Signing building contract before the land is titled

Hi everyone,

I'm a new member and I'm glad to find this great forum!

I bought a block of land in Victoria which will be titled in (approximately) July this year. We spoke with a couple of builders and finally we have decided to proceed with one of the big builders. At this point, we have had our colour selections appt, etc. and we will be signing the new home building contract in the next few days. We have adviced the builder that our land is not titled until (at least) July this year, but they say that it's not a problem (of course!).

Could anyone please advice whether it's OK to sign the building contract before the land is titled? Has anyone experienced this situation?

Thanks so much in advance, any advice is much appreciated.

We did this but probably a bit different as it was a house/land package, and builder owned the entire block which was being subdivided.

If the land contract has been signed and land is definetely yours once titling goes thru and the builder says it is ok, sounds a good idea, you can save a lot of time by doing soil reports, modifications, variations, selections etc in advance then as soon as land ready, building can commence straight away.

Welcome newguyontheblock!

I'm sure you'll find plenty of great information on here. feel free to tell us what area are you building in and who you've selected for your builder....(if you want to of course). Do a few searches (in the Discussion Tools area) on your estate and builder and read up a bit on them as well.

In regards to your question, i'd like to ask if you are aware of your site costs as yet? Have they been fixed already? If you are about to sign your contract, then obviously you've had your tender appointment....make sure that the site costs are not provisional or else builders, can slug you with any figure they want as they've got you locked into a contract.

Unless they have fixed the site costs and you are ok with what they have quoted be careful. Also make sure that IF there are any delays with the title release, you will not be penalised by the builder. Some members have been in that situation and have been asked to pay extra as their land didn't settle as expected.

Looking forward to following your journey!

Welcome aboard!

Thanks guys for the quick reply and for the advice!

We are planning to build in Tarneit, Vic with 'M'. It's a new estate and it's not home/land package...

About site costs, the Cust Service Rep writes in the Preliminary contract estimate as 'Fixed'. But in the New home contract it says 'Provisional Sum - Subjec to Soil Report' (Hmm.... ).

I will try to negotiate with the builder about the site costs and the penalties for late land settlement.

Anyone else having similar exp?

Yes, I should of added that our site costs were entirely fixed, as part of the package, and builder could hardly penalise us for its own land title delays.

But, as Phoenix says, be careful to read all the fine print if you are doing 2 separate contracts.
Builder will probably say everything and anything is not a problem, we can fix that, but 'forget' to mention how much they will be charging you to do so

We're also building with M, newguy. Are you sure it's the actual building contract you are about to sign? I can't see how it is if you haven't been to 501 yet, because you will make choices there that will have to be reflected in the contract!

We paid a $1k initial deposit before we had title of the land, but weren't allowed to sign the actual building contract until we had clear title. The $1k deposit locked in the price and enabled them to carry out soil tests. However, M3tricon have a clause that enables them to increase their prices if 150 days lapses between initial deposit and contract signing. We paid our initial deposit in May '07, believing that we would have clear title of our land in July, but didn't actually get it until December. Luckily we didn't have to pay more because the late settlement of the land was beyond our control, but M might be a bit more unscrupulous in other locations.

Hi Eager,

Yes it's the actual building contract. That includes the house price, all selected 501 items, electricals, etc. It's the final new home contract.

I'm surprised why they don't allow you to sign the actual building contract before your title is cleared. Perhaps different CSR has different 'policies'... because in our case, they want us to sign the building contract as soon as possible. Initially, they even wanted us to sign the building contract before 501 and electrical selections, and they said that those things will be added as the variation of the contract; but we insisted to choose all those first and sign the contract at the very end. After much negotiations, they agreed to postpone the contract signing appt 2 weeks after the colour selections.

Is there any clause in the your contract that says if the land settlement is delayed you won't get penalised because it's not the owner's fault?

No, just the word of the CSR who said that they've never crapped on anyone and don't intend to start now. The clause is there to prevent people from delaying the builder unneccessarily which increases their costs.

We were happy not to sign, or even see a proper contract until we had the land. We went to 501 in July but the CSR suggested that it would be better to have everything tied up instead of a variation sheet attached as an appendix to the contract itself.

Maybe our case was a bit different because we went straight from initial deposit to full deposit at contract signing stage, skipping the pre-contract $3k payment. At the end of the day we got the land in December, signed the contract (which only had to be revised once) in January, and construction itself started in March.

You realise of course that if you sign a contract before you have the land in your name, the builder can't apply for a building permit? It locks the price in I guess, but won't give you a house any quicker.

My contract has a clause allowing the builder to put up the price if work doesn't start within a time period after the building permit has been issued if not the builders fault. Given rising interest rates maybe if you hold off you might get a better deal as less people start building... That also could backfire.

Hi

Welcome to the forum

We signed our building contract prior to the land title being transferred.

It has not caused us any problems, but we did investigate site costs and had a fixed price contract with our builder.

Hi,

We are also building with M and we have paid the $1k deposit and only just been asked to sign and initial floorplans (standard ones as we made some structural changes but we were told we would get the updated floorplans in the preliminary contract. We have reviewd the preliminary contract estimate and the revised version will be sent to us this week which we will need to sign.

Did you have to sign a request for preliminary contract document? We did and in there we had to initial a clause that said you have 150 days until titles release otherwise you will have to pay a penalty which is 0.5% interest on your base price (base house price without upgrades) per month for the no. of months that title release is late. We have been granted a 2mths extension to this 150 days and apparently there will be a clause for this in the revised preliminary contract estimate that we have to sign this week..
If our land title release is late over and above the 2 months extension, then we will have to pay the interest.

Hope this helps.

I'd be wary of signing any building contract before the land settles. You have much more bargaining power with the builder before you sign. If your land is delayed and you sign, the builder might try to put the price up on you and you have nowhere to go.

Ask them if they'll insert a clause saying they can't increase the price if council approval is gained prior to July 2009. If they baulk, walk away and wait for land settlement.

Do you get council approval after the land is settled and before building permit? or after both?

Thanks everyone for the valuable advice.

Isn't council approval a building permit? I mean, what does the council approve? isn't it approval for building a house (with the proposed specs) on the block of land?

When you say that you have the site costs FIXED, does it mean that there are NO CONDITIONS attached on the site costs? i.e. subject to soil report, or any other 'subject-to's?

Always seek independent legal advice on the contracts. The disclosure contracts can have a lot of dubious clauses hidden in there.