What is a "sunset clause" in a property sale
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
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
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
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.
If an owner wants to remove a caveat, issuing a lapsing notice is a quick and easy way to shift the problem to the caveator.
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