Purchasing real estate, whether for your first time or expanding your portfolio, is a significant milestone. However, failing to understand the risks involved could expose you to serious financial and emotional risk. On face value house and land packages offer an attractive sale, advertising ‘fixed pricing’ and ‘expediated time frames’, yet these statements are all too often empty promises leaving buyers with increased pricing, a lack of control in the building process and sometimes losing their contract altogether, which can outweigh the other benefits a house and land package otherwise provides a new homeowner.

What is a house and land package?

A house and land package is essentially what is said in the name, an opportunity for a buyer to enter into a single sale for both the acquisition of land and a building contract. These packages offer a range of benefits to the buyer, including:

• Saving on stamp duty: stamp duty is calculated on the valuation of the land, rather than the land and home.
• Simplified financing: finance is often only required to be secured for a single contract.
• Land tax benefits: as there is no need to secure a builder this may help mitigate land tax implications.
• Streamlined process: a single point of contact in this purchase simplifies communication.
• Possible expediated timeframes: often these builds are more streamlined than traditional builds because they are standardised house designs, getting purchasers moved in sooner, yet build delays are not a guarantee.

What is the catch?

If something is too good to be true, it probably is. The old idiom has likely crossed the minds of various house and land package buyers, yet with an awareness of the risks this does not have to be you.

Possible Risk 1: Sunset Clauses

It comes as no surprise that construction cannot commence on a property without obtaining legal proof of ownership, otherwise known here as Torrens title. You are likely thinking, ‘well would I not be getting the Torrens title if I purchase one of these packages?’  You would be correct, however, while you do obtain this title, it may not be instant. House and land packages are often selling portions of subdivided land, and you may enter into the sale for a portion of land prior to the developer actually finalising the subdivision and obtaining new individual Torrens title for each plot. This fact in itself should not deter you from these purchases, however you may run into issues if signing the contract too soon.

That is, house and land contracts often include what is known as a ‘sunset clause’ which sets out a specific period for a deposit of land division to occur to obtain Torrens title. That clause may also provide a date for the commencement of the build.

While a buyer has no control over the inclusion of a ‘sunset clause’, they should be carefully reviewed to ensure that the vendor does not have the ability to terminate the contract or otherwise alter the terms if it does not obtain Torrens title or arrange for commencement of the build in accordance with the timeframes in the contract.

For example, if a sunset clause is not appropriately limited, a developer may opportunistically drag their feet in obtaining Torrens title to be able to terminate the contract and re-sell the land, which is often increasing in value in today’s climate.

Possible Risk 2: Increases to the build price

Buyers all too often rely on advertised statements such as ‘fixed price’ or ‘no hidden costs’, and sign a house and land package to seek to lock in these prices, only to later incur be hit with additional costs, which are ultimately permitted to be charged at law. This is where section 29 of the Building Work Contractors Act 1995 (SA) (the Act) can assist builders, because it permits builders to increase prices of builds in certain circumstances, that buyers should be aware of.  You will likely see either immediately alongside or below a price on the building contract either ‘estimate only’ or ‘this price may change’, which legally entitles builders to increase prices.  Careful review of the contract, and negotiation over such clauses, is required to seek to limit the builder’s ability to do so.

Possible Risk 3: Lack of control in the process

A buyer often signs with one single entity, namely a developer, when entering into a house and land package, with either an agreement to later enter into a contract with a builder of the developer’s choice, or for the developer to engage the builder, with the buyer liable for all the costs and risks. In short, a buyer often does not have any direct contact with the builder in the initial stages, and sometimes even during the construction stage. This can lead to difficulties in expediting the build, dealing with any attempts at cost increases by the builder and issues with the quality of the build.

Are house and land packages worth it?

No purchase of real estate will ever be without risk, and house and land packages can be better suited to meet your real estate needs. Knowing these risks is essential in helping you navigate the challenges. We can help you with this process to ensure that there are no hidden risks and help get you into your house and land package with greater ease.

If you wish for our firm to review a house and land package, or if you are otherwise experiencing issues with your house and land package, please contact Peter Charatsis, Brenton Priestley or Clairissa Hewitt for more information.

This information is general in nature and does not constitute legal advice.