Nicola Kelland - Sunset Clauses

Sunset clauses in a sale & purchase contract are used to put a finite date or time on an action required, by either the vendor or the purchaser.

For example, a purchaser might put in an offer on a property and include a clause in the contract, that states that it is open for acceptance by the vendor only until a specified time and or date. If the vendor does not accept that offer within the timeframe, then the offer expires. Purchaser's sometimes use this clause, to put pressure on a vendor to act quickly, or to ensure that their offer is not left sitting around on the table, while the vendor considers other options. This can reduce the risk of them missing out on other properties, while they are waiting for a decision.

Sunset clauses are common in sale and purchase contracts when you are buying off the plans. They will often stipulate when the building must be completed by, to give confidence to the buyers, on a completion timeframe, as there is no precise settlement date. It puts pressure on the developer, to complete the development in a timely manner. If the development is not completed by the sunset date, the purchaser can choose to cancel their contract and have their deposit refunded, or allow an extension to the timeframe. Bu the developer, can also cancel the contract if they have not meet the sunset deadline.

That all seems quite straightforward and fair, but there have recently been situations where sunset clauses, have been used against purchasers in pre-purchase developments. In Sydney, some developers have intentionally delayed their construction schedules,  so the sunset clause date has lapsed. They had sold the apartments off the plans 2 years earlier, when prices were lower. With the growth in the value of the real estate market, the apartments are now worth significantly more. So by using the sunset clause to cancel the contracts, they are then free to re-sell the apartments at a much higher price. This is leaving purchasers very unhappy, they have put down a deposit to secure their apartment and have now found themselves, not only homeless but priced out of the market due to the growth in values.  The developer on the other hand, has been able to secure finance to build the development, based on the sales achieved and the deposits paid into a stakeholders account and also reap the benefit of the rising market. Now that does not seem fair!

Always have your solicitor check any sale & purchase contract to ensure that your best interests are being looked after. This is especially important, before confirming a contract for purchasing a property off the plans. They are a very complex contract, written by the developer’s legal team, and will usually lean in favour of the developer. Consult your solicitor before purchasing, to ensure you are fully aware of your rights and any possible pitfalls.