The Facts

What is a "sunset clause" in a property sale contract?

Common in the contract for most off-the-plan real estate sales is what's known as a "sunset clause"; a clause that allows either side to terminate the contract if certain conditions have not been met by a specified "sunset date".

In recent years, there had been a growing trend whereby unscrupulous developers had deliberately delayed the completion of a project, invoked the sunset clause to terminate a contract signed months or even years earlier at a lower sale price, quickly completed the project and then relisted the property to take advantage of increased market values.

Following complaints from disgruntled buyers of off-the-plan lots, in November 2015 the NSW government introduced new laws that required developers to give buyers 28 days' notice of their intention to terminate a contract under a sunset clause and their reasons why. If a buyer wasn't satisfied, the developer would have to apply to the Supreme Court for an order to terminate.

Test case heard by Supreme Court under new law

And so it was in January 2016 that the developer of a residential project in Hurstville, NSW, brought an application before the court to terminate a number of property contracts that had been made with off-the-plan buyers two years earlier. The contracts with these buyers had included a sunset clause permitting the developer to terminate if, despite its reasonable endeavours, it had not been able to register the strata plan for the property by 31 December 2015. No strata plan had been registered by this sunset date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

case a - The case for the developer case b - The case for the off-the-plan buyer
  • It's not our fault that not enough progress was made on the development by the sunset date. We took over the development from another developer in 2014 and they failed to advance it.
  • The costs of construction have increased significantly since the contracts were signed.
  • We can't secure additional construction finance unless the old contracts are terminated.
  • The price of units has also increased and we've offered the buyers the opportunity to continue with the purchase at a higher price.
  • The new law was introduced after we took over the development and we couldn't have foreseen this legislative change.
  • When the developer took on the development, it assumed all the obligations that the previous developer owed to people that had already bought off-the-plan.
  • It also took over the development knowing that the previous developer had done little construction work on the site.
  • The developer has extended the sunset dates for some contracts but not for others.
  • Construction work is currently underway on the site, so there must already be some construction finance in place.
  • New laws to protect off-the-plan buyers were foreseeable.

So, which case won? Cast your judgment below to find out.

Vote case A – The case for the developer
Vote case B – The case for the off-the-plan buyer

Peter Franke
Property and building disputes
Stacks Law Firm

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.