Sunset Clause Building Site

Sunset Clause for off-the-Plan Purchases

When you purchase off-the-plan you are buying an apartment before it is built. Off-the-plan properties come with significant risks that you should consider before committing to buy. One of these risks is the sunset clause.

Off-the-plan contracts specify the time by which the project must be completed. This is called the sunset clause, or sunset date. If the project is not completed by the sunset date, the contract can be rescinded and your deposit returned to you. In the event of delays outside of the developers’ control – such as weather conditions, strikes and issues with council – the sunset date can be extended.

What is the Purpose of a Sunset Clause?

A sunset clause provides a timeframe for when the project must be completed. The ability to extend the sunset date provides developers with more time to deal with any issue that arises beyond their control. As a result, off-the-plan contracts are usually completed before the sunset date.

What are the Risks of a Sunset Clause?

As the sunset date is typically a few years after the exchange of contracts, the price of the property is locked in. This is irrespective of the trends in property market prices. It means that if you buy a property for $300,000, by the time of completion it could be worth $500,000 due to an increase in property values. Upon completion, you could end up with a property worth much more than you paid for.

Although this can be a good thing, it presents a risk of developers getting greedy. Developers need your initial deposit for loan approval and to start construction, but once complete they know they can sell the apartment for a higher price than originally agreed upon. Some developers try to rescind (cancel) contracts, return your deposit and then re-sell the apartment at current market prices. While this is uncommon there are still come instances where it does occur. Effectively, they have taken advantage of you as property values rise.

Legislation on Sunset Clauses

This issue has led to new legislative changes for sunset clauses. Now, a developer that wants to rescind your contract on the sunset date must have your permission to do so. This means that developers need to provide an explanation for why they are seeking rescission. They need to specify why completion of the project cannot be fulfilled by the sunset date.

If you do not agree with the developer’s reasons the developer must obtain an order from the Supreme Court to rescind the contract. This precaution is designed to protect you when buying an off-the-plan property. Furthermore, the changes to the law cover all off-the-plan contracts exchanged on or after 2 November 2015.

If you are interested in purchasing an off-the-plan property it is important that you seek the advice of a solicitor. We can advise you of your rights and obligations and the protection provided to you. This is by the contract itself and the law. For legal advice on purchasing off-the-plan or your existing contract, please get in touch.