Looking to purchase a new off-the-plan home? Here’s everything you need to know about sunset clauses.
When buying off the plan, a sunset clause is a clause within your Contract of Sale stating how long a developer has to finish the project. The clause states the developer or buyer may withdraw from the contract if the property has not been completed by the sunset date. Depending on the state, there are certain stipulations that must be included in the contract regarding the sunset clause.
- In NSW, when the vendor invokes the sunset clause, written notification must be given at least 28 days before the contract is to be cancelled explaining why the project has been delayed.
- In Vic, contracts include a warning notice stating that the time between signing the contract and becoming the registered owner of the lot may be substantial, and the value of the lot may change in that time.
- In WA, the purchaser may terminate the contract if the plan is not registered by the sunset date.
- In Qld, developers can specify the maximum time period for the sunset clause, up to five and a half years.
In NSW, a recent amendment to the legislation states that if there is a delay, the developer must give good reason for it and seek consent from the buyer to cancel the contract. If the buyer does not agree to the cancellation, the vendor may need to apply to the Supreme Court for permission.
What does it mean for the buyer
During the buying off the plan process, if the development is not completed by the sunset date, as determined in the Contract of Sale, the contract may be cancelled. The deposit should be refunded and the buyer is free to look elsewhere for their next dream home. Alternatively, the buyer and the vendor can enter into a new contract if both parties are still happy with the original pricing and terms.
However, this puts added stress on a buyer, if they are told just a month before they are due to move into their newly-built home that it won’t be ready. While the buyer has been waiting for their property to be completed, their deposit has been tied up and they’re likely to have missed out on other opportunities in the property market.
Additionally, if the buyer has sold their current property and has nothing to move into, there are costs associated with finding interim accommodation.
Be aware of the risks
A concerning risk is that the developer will purposely delay a project in an attempt to get a higher price from a different buyer. In some cases, the developer may delay the project so the initial contract can be cancelled and enter into a new Contract of Sale with a new buyer at a higher price.
Before signing a Contract of Sale and building contract, ensure you read it carefully and always get a lawyer to review these documents too. It may be possible that you can pad the date out, in negotiation with the developer.
It’s also important to understand how far along the building and development is already and what construction is needed for completion. You may decide to consult an independent building expert for their opinion as to whether the sunset date is a realistic one for completion.
You’ll also want to do a background check on the developer and see how their other projects have gone so you can be fully informed about what to expect.
Have you had any experience with a sunset clause? Share your story in the comments below.