Home and Land Packages – Every Rose has its Thorns

While home and land packages may seem like a dream come true, they come with their own set of challenges. Without proper awareness, you could find yourself caught by unexpected price increases and delays. 

The Rose: Why Home and Land Packages can be so Attractive

For quite some time, home and land packages have been a popular choice for those looking to build their own home or invest in property. These packages offer numerous benefits:

• You only pay stamp duty on the land value, not the value of the house and land.
• You only need to secure financing for a single contract, rather than separate ones for the land purchase and construction.
• There’s no need to search for a builder once the land is purchased, which can also help mitigate land tax implications.
• With a single point of contact, communication throughout the process is more straightforward.
• You can claim costs on depreciation.
• You may be eligible for various grants, depending on the project.
• At the end of the process, you'll have a freshly constructed home tailored to your needs.

In essence, home and land packages can offer a one-stop-shop for building a new house.

The Thorns: Hidden Risks in the Process

As appealing as these packages may sound, they often come with hidden risks… risks that some builders and developers are eager to exploit.

Over the years, we’ve seen an increasing number of builders and developers enticing buyers with attractive prices and build times, only to raise costs and extend timelines later on.

“But how can a builder do that? Aren’t the terms of my building contract fixed?”

The answer lies in the clauses of the building contract and the warranties homeowners sign upon entering into the agreement. In a typical building contract for residential projects between $7,500 and $500,000 (Standard Building Contract), homeowners provide several warranties. One of those warranties is that, at the time of signing the contract, the homeowner is entitled to build on the property, meaning they hold title to the land.

In home and land packages, buyers often sign a contract with one entity (let’s call them the Developer) to purchase a subdivided lot, and simultaneously or shortly after, enter into a separate contract with a different entity (the Builder) to construct the house. This process is not always clear to the buyer because they have been dealing with one person through the entire process and can result in the homeowner being of the mistaken understanding that the Builder is the seller.

The problem arises when the Developer is still in the process of finalising the subdivision and having new titles issued at the time the purchase contract is signed. In this case, the settlement date for the land purchase may be contingent on the issuance of the title. Titles for new lots may take many months to be issued.

At this point, you might think, “I still don’t see what the harm is in signing the building contract now? If I wait, the cost for the build might increase”. However, without title to the land when signing the building contract, you risk breaching the warranties you've agreed to.

This opens the door for the Builder to take advantage of the situation, relying on the terms of the Standard Building Contract.

Under every Standard Building Contract, if the Builder is unable to commence the work within a set period, say, for example, 45 working days from the date of signing the building contract, due to delays outside of the Builder’s control or because of the homeowner breaching a warranty, the Builder is entitled to increase the contract price. Under the Standard Building Contract, the price increase is tied to the rising cost of materials and labour and the homeowner is left with two options:

• pay the higher price; or,
• terminate the building contract but still pay the builder compensation for its time and expenses incurred so far (e.g. design works, site surveys, etc.).

As if the price increase does not leave you sore enough, the Builder is also entitled to wind up its next punch. Extending the contracted timeframe for the Builder to complete the work.

Every Standard Building Contract provides that if there is any delay caused by an omission by the homeowner (such as not having title to the property), the Builder is entitled to issue an extension of time to prolong the date that the Builder is required to finish the build by.

Suddenly, your attractive $400,000 contract with a 350-day build time has become a $420,000 contract with a 410-day build time, without the Builder having even started the building work yet!

The Secateurs and Gardening Gloves: How to Protect Yourself

Now that you know the risks, let’s look at how to "prune" these thorns.

Understanding the building approvals process: If you do not have title to the land, your builder is not able to apply for a building permit to build on land you do not own.

Hold off signing the Standard Building Contract: Ask your nominated builder if it is prepared to hold off signing the Standard Building Contract until you have received title to the land in your name.

Price Increase Notice: If your builder issues a price increase notice, be aware that they may not tell you about your right to dispute it. Many building contracts include a short timeframe within which a price increase must be disputed, or the homeowner is deemed to have accepted the price hike. If you receive such a notice, we strongly recommend seeking urgent legal advice.

Extensions of Time: a Standard Building Contract will often include requirements on the manner and form by which the Builder may seek issue an extension of time, including:

• Issuing the extension of time within a specified timeframe.
• The reasons which entitle an extension of time to be issued.
• The level of detail required to be included in an extension of time notice.

Similarly to a price increase notice, the Builder is unlikely to inform the homeowner that the homeowner may be entitled to dispute a notice of extension of time.

For more information on disputing price increase notices and extensions of time, please refer to our other articles, Too little too late – When will price increase notices and requests for extension of time be valid under a “fixed price” or “lump sum” building contract - Part One and Part Two.

How to make the Most of Home and Land Packages

To take full advantage of the benefits that home and land packages, consider these steps:

• Don’t rush! Take the time to fully understand what you are agreeing to and the warranties you are providing before signing any contracts. 
• Know your rights! Be aware of your options if and when the builder issues you a notice to increase the contract price or extend the build time.
• Act quickly! If issues arise, promptly seek legal advice so that you can protect your interests.

If you’re thinking of buying a home and land package, or you have already purchased one and the builder is trying to increase your contract price or extend the time to complete, the team at Vogt Legal is here to help. Contact Will Vogt and Ben Sasson for a free and confidential initial telephone consultation.