If you’re purchasing ‘off the plans’ or entering into a ‘turnkey contract’, chances are there will be a sunset clause in your agreement.
A sunset clause generally allows cancellation of a contract if the work needed to finalise the contract, such as issuing title or completing a building, is not completed within the specified time frame.
Sunset clauses are usually included in agreements and commonly found in those with a long settlement date. They’re usually described as being 'for the benefit of both parties'. That just means both parties can use the clause to cancel the agreement if the contract isn’t completed before the sunset date.
Sellers will often insert sunset clauses to protect themselves from delays caused during a building or subdivision process. For example, sometimes a consent will not be granted by the consent authority because the application doesn’t comply with the rules, or, a consent is granted but it has terms that makes the development uneconomical. If that happens, the seller can invoke the sunset clause to cancel the sales agreement after the sunset date has passed. That then avoids them being trapped in an agreement that can never actually settle.
There have been several cases in the media over the last year where it has been reported developers have invoked sunset clauses to cancel agreements. According to the news articles, the developers have given the cancelled purchaser the option to sign up for the property again but at a higher price.
This kind of action is uncommon, and depending on the circumstances, may not stand up to legal scrutiny. The key thing is to assess the risk of any purchase you make by understanding who the developer is, what work needs to be done to complete the contract, and whether the developer has a good reputation and history of getting projects completed.
While it may seem risky, and a little nerve wracking, that a developer can use this sort of clause, it is not common that they do. The reputational damage of cancelling and potentially being seen to be doing something shady, can have a huge impact on a developer’s business. They are therefore generally pretty cautious at invoking these clauses as a result.
Sunset clauses can also be drafted to only benefit a buyer. That makes it especially important to check the wording of any clause you are presented with to make sure you understand it.
Purchasing off the plans remains an excellent way of getting onto the property ladder or investing but it does pay to understand the paperwork and assess your risk fully at the outset.
