically, the builder will require a deposit before commencing work, subject to the statutory limits applying to residential building contracts.
The balance is then commonly paid through progress payments linked to stages of construction.
For example:
Deposit → slab/base → frame → lock-up → fit-out → completion
When the builder reaches a contractual milestone, a progress payment becomes due.
This means significant amounts of your money may progressively be paid to the builder before you have a completed home.
That creates risk.
If something goes wrong halfway through construction — including serious disputes, substantial delays or builder insolvency — you may have already paid significant amounts while your home remains incomplete.
This is why comprehensive legal advice before signing a building contract is so important.
What about an off-the-plan contract?
An off-the-plan purchase generally operates differently.
Instead of engaging a builder yourself, you enter into a contract for sale with a developer/vendor to purchase a property that has not yet been completed or, in some cases, constructed.
This is common with new apartment developments.
Typically, you pay a deposit when contracts are exchanged and pay the remaining purchase price at settlement, after the relevant contractual requirements for completion have occurred.
For NSW off-the-plan contracts, the Conveyancing Act 1919 (NSW) also provides important protections concerning the holding of deposits and instalments during the contract period.
This can mean your financial exposure during construction is different from a traditional building contract.
You are generally not making progress payments every time another stage of the apartment building is constructed.
However, that does not mean buying off the plan is risk-free.
Which contract is riskier?
There isn't one universal answer.
The risks are simply different.
With a building contract, you may progressively pay substantial amounts throughout construction. If the builder experiences financial difficulty part-way through the project, the financial and practical consequences can be significant.
With an off-the-plan contract, your deposit may generally remain with a stakeholder pending settlement, with the balance ordinarily payable at settlement.
But off-the-plan purchasers face other risks.
The development could be delayed.
The final property may differ from what you initially expected.
Plans may change within the rights given to the developer under the contract.
Your personal financial circumstances may change before settlement.
Interest rates and lending requirements may change.
The property's valuation at completion may be different from the contract price.
And the developer's financial position can change during the years between exchange and settlement.
Lower exposure to construction progress payments does not mean no risk.
Due diligence needs to happen BEFORE you sign
This is the part we cannot emphasise enough.
The best time to understand a contract is before you become legally bound by it.
For a residential building contract, due diligence may include considering:
the builder and their track record;
the builder's licence;
Home Building Compensation insurance requirements;
the scope of works, plans and specifications;
deposit and progress payment provisions;
variations;
extensions of time;
practical completion;
defects;
liquidated damages;
termination rights; and
what happens if either party defaults.
For an off-the-plan purchase, we may consider:
the developer and builder;
their experience and track record;
available developer and building ratings;
the proposed development;
the disclosure statement and proposed plan;
the deposit and stakeholder arrangements;
sunset dates;
development and variation clauses;
strata or community title arrangements;
easements and restrictions;
settlement triggers;
rescission and termination rights; and
the consequences if the project changes or is delayed.
Don't choose your lawyer after you've signed
We regularly see purchasers obtain legal advice after the problem has already occurred.
By then, our job can become significantly more difficult.
Before you sign a building contract or exchange an off-the-plan contract, speak with an experienced property lawyer.
Don't simply ask:
“Can I sign this?”
Ask:
“What am I agreeing to?”
“When does my money become payable?”
“Where is my money being held?”
“What can the builder or developer change?”
“What happens if construction is delayed?”
“What happens if the builder or developer experiences financial difficulty?”
“How do I get out if something goes seriously wrong?”
Those questions should be answered before your signature goes on the contract.
Comprehensive property advice from Renee Roumanos Legal
At Renee Roumanos Legal, we believe property lawyers should do more than process transactions.
We provide comprehensive advice so our clients understand the contract, the transaction and the risks they are accepting.
Whether you're:
buying an apartment off the plan;
purchasing a house-and-land package;
entering into a residential building contract; or
purchasing property generally,
due diligence comes first.
The contract you sign today may determine your rights years from now.
Understand it before you sign it.
Contact Renee Roumanos Legal before entering into your next property or building contract.
Get advice early. Know your risks. Protect your position.
This article provides general information only and does not constitute legal advice. Building and property transactions differ and legal advice should be obtained about your individual circumstances.
