Sunset Clauses Need Not Be Scary If You’ve Done Your Research
Before a vendor can legally advertise their home for sale, they must prepare a contract of sale. A contract of sale provides buyers with information relating to the sale of the property, such as the sale price, inclusions and exclusions, as well as an additional statement disclosing information about the land’s title, zoning, easements and so on.
If you’re buying from a property developer, however, and the home hasn’t been built yet (this is known as buying off the plan), there’s a clause in the contract of sale that you need to pay specific attention to: the sunset clause.
A sunset clause (sometimes known as a sunset provision) is a stipulation within a contract of sale that provides the developer with a certain timeframe in which to complete the project. The timeframes can vary project-to-project, and are usually dependent on the size of the development, so sunset clauses are included in the contract of sale as a way to protect the interests of both parties involved in the sale.
How Buyers Benefit from Sunset Clauses
A sunset clause effectively allows a buyer to rescind the contract and cancel the sale if the developer doesn’t complete the project in the timeframe allocated. Typically, when drawing up the contract of sale, the developer will exaggerate the timeframe somewhat to allow for any issues they may experience, which could delay the completion of the project, such as inclement weather, delays in sourcing materials, or problems with funding.
In developments where no such delays occur, however, buyers usually find that the project is completed earlier than stipulated in the sunset clause, rather than later, allowing you to arrange your finance and other affairs so you can finalise the sale. Nevertheless, if you’re thinking of buying into a development, it’s really important to do your research, especially in relation to sunset clauses.
The Risks for Buyers
Before you commit to buying into a development, make sure you research other, similar developments and carefully read the contract of sale — in fact, it’s a good idea to get your conveyancer to check the contract of sale for you. Compare the timeframe each developer has allocated for the project’s completion in the sunset clause. If one seems like a prohibitively long time, it might be best to keep looking. By the same token, the same can be said about those with an uncharacteristically short timeframe, where you risk buying into a development that may never be completed because the builder can not keep within it.
It’s also a good idea to research the developer, particularly if you haven’t heard of them before. Look at their previous developments to make sure they have a good track record of completing their projects on time. You may even wish to go and visit one of their other developments to make sure the end product resembles the development in the sales brochure.
Try to Avoid Long Completion Times
Sometimes, even with the most reputable property developers, a project may never wind up being completed, either due to issues relating to funding or planning permits. When this occurs, neither party has any choice but to cancel the sale under the sunset clause.
But for developments which had long completion times, buyers could find that, although their deposit has been returned in full, the market may have moved on, and property values have now risen beyond their means. If you can, try to avoid developments with long completion times, which could leave you priced out of the market if the plans falls through.
NSW Buyers Have Better Protections Against Unethical Developers
In NSW, changes to the Conveyancing Act 1919 now requires any developer wishing to cancel the sale of a development using the sunset clause to ask buyers for their permission to do so, or apply to the Supreme Court to justify the termination. These changes were introduced to stamp out the practice of unethical developers using the sunset clause to deliberately stall completion of the project so they could rescind the contract of sale, and then resell the homes for a much higher price.
Although buyers in NSW have better protections against unethical developers, it’s still not substitute for thorough research. If you’re thinking of buying off the plan, research the market, along with other similar developments and the developer, thoroughly before signing on the dotted line. It’s also a good idea to have your conveyancer look over the contract of sale before you commit to anything.
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