Buying property can be stressful if you go on the journey without guidance. Financial and emotional investments are at stake, and there are a lot of things that can go wrong. For that reason alone, it’s unlikely to come across a real estate article that does not mention the importance of research for buyers.
Whether you’re buying your first home or an investment property, It’s essential to know everything listed in the contract of sale and how it might affect you.
Here, we look at the sunset clause for off-the-plan properties, its risks, and how you can make it work for you.
What is a Sunset Clause?
Sunset clauses are contract terms that effectively limit the time during which a contract remains valid. If the settlement has not taken place by the end date specified in the clause, both parties may walk away from the agreement. The buyer would receive their deposit back in full in such a scenario. Essentially, the sunset clause protects buyers from financial exploitation.
An average sunset clause period is around 18 months for off the plan sales. In some cases, the sunset clause deadline can be extended after being agreed upon after seeking legal advice.
The sunset clause is intended to provide security and protection for the buyer! In this article, we’ll explain what sunset clauses are, what they do, how they protect you (the buyer), what to watch out for, and how the most recent legislative changes affect you.
Why are Sunset clauses used?
The contract sunset clause is designed to protect the buyer and/or seller by letting either party walk away from the contract if the agreement requirements are not met by a specific date.
Sunset Clause when buying off the plan property
Sunset clauses are always included in off-the-plan property contracts. In this context, the clause states the date the developer must complete the project. It also states that if the property isn’t completed by the agreed-upon date, the buyer is legally entitled to walk away from the contract and receive their full deposit back.
Usually, the project is finished well before the date outlined in the clause, as developers exaggerate the time frame. This allows for delays either caused by weather, supply issues, or industrial actions.
For example, a contract between both buyer and developer would stipulate when the developer must finish the project – let’s say 16 August 2022. In scenario one, the deadline date would come around, and the developer has completed the project, so the sale & settlement can be finalised. But in scenario two, the buyer may find that the developer hasn’t met the sunset clause obligations and the project wasn’t completed by the deadline. The buyer decides to terminate the contract or extend it if that is an option for them.
Who do sunset clauses apply to and when can they be used?
The use of the clause is open to both the buyer and the seller, and either party can choose to invoke the clause if the expiry date has passed.
However, in some cases, the clause may be more challenging to invoke for one party than the other. In some states, legislation has been passed to make it more difficult for developers to invoke the sunset clause.
There were instances in the industry where some developers used the clause to purposely stall development until after the sunset date had passed so that they could relist the property for a higher price after the date had passed. This can no longer happen with the newer legislation in place.
How do sunset clauses help sellers?
The sunset clause benefits both the buyer and seller regarding the construction of new properties.
A developer can use a sunset clause if the delays are genuinely out of the builder’s control. Suppose there are time limits that are generally out of their control. In that case, they can be released from their buyer without any legal implications.
Can a sunset clause be extended?
Yes, they can. It is possible for the parties involved to reach a mutual agreement to extend the term of their current sunset clause. To do this, legal advice should be sought before extending the sunset clause. The clause will continue on the new agreed-upon timeframe of completion.
However, if new requirements for the contract still haven’t been met, both parties would have the option to invoke the clause and walk away.
How do Sunset clauses benefit the buyer?
Despite the recent negative media around sunset clauses, they can work in your favour as the buyer. The clause is a valuable get-out-of-jail-free card that you can pull out of your pocket when deadlines are missed.
Compared to many House & Land Contracts that shift all risk onto the buyer, this sunset clause is there to protect you. In this instance it is the protection of time and deliverability, but it also locks in your purchase price without the developer being able to ask for more money. In the case of House & Land, many contracts are written so the builder can force the buyer to pay more as costs increase over time.
Before you sign a contract for an off-the-plan purchase, you should always speak with your solicitor to read the clause and also assess your personal situation to ensure the timeline suits you should the project be delayed until the given sunset date.
Due to the widespread abuse of the Sunset Clause throughout the states, new legislation has been implemented to protect buyers buying off-the-plan property.
A few states of note are;
NSW: The New South Wales government created a legislation amendment known as ‘Conveyancing Amendment (Sunset Clauses) Act 2015’ and is quoted as the below:
An Act to amend the Conveyancing Act 1919 to prevent a developer from unreasonably rescinding an off the plan contract for a residential lot under a sunset clause.
VIC: The Victorian government followed NSW’s lead. In 2019, they updated their legislation to close the loophole that previously allowed developers to exploit these clauses by intentionally delaying building projects to influence buyers. This is known as the ‘Sale of Land Amendment Act 2019’.
ACT: In 2021, The ACT government created the legislation, a blend of VIC and NSW laws, to better protect home buyers. These changes included an obligation to give buyers a 28-day notice of intent to revoke a sale, to which the buyer must consent. This is known as ‘Civil Law (Sale of Residential Property) Amendment Bill 2021’.
Even though state governments are trying to stop buyers’ financial exploitation, unfortunately, the Queensland government is yet to catch up with any sunset clause legislation updates. In recent months, Queensland’s property laws have come under fire as more developers use sunset clauses to cancel contracts and leave would-be first home buyers priced out of the market.
Luckily, there is some good news! Queensland Attorney General Shannon Fenitman stated that Queensland’s property rules are now under review. “We are rewriting the entire Property Law Act right now in Queensland [and] it’s been a long time coming,” Fenitman said. Fenitman hopes to have this legislation in the Queensland parliament at the end of this year.
What does the new legislation mean for buyers and sellers?
Developers now need to provide buyers with a 28-day notice and an explanation of why they cannot meet their contractual obligations. A seller needs to specify why the completion of the project cannot be completed as the clause stipulates.
Suppose a buyer disagrees with the developer. In that case, the seller will need to obtain an order from the Supreme Court to revoke the sunset clause. They are now liable for any legal fees they may encounter. This means a developer can no longer cancel a contract if the timeframe outlined is not met in the sunset clause.
This is excellent news for buyers! As it adds extra security for buyers, knowing that the developer has to comply with the new legalisation.
When purchasing a new property, you need to do your research, not just of the developer.
Lucky for you, we have done all the hard work for you and can provide all the information you need to make an informed decision.