Invest
Sun setting on unfair off-the-plan sunset clauses
Sunset clauses have long received a bad rap from off-the-plan property purchasers concerned that a property developer may terminate the contract in pursuit of a larger windfall, but a lawyer has backed the clause as “an important and useful inclusion” for both parties.
Sun setting on unfair off-the-plan sunset clauses
Sunset clauses have long received a bad rap from off-the-plan property purchasers concerned that a property developer may terminate the contract in pursuit of a larger windfall, but a lawyer has backed the clause as “an important and useful inclusion” for both parties.
A sunset clause provides “a right to terminate an off-the-plan contract by either the buyer or seller if a project does not complete by a specified date”, according to Jason Cornwall-Jones, a real estate partner from the law firm Ashurst.
Essentially, the sunset clause permits either party to walk away from the deal if there is an unreasonable delay in construction of the property or registration of a plan of subdivision, he explained.
The sunset clause problem
The problem with sunset clauses from the purchaser’s perspective “is that they have historically permitted a vendor to ‘cancel’ the deal if the vendor hasn’t completed construction of the property by an agreed date”, Mr Cornwall-Jones said.
This is not so much of a problem in a falling market, or if there is a genuine insoluble problem with the project, the lawyer outlined.
However, “a concern can be where a vendor wishes to terminate a contract in a strongly rising market – the vendor may be able to use the sunset date as a means to escape an existing contract and sell to another buyer for a higher price”.
This is very unfair for the purchaser, Mr Cornwall-Jones considered, as “the uplift in value should really be for the benefit of the purchaser”.
So why use sunset clauses at all?
Despite the problems outlined above, Mr Cornwall-Jones said “sunset dates are an important and useful inclusion in an off-the-plan contract, as otherwise a contract could subsist forever, even when there is no realistic prospect of the project completing”.
“At some stage, the parties must have the ability to bring an end to the contract and move on,” the lawyer noted.
“It is undoubtedly sensible to include an agreed sunset date in an off-the-plan contract,” he re-iterated.
Are there any protections in place for purchasers?
According to Mr Cornwall-Jones, the application of the sunset date will only be fair if the vendor has used reasonable endeavours to progress the project.
“It would be sharp practice for a developer to seek to rely on a sunset date to escape a contract if it had not even tried to progress the project.”
The common law, as it stands, suggests that a developer is obliged to progress a project where possible and cannot use slowing-down tactics to their benefit, the lawyer said.
Mr Cornwall-Jones said new Victorian legislation, introduced in August last year, will also be helpful for the state’s off-the-plan purchasers, which will “formalise the vendor’s obligation to only rely on a sunset date where it is justified in doing so”.
It follows the introduction of similar legislation in New South Wales back in 2015.
All-in-all, it’s important for purchasers of off-the-plan properties to understand their rights, the lawyer said.
“Buyers should understand that in order for a vendor to rely on a sunset clause, the vendor must first give notice to the buyer of a proposed rescission and obtain the buyer's written consent to the proposed rescission, failing which the seller is obliged to apply to the Supreme Court for an order permitting the rescission,” he explained.
Mr Cornwall-Jones noted that new residential off the plan contracts now need to include specific statements detailing the seller's obligations and the buyer's rights in respect of sunset clauses.
This email address is being protected from spambots. You need JavaScript enabled to view it.
About the author
About the author
Property
Property prices boosted by housing policies: RBA
The central bank has outlined the “pervasive” impact that policy has on property. ...Read more
Property
Labor’s ‘Help to Buy’ scheme not without its risks
With Anthony Albanese sworn in as Australia’s 31st PM, home buyers are excited at the prospect of accessing the new ‘Help to Buy’ scheme, but a property expert has warned that the risks may be g...Read more
Property
Australia's housing market is entering a ‘broad-based correction phase’
Westpac believes the housing market downturn is now underway. ...Read more
Property
ANZ now expects house prices will end the year lower
With higher interest rates on the horizon, the bank is forecasting larger house price declines than previously expected. ...Read more
Property
Which capital cities are most attractive to property investors?
A new survey has suggested that investor attention is shifting away from Australia’s two largest capital cities. ...Read more
Property
Market uncertainty fails to discourage foreign property investors
While interest from foreign investors in Australian property has remained strong, HLB Mann Judd warned that tax increases could see demand shift to other markets. ...Read more
Property
Regional renters forced to spend more of their income than ever before
Renters in regional areas are spending nearly as much on rent as home owners are spending on mortgage repayments. ...Read more
Property
Aussie home buyers now need to save for over 11 years for a deposit
Since early 2020, the time needed to save for a deposit has increased by more than two years. ...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Property
Property prices boosted by housing policies: RBA
The central bank has outlined the “pervasive” impact that policy has on property. ...Read more
Property
Labor’s ‘Help to Buy’ scheme not without its risks
With Anthony Albanese sworn in as Australia’s 31st PM, home buyers are excited at the prospect of accessing the new ‘Help to Buy’ scheme, but a property expert has warned that the risks may be g...Read more
Property
Australia's housing market is entering a ‘broad-based correction phase’
Westpac believes the housing market downturn is now underway. ...Read more
Property
ANZ now expects house prices will end the year lower
With higher interest rates on the horizon, the bank is forecasting larger house price declines than previously expected. ...Read more
Property
Which capital cities are most attractive to property investors?
A new survey has suggested that investor attention is shifting away from Australia’s two largest capital cities. ...Read more
Property
Market uncertainty fails to discourage foreign property investors
While interest from foreign investors in Australian property has remained strong, HLB Mann Judd warned that tax increases could see demand shift to other markets. ...Read more
Property
Regional renters forced to spend more of their income than ever before
Renters in regional areas are spending nearly as much on rent as home owners are spending on mortgage repayments. ...Read more
Property
Aussie home buyers now need to save for over 11 years for a deposit
Since early 2020, the time needed to save for a deposit has increased by more than two years. ...Read more
