Buying a townhouse off the plans? The importance of looking past the allure of a ‘freehold’ title

Buying a townhouse off the plans? The importance of looking past the allure of a ‘freehold’ title

There is a recent trend for new developments to be sold as fee simple titles, rather than unit titles. A fee simple title is better known as a freehold title, whereas unit titles are a form of collective ownership with a body corporate in place. This may be due to a perception by buyers that unit title developments are less desirable for future purchasers, and that a fee simple title is inherently a better investment.

However, we have come across examples of fee simple developments where there does not appear to have been sufficient thought given to the operation of the development moving forwards, especially in relation to the common areas, such as car parks, gardens, storage areas and the like.

While these areas may not be substantial, depending on the ownership structure and the framework put in place to manage and fund the upkeep of the common property, it is not hard to imagine the issues that could crop up down the road when no one is interested in taking ownership and responsibility of weeding the common garden area, fixing the leaking roof in the communal bike shed, and repainting the lines in the car parks.

These may seem like small issues, but over the life of the property these could become far more major – replacing the driveway which services all the properties could be a major cost for property owners going forward that could be mitigated by a well thought-out residents association taking levies for a long term maintenance fund.

Even if you do not plan on holding onto your property for long enough for these to become issues, it is still worth thinking about what future purchasers may ask about when completing due diligence. Savvy buyers will want to know that the development functions well as a whole, and a lack of useful documentation to provide them in this regard may impact the sale price.

Unit title developments are automatically governed by the Unit Titles Act 2010, which contains processes for the operation of the body corporate, which in turn deals with operational and maintenance requirements for the common property. While the Unit Titles Act has had a range of criticism levelled against it over the years, it does still contain mechanisms to deal with the common property in a development. How functional the body corporate is for any given unit title development is another story, but at least there is a framework in place for them to operate under.

The key point here is that when you are considering purchasing a townhouse off the plans, you should ensure that your lawyer is undertaking a comprehensive review of the entire development and the way it may operate moving forwards, rather than just giving you a snapshot of what has been planned by the developer.

At Taylor Shaw, our team can discuss the ins and outs of different types of arrangements that have been made for common property, and whether enough consideration has been put in to ensure that these mechanisms will continue to operate once all the properties have been sold and the developer has moved on.